Earnings Call Transcript - TREE Q2 2021

Operator, Operator

Good day and thank you for standing by. Welcome to the LendingTree, Incorporated Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Trent Ziegler, CFO. Please go ahead.

Trent Ziegler, CFO

Great. Thanks, operator. Good morning, everyone, and thanks to everybody for joining the call this morning to discuss LendingTree's second quarter 2021 financial results. On the call with me today are Doug Lebda, LendingTree's Chairman and CEO; and J.D. Moriarty, President of LendingTree Next. As a reminder to everyone, we posted a detailed letter to shareholders on our Investor Relations website earlier today. And for purposes of today's call, we'll assume that listeners have read that letter and we'll focus on Q&A. Before I hand the call over to Doug to give his remarks, I want to remind everyone that during today's call, we may discuss LendingTree's expectations for future performance. Any forward-looking statements that we make are subject to risks and uncertainties, and LendingTree's actual results could differ materially from the views expressed today. Many, but not all, of the risks we face are described in our periodic reports filed with the SEC. We will also discuss a variety of non-GAAP measures on the call today, and I refer you to today's press release and shareholder letter, both available on our website at investors.lendingtree.com for the comparable GAAP measures, definitions, and full reconciliations of non-GAAP measures to GAAP. And with that, Doug, go ahead.

Doug Lebda, CEO

Thank you, Trent. And welcome to your first earnings call as CFO, and thank you to everyone else for joining the call. The second quarter results demonstrate the sustained momentum we're seeing across all aspects of our business. We once again substantially exceeded our prior guidance. And our prior perspective on the remainder of the year is improving as we execute against our strategic growth initiatives and our COVID impact businesses returned to normal. In our Consumer segment, which has been the most impacted by the pandemic, the recovery is well underway as consumer credit markets begin to normalize and we deliver increasing value for our partners. Our personal loans business, which is particularly profitable for us due to its alignment with My LendingTree was especially strong in the quarter. We have cultivated a deep network of lenders that is as strong as it's ever been. And as consumer demand for this product returns, we're well positioned to win. Inquiry volume in personal loans was up 40% sequentially over the first quarter, and revenue increased 70%. In credit cards where we've been consciously endeavoring to rebuild that business at lower margins than we've historically seen, those efforts are paying off in continued revenue growth and expanded margins. In Home, the strength of our market-leading position was clearly displayed in Q2. Despite the fact that refinance activity in the broader market was down considerably relative to Q1, our Home segment delivered segment profit that was in line with our first quarter results. The resiliency of our mortgage business is a testament to the long-standing relationships we've built with our lenders and the value that we add throughout any cycle. Our insurance business continues to perform consistently well as a market leader at scale and is clearly less susceptible to macroeconomic conditions such as credit risk or interest rate cycles. We continue to diversify and strengthen our insurance business by expanding into new traffic acquisition channels, expanding our carrier network, and growing into adjacent categories, further adding to the durability of our business as a whole. Finally, we continued to pull all of these businesses together into a more holistic consumer-centric offering in My LendingTree. While new user adoption has remained strong throughout the pandemic, we are encouraged to see an uptick in engagement and usage of the platform as demand for many of our core offerings returned. Our efforts to syndicate the My LendingTree platform as well as our core marketplace assets in what we're dubbing Powered by LendingTree are also gaining traction. We've launched five managed marketplace integrations in Q2 and our integrated My LendingTree partnerships accounted for more than 50% of new signups for the quarter. In closing, we are very proud of this quarter's results and our confidence is only increasing as we enter the back half of the year. Our leadership realignment is helping to crystallize our priorities and we're executing very, very well. Our business continues to become more diversified and more durable, and we intend to fully capitalize on those competitive advantages to drive future growth. And with that operator, we can open the line for questions.

Operator, Operator

Your first question comes from the line of Jed Kelly from Oppenheimer. Your line is open, you may ask your question.

Jed Kelly, Analyst

Hey, thanks for taking my questions. Two, if I may. Just one maybe for you, Doug, just on the amount of you plan on doing in the next couple of quarters, is that a sign that you actually feel that the business is coming back and you're willing right now to support more employees at a lower VMM amount than you were in 2019? And then just, can you talk about the dynamic with personal loans and credit cards? One would think credit cards would come back first, because people spend credit cards, people spend money on their revolving balance, and then we'll refinance with the personal loan. So can you just talk about some of the dynamics between the growth in personal loans and credit cards? Thank you.

