Earnings Call Transcript - TREE Q2 2025

Operator, Operator

Good day, and thank you for standing by. Welcome to the LendingTree, Inc. Second Quarter 2025 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Andrew Wessel, Senior Vice President of Investor Relations and Corporate Development. Please go ahead.

Andrew N. Wessel, SVP of Investor Relations & Corporate Development

Thank you, Didi, and hello to everyone joining us on the call to discuss LendingTree's Second Quarter 2025 Financial Results. On with us today are Doug Lebda, LendingTree's Chairman and CEO; Scott Peyree, COO and President of Marketplace; and Jason Bengel, CFO. As a reminder to everyone, last week, we pre-announced a summary of our quarterly results and our initial financial outlook for the third quarter and updated our 2025 outlook. This evening, we posted a detailed letter to shareholders on our Investor Relations website. And for the purposes of today's discussion, we will assume that listeners have read that letter and we'll focus on Q&A. Before I hand the call over to Doug for his remarks, I remind everyone that during this 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, and I refer you to today's press release and shareholder letter, both available on our website for the comparable GAAP definitions and full reconciliations of non-GAAP measures to GAAP. And with that, Doug, please go ahead.

Douglas R. Lebda, CEO

Thanks, Andrew, and thank you to everyone for joining us today for our second quarter update. Overall, I am absolutely thrilled with how the company is performing. In Q2, we delivered another strong quarter marked by double-digit growth across all of our three business segments. Profitability is up for the fifth consecutive period of year-over-year revenue growth for the company. In short, we are on a roll. Revenue for the quarter came in at $250 million, representing 19% year-over-year growth. Adjusted EBITDA of $31.8 million was up 35% from last year. What's causing LendingTree to continue its momentum this quarter is simply being operationally excellent across the board. This has been a key tenet of our 2025 strategy, and it has taken shape in initiatives across the company that improved everything from how we build products, to streamline decision-making, to building cost controls into the system. Delving into the specific segments. First, Consumer delivered 12% revenue growth with segment profit increasing 19%. Notably, small business loan revenue grew 61% and personal loan revenue grew 14%. Personal loan lenders have shown some signs of widening their buy box, but improved execution is the larger driver there. In small business, we made a strategic investment to grow our sales force, and it has paid off in more business and more efficiency. I think the small business can be a real growth driver for us. In Home, revenue climbed 25%, driven by a 38% increase in home equity revenue. We have a strategic focus this year on adding more small lenders to the network to fill in gaps and provide better coverage for consumers, and that is starting to pay off. I'm really pleased to see Home doing so well despite any macro tailwinds. In Insurance, the results are impressive. Since the beginning of the year, we have been focused on increasing quality and conversion rates for our clients, and that is paying off in higher bids and more budget. A 21% year-over-year increase, particularly against an impressive Q2 last year, is great momentum for our insurance business. Now, AI and its impact on our business has certainly been top of mind. 18 months ago, I told our Board and our company that we are going to be an AI-first company. And today, effectively all of our employees are using AI in their day jobs, including having enterprise GPT for everyone. And our multiyear investment in data and Snowflake couldn't have come at a better time. As we connect AI to our internal data, we expect to see a lot more efficiency for the company. In marketing, in particular, we are very focused on the future of paid search, organic search, and most importantly, LLM answers. We believe we are well positioned in whatever the future may bring and early data is very, very encouraging. We are also implementing AI in several of our key product initiatives with the aim of providing the right guidance to our customers to make smart decisions. AI unlocks potential that has never existed for us before. Since the founding of the company, we recognize that getting a loan or an insurance policy, as Scott recognized, is not just a transaction. It's a highly considered purchase that usually involves conversations over several months. I believe, and we believe, that AI will enable us to guide customers through these complicated transactions, which I expect will continue to improve close rates and thus unit revenue and thus revenue and profits for the company overall. For sure, there are still risks out there. At the moment, I believe the opportunities are far greater than the risks. I also believe that the deep relationships and integration with our clients aren't easily disintermediated. And in a world with exploding choice, our trusted brand and history with consumers is more relevant than ever. Now operator, we're happy to take questions.

Operator, Operator

And our first question comes from Ryan Tomasello of KBW.

Ryan John Tomasello, Analyst

Last quarter, I think you alluded to experiencing some friction, I believe, with one of your carrier partners. So I was hoping you can give us an update on how that's going and if you feel comfortable maintaining historical levels of wallet share there.

