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Operator: Thank you for standing by, and welcome to LendingTree’s Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only-mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the call over to Andrew Wessel, SVP, Investor Relations. Please go ahead.

Andrew Wessel: Thank you, Atif, and hello to everyone joining us on the call to discuss LendingTree’s third quarter 2024 financial results. On with us today are Doug Lebda, LendingTree’s Chairman and CEO; Scott Peyree, COO and President of the Marketplace Businesses; and Jason Bengel, CFO. As a reminder to everyone, we posted a detailed letter to shareholders on our Investor Relations website before the start of this call. 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 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 for the comparable GAAP definitions and full reconciliations of non-GAAP measures to GAAP. And with that, Doug, please go ahead.

Doug Lebda: Thank you, Andrew, and thank you to everybody for joining us today. We are happy to announce that we generated $27 million of adjusted EBITDA in the third quarter, a 23% increase from last year. The quarter was highlighted by another standout performance from insurance, along with encouraging signs of growth across our home and consumer verticals. We have continued to benefit from very strong consumer demand for auto insurance quotes with segment revenue increasing an impressive 210% from the third quarter of last year. Insurance earned $41 million of VMD during the period, a record result, and we believe there is room for further margin improvement. A small number of carriers are still driving the bulk of spend on our network this year and some large population states are still seeing limited demand from carriers due to concerns over rate adequacy.

As more carriers return to historical spend patterns on our network and insurers begin to target consumers in those lower demand states, we see opportunity for additional upside. Our consumer business grew 6% – grew revenue 6% and VMD 4% sequentially, our third straight period of sequential improvement. Initiatives in our consumer business were the cause. First, on our small business product, we enjoyed consistent demand from lenders looking for high-quality borrowers, and this is the consistent highest margin unit on our network. We grew our concierge sales group to better serve our customers. And these additions have helped improve our customer satisfaction and loan close rates, which has allowed us to invest more in marketing to capture additional high-intent customers searching for financing.

Second, in March of this year, we also made the decision to lean into our personal loan product, implementing a similar playbook as we had used with insurance during the industry downturn last year. At the beginning of 2024, as lender demand on our network had stabilized and we felt confident growing our marketing spend would lead to more closed loans and thus better financial results. We’re happy to report that this decision has paid off with both revenue and VMD growing sequentially again in Q3 for the second quarter in a row. Conversations with lenders on our network have indicated that credit conditions may loosen as we approach late 2024 and early 2025. We expect the business to produce strong results next year. Our Home segment has been operating at trough levels due to various macroeconomic factors, including higher mortgage rates and a suppressed home sale market.

However, home equity now accounts for two thirds of segment revenue, generating 5% of revenue growth from the prior year. We believe home equity is well positioned to continue steady growth. Now operator, we are happy to hand it off to questions.

Operator: [Operator Instructions] Our first question comes from the line of Jed Kelly of Oppenheimer & Company. Your question please, Jed.

Jed Kelly: Hey, great. Thanks for taking my question, and good quarter. Just two. Just on insurance, it seems that everybody in the insurance industry or insurance marketing industry is doing well. Can you just kind of give us a roadmap on how we should view the industry over the next 18 months? And if investors are comparing your results versus other players, how do we know you’re seeing share, better margins? Can you just talk about where you stand on insurance? And then I have a follow-up. Thank you.

Doug Lebda: Scott, why don’t you take that?

Scott Peyree: Yeah, sure, Jed. This is Scott Peyree. First off, just at a macro level, as you talk about the next 18 months or so, I mean, I think us and all of our competitors will see and expect strong results over the next 18 months. The insurance industry is in a very good spot and but it’s still I don’t know if I’d call it an early innings, but still mid-innings of the growth cycle here where we’re still in a phase of – they haven’t opened up all their states. They haven’t opened up all their products for all their geos. And so the lean in is continuing to happen. Is the hockey stick going to be at the same level it was in Q2 and Q3 this year? Probably not. But I mean, I would still expect growth across the board and carriers have a very high demand for new consumers, and that is going to continue in the indefinite future.

And then, call it, 12, 18 months from now, you’ll probably start to see actual rate reduction cycles when carriers reach a certain level of profitability, they start reducing their insurance rates, which will then create a whole another snowball effect of consumer shopping. Talking about us specifically, how do we differentiate? I mean, I would say for starters, we have a lot – we’ve built a lot of direct client distribution, right? We have multiple products, clicks, leads, calls. We have our own agency. And so we’re able to work with a much wider breadth of insurance carrier clients than some of our competitors are that don’t have all of those products that may be like single product like a click product or where we have a large local agent base.