Doug Lebda, CEO

Sure. Let me take your first point in hiring. So we were confident in continuing to hire in Q2, and going forward, I would say hiring will be probably more selected. We were confident that the business would come back due to macro factors and we’re confident in our own initiatives driving our core underlying metrics. So we were able to continue to invest in some growth initiatives that are going to set us up for the future. One of them, for example, is continuing to hire insurance agents as we move our insurance product more and more to an agency model across all products. So we were very confident in our ability to hire and I would expect that to be tapering off because in terms of new costs, we were able to keep our pedal on the gas with very smart energy of our metrics in our projects. But I would expect to see that tapering off going forward. A lot of our product work has been accomplished and now we still have those people who can go on to do other things. In terms of the second question, the relationship between personal loans and credit cards was that – can you repeat that one?

Jed Kelly, Analyst

Yes, just – it would seem like intuitively credit cards would come back first, because people spend on their credit card and then refinance on the personal loan. So just the dynamics on why your personal loans business is coming back quicker than credit cards.

Doug Lebda, CEO

I'm going to have J.D. answer that one.

J.D. Moriarty, President

Jed, it’s a great question. It does seem intuitive. I think you have to think about the behavior of the partners in each case. So in the case of credit cards, we definitely are seeing signs that the credit card issuers are coming back, not just on our network, but really with their own brand and their own spend first; they're investing in their own brand before they move more aggressively to the affiliate channel. Now, one of the things we've talked about in personal loans is that the personal loan lenders were back in full before the end of 2020. The driver that we needed in personal loans was demand from consumers. So what you're seeing now, I agree with you, it does seem like you would think, okay, the credit card business comes back in terms of balances and then the personal loan business follows. This is not unlike mortgage, where we have a little bit different cycle than the product itself. So what you're seeing now is clearly credit card balances have built up a bit, but more importantly, consumers are being a little bit more aggressive with their spend levels there, right? The number one use case is credit card debt consolidation, but it's also planning a vacation, a wedding, or a small home repair, one of those things for personal loans. So what you're definitely seeing in the step up in personal loan activity is consumer demand. And we're finally seeing that come through; the lenders have been there since, let's say, the third or fourth quarter of last year. In terms of credit cards, it's a little counterintuitive, but I think we'll see that spend from the credit card issuers in terms of the affiliate channel lag a bit for their investment in their own brand. So I think the credit card balances have built up, but we've just got different behavior with respect to marketing spend.

Doug Lebda, CEO

Yes. That lag, I think I would echo what J.D. said, and I think you'll see the personal loan refinancing your credit card come along slightly later, and it is truly lender behavior.

Jed Kelly, Analyst

Thank you.

Doug Lebda, CEO

Thank you.

Operator, Operator

Your next question comes from the line of Youssef Squali from Truist. Your line is open.

Youssef Squali, Analyst

Hi, great. Thank you very much. Two questions if I may as well. So starting with the investments side of the business, I think you guys highlighted Medicare agency as one area that you guys are going to be putting some money into in Q3. I was wondering if you can maybe flesh out your vision there and quantify the investments required to make it happen? And second, maybe Doug, as we all come out of this pandemic, it seems like some of the smaller players got hurt in the meantime. I was wondering how you guys see your position coming out of it? The quarter was certainly pretty solid, so looking around at what some of your peers have done, do you feel that you've gained share, lost share, just kind of your state of the industry at this point? Thank you.

Doug Lebda, CEO

So first off on the Medicare agency, and then Trent, you can please fill in with some numbers on that, and then I'll come back to share. The Medicare agency is part of a broader trend at LendingTree, which is having clicks, calls, and leads go to providers, whether they be a lender or an insurance company, and how can we move deeper into the funnel to give the customer a more definitive offer, still continue to give them choice, and give them a more curated and concierge experience, particularly inside of My LendingTree, where we can really differentiate our user experience. The Medicare agency, so we’re doing that in P&C property and casualty, homeowners, and auto, and expansion into Medicare is one too, where you have to hire agents in Q2 and Q3 who are getting up to speed and getting prepared. Then in Q4, when open enrollment season begins for Medicare supplements and Medicare supplement policies, we can come in and we'll be fully ramped. There is definitely an investment of hiring and getting people up to speed, but we can very definitively predict what those expenses are going to be versus what the revenue is going to be, and we fully anticipate that that's going to be an exciting new business for us. Trent, do you want to fill in any numbers there in terms of investment hours or anything?

Trent Ziegler, CFO

Yes, happy to. Yes, and I think this goes to Jed's question a little bit too. I mean, just as you look at the trends in OpEx throughout the year, we saw about a $2 million increase from the first quarter into the second. A lot of that new hiring to support investments, the Medicare agency being a big one, has taken place throughout Q2, and you're obviously seeing that run rate fully burdening in Q3 where we expect at the midpoint of guidance the OpEx piece of the P&L to step up about another $5.5 million; it's the hiring that has taken place in the first and second quarters to support the growth initiatives, and that should moderate going forward. But a big chunk of that increase from Q2 into Q3 is to support the Medicare agency. And so on a full-year basis, I mean, we’re going to invest about $8 million or $9 million in building out that capability. We’re going to intend to have 125 licensed agents on the phone and productive as we head into the fourth quarter open enrollment period, right? So we’re bearing the cost of that in the early part of the year and we're going to reap the benefit of it in the fourth quarter, would be the expectation.