Douglas R. Lebda, CEO

Yes, I wouldn't say friction, but we definitely had to go through a period of adjustment as we talked about. And Scott, why don't you talk about that?

Scott Peyree, COO and President of Marketplace

Yes, sure. Ryan, this is Scott Peyree. Yes, as we headed into the first quarter last year, and we were dealing with the single lender consent issues, there wasn't as much friction with the carriers. We had introduced some technical errors in our system that was affecting our traffic and monetization. I mentioned that in the last earnings call that we were working through some of those issues. We largely solved the technical issues late Q1, early Q2, and started reinvesting into traffic and growing revenue, getting more in mid- to late Q2. And so we exited Q2 with really high revenue levels. Q3 will be a record revenue for the insurance division. Our carriers are very happy. Almost all of our conversations with carriers right now are how do we drive more traffic, not the opposite. So the insurance industry is in a very good spot for us.

Ryan John Tomasello, Analyst

Great. And then dovetailing off the prepared remarks, Doug, I was hoping you can just elaborate on how the company is assessing the evolving search landscape with generative and now GenTech AI. How do you envision Tree playing a role in customer acquisition as consumer behaviors change? And do you view that as more of a risk or an opportunity? And what are some of the initiatives underway there?

Douglas R. Lebda, CEO

Yes. So as you can imagine, this is something at the top of our agenda. Scott, I know you're close to this in marketing. So why don't you take that one? And then I'll be happy to add comments, too.

Scott Peyree, COO and President of Marketplace

Yes, absolutely. To be candid, I see GenAI and LLMs as a significant opportunity rather than a risk for us. There are a few key reasons for this perspective. First, as GenAI competitors gain popularity and attract more consumers, we will benefit from a new source of traffic. We are already observing a tangible influx of high-quality consumers referred to LendingTree from platforms like ChatGPT. These consumers exhibit strong intent, which is driving our traffic. We are also noticing a notable rise in direct traffic to our website, likely due to our visibility in AI overviews online. Our SEO team is dedicated to ensuring that our content is optimized for usage in these AI overviews as their popularity increases. Additionally, as GenAI companies venture into advertising to monetize their platforms, we plan to be proactive in seizing those opportunities. Secondly, Google stands out as a leader in the GenAI sector. Our strong partnership with Google drives significant traffic to our site. Google has indicated that their search queries have surged as they introduce more AI overviews, which has resulted in a rise in both paid and organic clicks to our website. A notable advantage is that many of these clicks are coming from users with much higher intent compared to before. Consumers are gaining valuable insights from AI assistance through LLMs, so when they reach out to us, they are ready to make transactions, which is advantageous for us. Lastly, I believe that GenAI will foster a greater number of comparison shoppers in the market. Products like insurance and finance are inherently complex, making them difficult for many consumers to grasp. I believe GenAI will continue to excel at clarifying these products for consumers. As a result, consumers will engage more actively in shopping for these products. Today, many consumers may simply go to familiar insurance agents or local bank branches. However, as it becomes easier for them to have their questions answered and understand these offerings, they will become more active shoppers, which will directly benefit us.

Douglas R. Lebda, CEO

Yes. The only thing I’d add to that, which is an excellent answer from Scott, is because we don't today have a dependence on traditional SEO, it enables us to do more testing and find more opportunities in the early days of LLMs. We have enough content, enough history in our brands and our reputation, particularly including the acquisitions we've made, we have a lot of domain authority. So we're finding ourselves showing up more than we would have expected compared to traditional SEO in LLM results.

Operator, Operator

And our next question comes from Jed Kelly of Oppenheimer & Company.

Jed Kelly, Analyst

Two, if I may, then I have a follow-up. Just on the personal loans, can you discuss what's driving the strength there? And what happens if we potentially get an interest rate cut? And then just on the AI topic, can you talk about what it can do to your expense base? And is there the ability to sort of reduce that $200 million in expenses lower?

Douglas R. Lebda, CEO

Scott, why don't you take the first? And Jason, you take the second, and I'll add on.