So we just have a diversified way to generate revenue and to give shopping options to consumers based off of how the carriers market their products out there. And that really creates a differentiated position for ourselves, I believe, just both in downtimes and in good times.

Jed Kelly: Thank you. And then just as a follow-up, we’ve seen in various industries, yours, some of the other affiliate industries, some SEO headwinds from Google changes, maybe with AI, maybe pushing Reddit a little more. Can you talk about how that’s impacting LendingTree? Thanks.

Doug Lebda: I’ll hit it at a high level and then anybody else can add in. Listen, largely, this goes back almost 30 years now. We really want to be independent of traffic sources. So Google’s SEO ranking algorithms, we are happy to benefit from Google free traffic, and we also don’t want to be dependent on it. So there are some competitors that have mostly SEO businesses. They’ll be mostly free traffic, but they won’t be able to flex up and down. That will be different vis-à-vis us. And – but we’re also working on our SEO stuff as well and improving that while we speak. So we want to have a very balanced view of where our customers are coming from and then hopefully own our customers and be able to market to them to bring them into whatever service it is.

Scott Peyree: And this is Scott. I’ll just add on to what Doug said on the paid search side. We partner very closely with Google. They have implemented a number of AI-based bidding algorithms that we work very closely with them on. They have told us themselves that we work at a more sophisticated level than most of our competitors do. And from a traffic standpoint, I mean, we’re driving more traffic from Google than we ever have. So we’re not – we’re leaning into Google. We’re not really seeing traffic headwinds from Google.

Jed Kelly: Thank you. And good quarter.

Scott Peyree: Thanks.

Operator: Thank you. Our next question comes from the line of Ryan Tomasello of KBW. Please go ahead, Ryan.

Ryan Tomasello: Hi, everyone. Thanks for taking the questions. Maybe just starting with the insurance business, Scott. You put up a mid-20% variable marketing margin in the quarter. I mean it sounds like the interpretation of your comments is that you’re viewing that as a trough. I mean I don’t want to put words in your mouth. So maybe you can just put a finer point around your outlook as it stands today for VMMs and maybe a range of scenarios for next year around what it would take to drive a meaningful improvement and where you think stabilized VMMs could look like for insurance next year.

Doug Lebda: The only thing I’ll say before Scott goes in is I just want everybody to remember that the next – if we’re going to pay to drive volume and marketing expenses fuel, the next leg of volume is always more expensive than the last. And so as we continue to step up that curve, we would expect to be leaning into spending and focusing on VMD dollars, not necessarily percentages. But Scott, take it away.

Scott Peyree: Yeah. And I would just add in, I think, Ryan, trough in Q3 is a fair term to say. We grew our insurance revenue from Q1 to Q3 by $100 million, and there was a lot of client demand, and we pride ourselves on our ability to deliver high quantity of high-quality traffic. and that’s exactly what we were doing. Now that the hockey stick is starting to level off a little bit, again, it’s still in growth. I mean we’ve had a number of carriers open up new states and bring home insurance to new states. We’ve actually been surprised some of the states some of our carriers have opened up home insurance in recently. So there’s a lot of growth still, but it’s not at the same extreme levels as it’s been in the past couple of quarters.

So because of that, it allows us to lean into efficiency a little bit more. So are our margins going to go from 25% to 35% quarter-over-quarter? No, but they will start going up. And our goal is to have our margins up a couple of percentage points in Q4 in the insurance segment specifically and continue monetizing that. I think long term for us, if you look at it as a business, like low to mid-30s margins in a stable environment in insurance is historically where we’ve been and where we would still expect to be in the future.

Ryan Tomasello: Okay. Appreciate that color. And then in terms of the outlook, if you can give us some handholding for the fourth quarter with respect to each of the segments. Scott, I appreciate the color on VMM expectations for insurance. But just generally, how we should be thinking about sequential changes in revenue and segment margins for the fourth quarter? And then in terms of seasonality, obviously, 4Q typically has negative seasonality. So I’m just curious to what extent you’re baking that in this year relative to prior years, just given all the variability across stands right now?

Doug Lebda: Jason, why don’t you take that?