Doug Lebda, CEO

And then on the market share, J.D. and I are going to tag team that one for you. I think versus aggregator competitors, our market share is going to depend loan to loan type by loan type with some lag. So we're very certain we're gaining share in mortgage, as mortgage – as we're coming off of a season where we outperformed mortgage in a refi boom for probably the first time in our history, a lot of that capacity we've talked about in quarters past is absolutely sticking. And so our mortgage business is feeling very healthy. And then in some of the other loan types, there is a bit of a lag effect. J.D. already talked about that in card, potentially in personal loans where lenders are going to first give loans to their existing customers or their pent-up demand, or as people come back and then get them for free, and then over time those lenders turn to people like us to supplement their volume. So I'd say the mortgage companies right now are very focused on expansion. And we see the early stages of things coming back and some of the other loan types, and also insurance, J.D.

J.D. Moriarty, President

Yes. We've talked about investments in card, for instance, right? That's all intended to grow market share over time. So when we were operating in the last couple of quarters, we said that the card business was operating at below normal margin, that was very deliberate to gain wallet share with those card issuers. We think that will pay off as the year progresses – will be live here in the second half, which we're thrilled with, that will enable us to gain wallet share with card and personal loan lenders. And then an insurance thing that we're most happy about is the diversification. And that's nothing short of incredible what's happened there. So across the business, we think we are gaining influence and share, because the new product offerings are enhancing our value proposition. It's a long-term view towards gaining share, but we're pretty confident that in each of the major businesses we’re doing exactly that.

Youssef Squali, Analyst

That's helpful. Thank you. Thank you all.

Doug Lebda, CEO

Thank you.

Operator, Operator

Your next question comes from the line of James Friedman of Susquehanna. Your line is open.

James Friedman, Analyst

Hi, thanks. It's Jamie, Susquehanna. Good result here. I did want to start with a big picture. I realized that the medium-term guidance from the Analyst Day may not be germane anymore. But is there any reason structurally that the company cannot return to its historic EBITDA margins that were in mid-to-high teens?

Doug Lebda, CEO

Yes. Absolutely no reason we can't. And if you think about LendingTree at a very simple level, it's the interplay between what it costs us to get a customer and what our revenue is from those transactions. You look at the efforts that we're doing, it's both increasing conversion rates, and J.D. just talked about – and we're doing it credit cards, increasing conversion rates of people who are coming through a transaction, and then importantly getting you to sign up for My LendingTree, which you can think of as our premium offering or LendingTree plus or LendingTree prime where we then don't need to continually spend marketing dollars to acquire you back. It's interesting, even a number of people who sign up for My LendingTree today, and we still get them for a second and third transactions based on paying for search and display ads as opposed to just being able to alert them. This is getting better – we're seeing more propensity to come back to LendingTree as we continue to differentiate those user experiences in My LendingTree. That'll start to break that prepaid marketing as well. But you'll also get a lot of natural lift just from the fact that we have invested in expenses – that we've invested in product and tech and continuing to build out the company knowing that we were going to recover once lenders came back online. Yes, I think we will definitely see returns to increasing margins going forward. We just have to be very cognizant of competitive situations, et cetera, and that we can still invest while going to make some money.

James Friedman, Analyst

Okay. Thanks for that, Doug. And then I didn't see a call out in the shareholder letter about student loans in Q3, and that historically has been seasonally relevant. So how are you thinking about the student loans set up for next quarter?

Trent Ziegler, CFO

In that business, as you pointed out, obviously it's a big Q3 contributor historically, it contributed in a really meaningful way in 2019, much less so in 2020, just given what was going on with quarantine and otherwise. So our expectation for that business this year is kind of somewhere in the middle. We do expect it to be up from 2020 levels, but certainly not anywhere near where we were at in 2019. You're just seeing less aggressive behavior from many of the lenders in that space, right? It's more of a niche product; there are only a handful of lenders who compete in that space aggressively, and we're just not seeing the same type of behavior that we've seen in prior cycles. Some of the lenders that play in multiple products have de-prioritized that business relative to some of the other businesses like credit card and personal loan throughout the cycle. So we expect it to be up a little bit from where it was last year, but not a massive contributor to the other quarter.

James Friedman, Analyst

Okay. If I could just sneak in one more, Doug, in your prepared remarks, you talked about launching five managed marketplaces in Q2. I apologize, but what's that about?

Doug Lebda, CEO

Yes. So I'm actually going to let – have J.D. answer that, because Powered by LendingTree in addition to My LendingTree sits under his new purview.