Scott Peyree, COO and President of Marketplace

All right. Sounds good. Yes, Jed, on personal loans, it's a combination of things. I would start by saying it's an excellent job of executing over the past year+, resulting in a lot of growth. We've broadened the network of consumers shopping for personal loans. It remains a very popular product out there. I think we've got a lot of growth opportunities in the future. There are many green shoots we're seeing in different areas where we feel like we can continue significant growth for the foreseeable future. Secondly, I'd say from the industry standpoint, there is increasing optimism coming from the lenders. A quick anecdote is we track the number of actions our lenders take to expand the demographics they're willing to offer loans to versus contracting. In Q2, there were 37 expansions compared to 4 contractions, showing a strong desire from the industry to write more loans and a willingness to accept more risk while writing those loans. This is happening even outside of interest rates dropping. If interest rates drop, that would only accelerate that.

Douglas R. Lebda, CEO

And so Jason?

Jason Bengel, CFO

Yes. Jed, I can comment on the expense point. I'm personally really excited about AI. As you know, the expense base and using zero-based budgeting to break it apart and ensure we're happy with all the pieces of it has been a big priority. This is going to take all the work to another level. We are getting, like Doug said, everyone in the company will have a ChatGPT license. It's amazing what you can do. When you think about a custom GPT, it's almost like having your own personal developer. The work that can be automated is exciting, and we are aiming to be much more productive with our expense base. We are trying to work through the details, but the goal is to get everyone trained, so they know how to use it. We may even have a competition for the best use case to drive adoption. Our goal is to become more productive with the work happening today, upskill people to focus on higher-skill labor that adds value.

Douglas R. Lebda, CEO

Yes. The way I'd add on is to say that if we expected our business to be the same size, AI could probably allow us to run the business with fewer people and lower expenses. It can also enable us to do 10 times more work while operating with the same expense base. This means running more tests, getting products in market much faster, and developing stuff at a much lower cost. The speed at which I've seen us move in product development has accelerated since we started on this journey, which is just incredible. We want to keep our employees motivated on increasing productivity, automating where possible, and allowing them to focus on high-level tasks.

Jed Kelly, Analyst

And then just as a follow-up real quick. I think there was a local competitor that lost a contract. It was like, call it, 10%, 15% of their EBITDA. Are you having that same impact? Or was that just your competitors' issue?

Jason Bengel, CFO

Yes, it's Jason. I can take that one, too. We're familiar with the situation. As you know, a value that we provide is on-demand customer acquisition. We don't have longer-term contracts or any longer-term committed spend. That's not really our business model. So whatever the specific issue is, it's not affecting us. You can see in the results how well we're performing and how strong our guide is.

Operator, Operator

Our next question comes from Luke Horton of Northland.

Lucas John Horton, Analyst

This is Luke on for Mike Grondahl. Congrats on the quarter. Just wanted to touch here on the kind of raised guidance, sort of puts and takes either from a macro standpoint, kind of the assumptions baked in here? And any sort of trends to call out across the business here in the month of July?

Jason Bengel, CFO

Yes, it's Jason. I can take that one too. I'm happy to break it down segment by segment as usual. Home, the big question is rates and whether they're going to decrease. We're not assuming any change in rates in the current guide. We are assuming continued strength in home equity, which is performing very well. Margins may normalize a bit upward from Q2, but generally, we expect more strength in Q4 compared to last year. In Consumer, Scott mentioned PL. We're seeing that lenders are growing within their credit boxes and have been growing originations double digits. We see encouraging signs with lenders starting to expand their credit boxes. We’re not factoring that into our guidance yet, and we expect a normal seasonal decrease. In Insurance, we expect a significant step up. We're running at levels much higher than Q2 right now, based on the quality investments Scott outlined, and we're seeing real results in July. We anticipate a strong Q3, although margins may be slightly lower due to a competitive environment. However, we expect continued strength.

Operator, Operator

I'm showing no further questions at this time. I'd like to turn it back to Doug Lebda for closing remarks.

Douglas R. Lebda, CEO

Thank you all so much. In closing, I am just really proud of our second quarter results and thrilled that they reflect the strength of our business model and the consistency of our execution and the strategic investments we've made to position LendingTree for long-term growth. We're delivering measurable value to our partners. We're expanding share across core verticals and driving innovation through thoughtful integration of AI. As we look to the second half of the year, we forecast the strong momentum in our financial results will continue. Thank you again for your continued support and partnership, and I look forward to talking to you again in three months.

Operator, Operator

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