Jason Bengel: Yeah, happy to. So yeah, I mean, I can just walk through segment by segment. And if we start with home quarter-on-quarter, like you said, typically, it’s down seasonally. But our expectations are the strength in home equity that Doug mentioned is going to offset that normal seasonality. And so we do expect when we look at home Q4 versus prior year that we’re going to see growth. And versus Q3, we’re not going to see that normal seasonal decline. When we come to consumer, we expect we’re going to hold margin there and generally see that normal seasonal decline that you’re talking about. With insurance, that also is seasonally down quarter-on-quarter, Q4 versus Q3. But like Scott said, we think the margin has begun to trough. And so we’re expecting flat to slightly improving margin quarter-on-quarter for insurance. And on the expense side, we don’t expect a big relatively flat quarter-on-quarter on the expense side.

Ryan Tomasello: Great. Thank you for taking the question.

Doug Lebda: I’ll just add in to what Jason said there real quick of just what we’re very positive about right now is there is inevitably seasonality in Q4 when you get Thanksgiving through New Year’s. But October has been a very strong month across the board, across all of our industries. Small business has been strong. Home equity has been really strong. Personal loans has been really strong. Insurance, obviously, is super hot. So like there’s inevitably seasonality in Q4 that will bring down the numbers a little bit. But just as you look at run rates, we’re feeling really good about multiple categories in the business right now.

Operator: Thank you Our next question comes from the line of John Campbell of Stephens Inc. Your question please, John.

John Campbell: Hey, guys. Good afternoon. Doug, maybe just a big picture question here just to start here. Over the last, I guess, 2-plus years, you guys have seen some pretty stiff headwinds across a lot of your products. And I know you’ve had to kind of adjust and adapt. Obviously, you’ve had the balance sheet weighing on you a little bit as well. But as we start to move into a little bit brighter outlook as you guys get to a little bit better steady-state growth environment, I’m curious about how you’re thinking about the areas of your business that you might need to kind of reinject investments into. I’d love to hear whatever is top of mind, but maybe you could start off with how you’re thinking about the brand spend and also how – my LendingTree or Spring is going to fit into the mix?

Doug Lebda: Yeah. So – the good news is, I think right now, we are definitely at trough levels, and I feel like we’re starting to build back. I feel like the business right now is at a state of rare normalcy where you don’t have crazy things going on the lender side. You don’t have crazy things going on the consumer side, and we’re just able to kind of focus and get projects done. And so yeah, going forward, so you asked about Spring and what was your other one in there?

John Campbell: Just broadly on the brand spend. I know you brought that down.

Doug Lebda: Yeah. So I don’t expect us – the Spring stuff will basically continue. I don’t have any new stuff to report there on brand spend. I don’t also see us right now budgeting anything for brand spend. Nothing in our numbers assumes it and we wouldn’t assume that we’re doing that until the revenue per lead, revenue per customer is up substantially so that we can justify that in the market on a profitable basis. So right now, it’s sort of let’s focus on the things we can control and keep steadily improving the business and not looking at a big brand budget.

John Campbell: Okay. That’s helpful. And then, I mean, I guess VMM is going to be the big swing factor. It sounds like no big investments coming, no step-up in brand spend. I guess on other just OpEx, just other operating costs as far as headcount and whatnot, just generally, how much you guys expect to increase that next year?

Doug Lebda: Not much, if anything. Go ahead, Jason.

Jason Bengel: Yeah. No, I mean, like I guess I said on the last call, we – as home and consumer start to recover with rates declining, there’s not a dramatic need to add more and more heads to support that revenue as it comes back. So our expense base is pretty leverageable. So there will be costs associated with the revenue, but we don’t expect it to be dramatic.

John Campbell: Okay. That’s helpful. And then, Scott, I appreciate the comments on kind of month-to-date of October trends across a lot of your products. It sounds like things are continuing to hold up well. Maybe if we could double-click on insurance. If you could help maybe just with the phasing, how that kind of looked month-to-month throughout the quarter and then into October, if you continue to see an acceleration?

Scott Peyree: Could you further explain that the month-to-month in Q3?

John Campbell: Yeah. Just how insurance progressed? Because it feels like it’s – you mentioned kind of early to mid-innings. It seems like that there’s still an acceleration path. I just wanted to see if that’s accurate.