J.D. Moriarty, President

Yes. So Jamie, we've talked about this a little bit, and right now, you think about kind of two things: we have partners from a business development perspective, some of which we periodically put out a press release around those; we've talked about H&R Block in the past, we talked about others; sometimes we don't necessarily put out press releases on those partnerships. We talk about managed marketplaces; these are people who want to have a financial product shopping experience inside their client experience, right? And so they don't want to build that themselves. There is a lot involved there, that has evolved for us over the last few years. Part of the reorganization is we're putting real effort behind that, and we want to develop effectively embedded marketplaces as a product offering. So it's really a B2B business. You could see somebody who says, I want a personal loan in the credit card marketplace, but for whatever reason, I don't want mortgage. Okay, great, we can provide that. There are also partners who want a white-labeled My LendingTree offering, right? They want to be able to provide the functionality that we do for consumers in My LendingTree, but have it be personalized for their consumers. We're seeing real traction there, and we're going to put resources behind it. So it's not just taking My LendingTree; it's actually taking some of the marketplace assets that we have. In the last quarterly announcement, we talked about the reorganization; we talked about the next organization building off of the core assets of LendingTree. Those core assets are a marketplace business and our My LendingTree platform. When we talk about Powered by LendingTree, it's extending that to various partners, and it's pretty clear to us that there is a great market opportunity there that we're going to go after.

Doug Lebda, CEO

The way I think about this is the old days of Google syndication, where after they had built out their owned and operated site, they also went and syndicated not only to their competitors, but also to other partners, tens of thousands of websites around the web, which helped to build a moat around their own search business. There are many use cases here; you could imagine us going to mortgage lenders with big servicing portfolios and saying, let us help you refinance your customers to improve their credit. J.D. mentioned H&R Block; we've got relationships with at least one major credit bureau, where you can imagine if you've got a free credit report offering, you'd also love to give people alerts to save the money on loans. Among our lender network, among third-party providers, among other financial services companies, even among our investment in Stash, where we help them monetize via personal loans and some other things. There are lots of companies out there where we can do this, and it's part of our growth strategy going forward. It also helps to not have to take marketing risks to acquire those customers because they're typically focused on our revenue share.

James Friedman, Analyst

Excellent. Thank you.

Doug Lebda, CEO

Thank you.

Operator, Operator

Your next question comes from the line of John Campbell from Stephens Inc. Your line is open.

John Campbell, Analyst

Hey guys, good morning.

Doug Lebda, CEO

Good morning.

Trent Ziegler, CFO

Hey, John.

J.D. Moriarty, President

Hi, John.

John Campbell, Analyst

Hey, guys. Nice work. Just kind of managing away through those somewhat choppy waters over the last year, it seems like you guys got the ship firmly pointed in the right direction. So congrats there. My first question relates to refi. I mean, obviously the average kind of 30 years backed up a little bit, and then we've got – it looks like the announcements on that 50 basis point or reduction or the elimination of that fee, it looks like the volumes from our end have perked up a little bit over the last week. So just curious if you guys have seen anything kind of different than channel and then bigger picture kind of how you're thinking about mortgage, or maybe just refi volumes or revenue over the next couple quarters.

Doug Lebda, CEO

Yes. So refi volume was starting to tail off a little bit and then very, very recently it's kind of perked back up, but I think the more important trend is that you see mortgage companies coming off of a period of time where they had all the volume they could handle. We were trying to keep them – keeping their LendingTree volume on, which we were very successful at doing, which as I said, we outperformed what we would have expected in this last cycle. Now we're starting to see despite any short-term vagaries lenders really wanting to come back in a big way. So that will pledge up the expected value of a mortgage lead and a closed loan. Then we're going to market right into that.

John Campbell, Analyst

Okay. That’s helpful.

Doug Lebda, CEO

Trent, J.D., anything else to add? Great. Thanks, John.

John Campbell, Analyst

Yes, one more and then same on homes, if you take out the mortgage revenue, it looks like a $10 million gain year-over-year. So I'm guessing that's maybe HELOC, or maybe reverse mortgage. I think both of those were pretty high margin products for you guys, maybe that helped in on the segment profit in the quarter, but just curious about what kind of drove that other revenue jump?

Doug Lebda, CEO

Trent?

Trent Ziegler, CFO

Yes, I can take that one, John. Yes, look, we've seen through the last quarter, particularly in Q2, pretty good strength in both purchase mortgages as well as home equity. And that's a pretty natural dynamic that we would expect as you kind of work through the cycle and refi volumes start to fade. Lenders who have been flushed with refi volume for the last 12 months come to the realization that they've got to start paying more attention to purchase on home equity. So each of those was up meaningfully quarter-to-quarter.

John Campbell, Analyst

Okay. And then HELOC, I think you guys were running that may be a $60 million or so run rate in the past, and again, that's a very high margin business for you guys. Any sense for kind of where you can take that? It feels like that's recovering; clearly home equity levels have picked up dramatically. So just curious about the kind of outlook there.

J.D. Moriarty, President

Yes. I mean, go ahead Doug.

Doug Lebda, CEO

No, you go for it. So I would say more broadly speaking, home equity is still very, very untapped. We have not yet seen our correspondent mortgage lenders coming back into home equity in a big way. I would hope and expect that it'll happen; it'll typically happen later. It's typically a bank refinance product. I think it will lend itself very easily for My LendingTree, but I'd say that home equity for us sort of has the same lag effect that we talked about with credit card. Lenders will do their own customers first. You're starting to see some recovery there, but it's still dwarfed by what it was. If you go back a number of years, home equity used to be our highest converting product in the low-20s, with the highest expected value and the highest consumer satisfaction rates. After 2008, that kind of changed, but I think we'll – as lenders get better at underwriting and more technology comes in, I would expect that to lag a little bit, but we remain hopeful and expectant on home equity.

John Campbell, Analyst

Okay. That’s helpful. Thank you, guys.

Operator, Operator

Your next question comes from the line of Mayank Tandon from Needham. Your line is open.

Kyle Peterson, Analyst

Thank you, guys. This is actually Kyle Peterson on for Mayank. Thanks for taking the questions. Just wanted to turn to the card market. Obviously, good to see things picking back up in there. Are there any pockets of the card markets that have been either leading or lagging, whether that rewards your balance transfer? What have you guys been seeing kind of under the hood in the card?

Doug Lebda, CEO

Trent?

Trent Ziegler, CFO

Yes, I mean, I don't know that there are any specific pockets to call out. I think one of the things that has been just a little bit of a limiting factor in terms of that business accelerating in the same way that personal loans has been is just, while it's pretty clear that card issuers' appetite for new customers is improving, and they've started to step on the gas from a marketing perspective, I think there remains some uncertainty as to how profitable this new cohort of cardholders will be from the perspective that, we've all seen consumer balance sheets are in much better health than they were 15 months ago. Revolving balances are down, savings rates are up. If you think about what drives the profitability of every card that gets issued, there is some uncertainty as to the likelihood of consumers continuing to get out in the economy and spend on their cards, travel picking up, people getting back to restaurants and bars. More importantly, are consumers going to continue to pay down those balances every month or are they going to continue to revolve them? That obviously informs the unit profitability of cards that get issued, and that informs what cardholders are willing to pay someone like us to deliver them new borrowers instead of just the unit economics in our business are down a little bit relative to where they were pre-pandemic. But we're seeing it get better and better every month, every quarter, and we would expect that trend to continue, but that's been one of the things that's held back some acceleration there.

Kyle Peterson, Analyst

Got it. That's helpful. And then I'm wondering if you could provide a little bit of an update on the M&A pipeline specifically. How is it looking right now and are there areas whether it's to help kind of scale the insurance vertical, or I know you guys talked a little bit about the asset side of the balance sheet and looking for ways to get more penetration in there? How should we think about the acquisition pipeline and kind of the build versus buy strategy?

J.D. Moriarty, President

Sure. It's J.D., I’ll answer that. Listen, we obviously, because we've been an acquisitive company, the benefit that we get is that we see a lot more things. That's been great; we're being prudent depending on the sub-sector, there are some pretty heady valuations out there. We continue to – the areas of focus for us because of the scale of our insurance business is seeing a lot in insurance that are in adjacencies, right? You're seeing us, we build the agency internally, that's a decision with the build versus buy decision. We see a lot in insurance, that's one area we’ll continue to look just because we have such a good business there that we can bolt things on small things to real benefit. We continue to look at small business because we think that's a great business, and we'll continue to look there. We feel a lot of things in and around mortgage; some of those are companies that have benefited from the cycle. We're very conscious of that. We're probably less likely to add there. Yes, the asset side of the balance sheet is interesting to us. We've obviously been in that arena over the last year with COVID, a real escalation of values. We're going to be very conscious of that. I think in general, we continue to look, but it's not going to be a huge driver for us in the immediate term. We're going to be prudent, and we don't have a great urgency to get into – there's not an area that we're not in, that we need to address right now. We can generate pretty substantial growth in our existing verticals through execution. Those are certainly the focus areas that remain the same, but I wouldn't really expect anything substantial near-term.

Kyle Peterson, Analyst

Got it. That's a good color. Thanks, guys.

Operator, Operator

Your next question comes from the line of Rob Wildhack from Autonomous Research. Your line is open.

Rob Wildhack, Analyst

Good morning, guys. Just a question or two on insurance. I think the segment this quarter came in a little lighter than we had thought. Can you speak to the performance there and if there's been any change in carrier behavior preferences or any of the other drivers in that business?

Trent Ziegler, CFO

Yes, this is Trent. I'll take that one. In insurance, we acknowledge that we have seen a little bit of a headwind in the form of competition in the search options. We're seeing less traffic, less search volume, broadly speaking; costs are going up moderately, and we're trying to be in sustained margins there. One of the things we're really excited about in insurance is the diversification that's taken place. When we got into that business, the vast majority of it was search-driven on the consumer side and the monetization of it was auto and particularly concentrated in a handful of carriers. If you think about the diversification of that business in terms of new channels that we've gotten into, whether it's the publisher platform that we've talked a lot about and has been pretty successful or the turndown network that we built out or diversification of the client base in auto. Furthermore, the diversification into new categories, whether it's Medicare or the strength that we've seen in home insurance, there's a lot of really good things happening there. If you kind of isolate some of the headwinds that we're seeing in that one channel, the progress in insurance has been tremendous. I think that's just been holding back a little bit.

Doug Lebda, CEO

Yes. And the only thing I would add to that is on the longer arc of insurance and we talked about credit card and personal loans. We're migrating more from a purely clicks, calls, and leads business to insurance carriers to having a more agency business where we get three effects: Number one, because we control the customer experience more deeply, we get higher conversion rates. Number two, we then end up more deeply in the repeat business stream as people renew. Number three, because it's a slight vertical integration, we get higher margins. Lastly, you also get an uptick in consumer satisfaction. Let me hand this to J.D.

J.D. Moriarty, President

Rob, I think the only thing I would add is you do have to consider, I mean, Doug and Trent are speaking to the insurance business as it relates to performance; a year ago was pretty extraordinary because during COVID, they were experiencing consistent premiums and very low claims. We're back to a more normalized environment. The good news for us is for our business, we've become, we think, a more diversified and credible partner across that period. But they certainly had a bit of excess profitability a year ago that if you look at the results of most carriers has normalized, and we're certainly conscious of it as we go forward.

Rob Wildhack, Analyst

Okay. Thanks guys. And you hit on it a little bit earlier, but I imagine that the Medicare initiatives has a pretty big seasonal component. Can you just give us some more color there and maybe some more detail on how you think the Medicare push or how much do you think it could contribute for the rest of the year, both on the revenue and on the margin or EBITDA sides?

Trent Ziegler, CFO

Yes, Rob. Hey, it's Trent. I mean, I gave some indication earlier in the call as to the level of investment that we're making there. It's going to end up being $8 million or $9 million in terms of cost structure that we're putting in place to support that business. Obviously much of the benefit of that investment we expect to realize in the fourth quarter to give you some sense without getting too specific; we sort of expect that investment to be at or around EBITDA break-even this year with benefits as we get to go forward.

Rob Wildhack, Analyst

Just on the revenue side of that business, is it very lumpy in the fourth quarter?

Trent Ziegler, CFO

Yes, we do expect most of the revenue to take place in the fourth quarter.

J.D. Moriarty, President

With the open enrollment being in the fourth quarter.

Rob Wildhack, Analyst

Yes. Okay. Thank you, guys.

Operator, Operator

Your next question comes from the line of Melissa Wedel from J.P. Morgan. Your line is open.

Melissa Wedel, Analyst

Good morning, guys. Thanks for taking my questions. Wanted to circle back to something that you put in the shareholder letter about the adoption of linked bank accounts in My LT being a little bit more challenging than initially expected. I was hoping you could elaborate on that a little bit?

Doug Lebda, CEO

Trent, you want to take that?

Trent Ziegler, CFO

Sure. Yes, I can. And J.D. can add on to it. We've talked a lot about the rollout of that functionality and the benefits that it will ultimately bring in terms of just the level of insights that it provides for us on our users and our ability to make much smarter, more targeted recommendations over time. We have seen really good adoption from new users linking their bank accounts with that functionality. So as people are signing up and downloading the app and then signing up for the platform, the adoption of it has been really good. Where we've lagged a little bit is just in terms of existing users and providing them a call to action to bring them in to create that linkage. That's been a little bit harder and we've got to just continue to focus on that.

Melissa Wedel, Analyst

Okay, I'm sorry, go ahead.

J.D. Moriarty, President

No, no, no, it's J.D. I apologize. I didn't quite understand the question at first. I should say, getting the new users to sign up is certainly proving out. I think as we develop a more refined over the next year, I think you're going to see a more clear value proposition for the My LendingTree consumer in terms of why they want to be there. It's going to start to feel different than the existing lending pre-experience. You're not going to feel like you're filling out a form; we’re going to evolve the shopping experience. Then we're going to have more of a call to action for somebody to sign up. The hard part has been getting a legacy My LendingTree user to link their accounts. There's not a clear value proposition for them. New users are signing up and the good news is that the retention of those people is pretty dramatically different. We're thrilled with the behavior of the new user with respect to that integration. It's just getting to the core to get there. So I think over the next year, we invested in putting that onto the platform, and I think it will benefit us as we roll it out across the base.

Melissa Wedel, Analyst

Okay, great. That's really helpful. And then just as a follow-up, there's a reference in the letter to credit services, sort of slowly growing its contribution within the Consumer segment to more than a quarter of the segment profit. I was hoping you could just remind us what sort of margin that particular category offers? Thank you.

Trent Ziegler, CFO

Yes, mostly, I mean as a reminder, we bought a business called Ovation Credit Services back in 2017. That's a business that offers credit repair for consumers, and the rationale there was we have a lot of consumers that come through our ecosystem for various products, and they're ultimately not getting the results that they are looking for because their credit score is not where it needs to be. About 30% of our traffic goes unmatched where we can't provide a solution for them. Rather than just saying, I'm sorry, we can't help you, that business fits in really nicely where we actually can help them and put them into a scenario where we can help them improve their credit profile. Ultimately, graduate them into the other products that we offer. The margin profile of that business is pretty high because it effectively drafts off our other products. Folks are coming to us for a certain solution, we're dropping them into a different solution that monetizes as well for us, but also helps the consumer. The margin profile of that business is well north of 50%.

Melissa Wedel, Analyst

Thanks Trent.

J.D. Moriarty, President

Yes. Basically, there's really not a lot of marketing costs to get those customers because the marketing cost is burdened by other loans. We haven't been able to get matched for that.

Melissa Wedel, Analyst

Got it, thank you guys.

Operator, Operator

Your next question comes from the line of Mike Grondahl from Northland Securities. Your line is open.

Mike Grondahl, Analyst

Yes. Thanks, guys. Congratulations on the progress. I'm curious if a 20% EBITDA margin is possible or likely, and then wherever your margins fall out in a year, what products offer the most upside to margins incrementally from where we are now?

Doug Lebda, CEO

I’ll take the first one, and then I'm going to let all three of us answer the second one because we might actually have different opinions on that. So the answer to your first question is absolutely yes. While we don't – percentages don't pay the bills and dollars do, that operating margin is certainly very, very intangible. I think the biggest opportunity for increased conversion rates is as lenders are increasingly looking for volume and really focused on maintaining their own capacity. But I'd love to hear what J.D. and Trent think too.

Trent Ziegler, CFO

Yes, let me – Mike, I mean, just sort of realize where we've been. Obviously, we were in and around 20% EBITDA margins in 2019. In 2021, COVID hit, our revenue opportunity particularly in consumer contracted by as much as 30%. You're operating the same business in a scenario where your revenue opportunity is temporarily down 30%. Obviously, that has an impact on your EBITDA margins. We held firm in not taking any drastic measures throughout last year. In fact, we continue to invest in the business to support key initiatives. A lot of the margin expansion will come naturally just as the consumer business continues to recover. We're seeing obvious signs there but give you some sense. The contribution margin from that consumer segment is still about half of where it was in 2019. There's just a natural runway of incremental profitability that's not going to require a lot of incremental investment to achieve. Some of this will just take place naturally in terms of operating leverage on our fixed cost structure, but I think the bigger point will be as we continue to get smarter and smarter around marketing and building out My LendingTree and building out an installed base of users; that's where the real margin potential is going to come from. That can lead to EBITDA margin at 20% or substantially north of that.

J.D. Moriarty, President

Yes, Mike. It's J.D. Well said. I think historically the way that we've looked at it or answered a question like that is to say, look at our personal loan business. If we could just get half the traction that we have in personal loans from My LendingTree benefit, My LendingTree benefit the other products, the structural benefit to our margin profile is pretty obvious, right? I still think that holds as a way to think about the core marketplace business benefiting from My LendingTree. Having said that, as we evolve the My LendingTree platform, I think you're going to see us do some things that in the short run are going to probably monetize on the My LendingTree side, not for the marketplace business. In the short run, it might suppress a natural margin that I actually think is higher than 20%. I think 20% is very achievable. I think the natural margin is higher than that; I think strategically you should expect us to invest some of that in the business for the long term. But I think the natural margin is higher. If you look at personal loans as a construct for the other businesses, that's the way to think about it.

Trent Ziegler, CFO

The only thing I'd add on top of that, if you think of a company spending roughly – if you think of just the transaction of loans and insurance, this is not something that consumers do every couple of months. So the LendingTree marketplace is spending 70% of your revenue on getting a customer to come in for a fairly infrequent transaction. As we move more members over to My LendingTree, we're able to and we get better at interacting with those customers. We will reduce our dependence on paid marketing. If you reduce that a little bit, you're already back to your 20s. As J.D. said, you're still going to invest some of that going back because you're building a lifetime value business.

Mike Grondahl, Analyst

Got it. Hey, thanks guys for the color.

Trent Ziegler, CFO

Thank you.

Operator, Operator

Your next question comes from the line of Nat Schindler from Bank of America. Your line is open.

Nat Schindler, Analyst

Yes. Hi, guys. You talked a lot about the lag effect and Doug, you've talked about it many times, the lag effect in your mortgage business on how win rates change, capacity is what really drives your business, less consumer demand. It looks like this cycle you really got moving within a quarter of the real rush on mortgages. The industry is calling for pretty steep declines next year, as rates begin to rise; they're already above where they were. How do you think that will play out in your business? And then secondly, related to that, you talked a little bit about gaining share on the mortgage business. Specifically, I want to ask more about online gaining share. Do you have any data or evidence yet that shows a real change and was there a sea change in this industry like there were in many other industries during the pandemic where people just started looking for their product online instead of using older traditional channels? Is that really changed? And do you think that would continue?

Doug Lebda, CEO

Got it. So in just broader refinance, I think what we are seeing has been during COVID because the product improvements that we've made, plus a lot of FinTech tech investment. Lenders had more capacity and were able to stay on more volume than they would have. While our share declines in a refi environment, we outperformed what we would have normally expected. Now as you sort of pick up a tailwind in mortgage, you've now got that capacity, and as volume in the industry dries up then you'll have lenders expanding filters, moving from refinance, adding on purchase, adding on other states where they might not be as profitable, upping their loan-to-value ratios, etc. You've also always got a certain amount of refinance volume, particularly as people that have adjustable-rate mortgages; those things sunset, and you've got credit improvement. So we talked about our credit services business before. I imagine somebody who's a homeowner has got a 650 credit score. We help them improve; then they can refinance and get dramatic credit improvement. We think our market share is better than it would be coming out of a refi boom. Our lenders are very economically strong, and now you'd expect to see them trying to keep their capacity as long as possible. Then increasingly turning to people like us, which will then increase our expected value, and then we would go market into that. Did that answer your question or is there anything else that I could hit?

Nat Schindler, Analyst

Well, I think that got there, and then I want to pivot to another question on consumer. Obviously, things have come back from the bottom there. The world changed during the pandemic, but if I really look at that business, it was doing $130 million a quarter back a couple of years ago during the pandemic. What would – not the guidance of when this will occur, but what would the macro environment look like for that business to be back at that level with the similar economics?

Doug Lebda, CEO

Yes, I think it would be – you'll see it in a mix of online lenders; as consumer volume comes back and they've got capacity to lend, meaning that if you think about just what happened during COVID: once any lender sees an economic shock, the sources of their capital, everybody wants to freeze and then see what happens. Then once they can readjust, then they're going to come back in. As you see the so-called secondary investors, the lending clubs and the prospers and the traditional banks come back into the consumer businesses, it will naturally flow forward on a slight lag basis. First, close the customers who have zero marketing costs, and then we'll venture further afield. There is some pent-up demand. These lenders are going to do that first, but as they continue to expand, they have to come looking for us, and we just have to make sure that we're their preferred partner in that.

Nat Schindler, Analyst

Great. Well, I'll let it go there, but thank you, Doug.

Doug Lebda, CEO

Thank you.

Operator, Operator

I’m showing no further questions at this time. I would now like to turn the conference back to Mr. Doug Lebda.

Doug Lebda, CEO

Fantastic. Well, thank you all for your time today and your continued patience, encouragement, and engagement with our company. We recognize that COVID interrupted the growth trajectory of our company. At the same time, I want our shareholders to know that we outperformed that financial crisis, like we have outperformed any other financial crisis due to the diversity of our business, the fact that we know this business so well, our diversity of lenders, and obviously bringing in insurance. When I look at the industry today, there's obviously lots going on in what we are all calling FinTech. We love the fact that we were one of the first, and we're 25 years into this. I want our shareholders to know that we are absolutely not resting. We are performing very, very well in the current environment. I feel very encouraged about how we performed this last quarter. We are extremely disciplined about how we're going to get growth. We're extremely focused on unit economics, and I believe we're now organized for success. When I think about the next thing, which is how we're positioned for the future, our brand is very strong. Our team is strong. The monetization of our businesses is coming back, My LendingTree continues to grip; all of the investments that technology, FinTech companies are making to help lenders be more successful— a lot of that accrues to our benefit. We've got a very large diversified lender network with lenders who are very focused on succeeding at this. All of that makes me feel very encouraged about our future, and hopefully, you're seeing that come home in our numbers. We certainly hope to be able to show you more encouraging signs in the future and expect us to go into next year very, very strong. We look forward to rolling out our more detailed version of our strategy coming out of COVID in the months ahead. Thank you very much for your time and attention today.

Operator, Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.