Scott Peyree: Yeah. I would say we saw a lot of acceleration in insurance right at the beginning of Q3. Like at the end of Q2, June and then July, there was a very, very significant ramp-up from a number of our largest clients in insurance. So really ramped up at the beginning of Q3 and then just kind of held steady, I guess, I would say, throughout Q3 at that ramp-up. And then it’s continued into Q4. I mean I would say there’s maybe some slight – like I said, it’s not the hockey stick that we saw going into Q2 and then again going into Q3, it’s more of just a sustained, maybe off the top of my head, maybe single digits growth from where we were in September, but it’s definitely a sustained high level of demand from the insurance carriers.

That’s not leveling off at all. And there is continued – I guess I would say the difference now is, for example, you’ll have a carrier open up one or two states that they’re now willing to write business in, where when we’re heading into Q3, it would be a carrier opening up like 20 states that they’re willing to write business in. That’s kind of the difference of where we’re at now. Does that help explain?

John Campbell: Yeah, that’s great color. I appreciate that. Thanks, Scott.

Operator: Thank you. Our next question comes from the line of Jamie Friedman of Susquehanna International Group. Your question please, Jamie.

Jamie Friedman: Hi. Doug, do I dare to ask if there’s any call out on the mortgage front? I know you’re saying here, there’s a limited pool of refi borrowers, but any light at the end of the tunnel?

Doug Lebda: Yeah, we can all comment on it. So if you think about refinance, it will happen in a cascade of when consumers actually have a benefit to refinancing. So if you think about it, if 100 people show up every day and say, hey, can I refinance my mortgage, a certain percentage of them will have a benefit as rates go down, that benefit – the percentage of them that will have a benefit will improve. Therefore, our unit economics improve and therefore, lenders can refinance them. Lenders continue to have interest in the product and so do consumers. But what we don’t see yet are any like large-scale just consumer rushes to the product, which is perfectly fine and appropriate. But I would say it’s a healthy sort of coming off the bottom kind of market as we return to normal interest rates and just call it, a normal mix of refi next year. Anybody else?

Scott Peyree: I would just add – yes, the client demand is extremely strong for all those products. Like as Doug said, it’s the consumer shopping behavior on refi with the rates where they’re at. But home equity is a very, very strong product right now, both from client demand and from consumer response to marketing. So that’s where we’re really going to focus probably for the next 6 months. But as Doug said, interest rates will reach a point where you probably flip that over to a focus on refinance, which is a more valuable product, both to us and to our clients.

Jason Bengel: And then I got a

Doug Lebda: Sorry, go ahead.

Jason Bengel: This is Jason. I guess I was just going to add on. As rates go down, like that pool of available customers will go up. It’s hard to predict what rates are going to do. But some of the data that we’re looking at shows in the money refinance population of about 4.7 million people if rates are at about 6%. That’s not hard to imagine. We don’t want to predict it, but that definitely opens up the population quite a bit as rates come down. Right now, they’re pretty high. So hopefully, they’ll continue to come down next year and open up that population.

Jamie Friedman: Thanks for that. And then in your prepared remarks, Doug, and I’m kind of doing this from memory, and I don’t have a transcript, but I think you said something the effect that the insurance is still particularly concentrated with certain carriers, if I misunderstood that, correct me. But if that’s the case, are you anticipating writing more policies for more carriers? How is that going to work?

Doug Lebda: Yeah. What I said there was that the – and Scott can add in more on this. The number of carriers that have really expanded their buys this year has been somewhat limited and into next year. And as we talk to clients, we’re expecting that we get broader buying from more carriers in certain states. Scott?

Scott Peyree: Yeah. The way I would say it is there’s a number of carriers that were pretty large spinners with us back pre-inflation era that haven’t really come back hugely at this point that we would expect to at some point. I would caveat that with our historical largest clients are generally back and spending a lot of money. But there are definitely a list of carriers that are still spending at reduced rates compared to what they were, call it, 4 or 5 years ago.

Jamie Friedman: Okay. I thought. All right. Thank you all.

Operator: Thank you. Our next question comes from the line of Youssef Squali of Truist Securities. Please go ahead. Youssef.

Robert Zeller: Hi. This is Robert Zeller on for Youssef. Thanks for taking our questions. I’m just curious, given your guys’ reliance on search, as you see – as search is evolving, I’m curious how you think it will impact Tree and how you expect to evolve with it and if you’re expecting any changes near term? And then one quick one. I think I saw there was like a $4 million settlement litigation cost on the P&L. I’m just curious if there was anything to unpack there. Thanks.

Doug Lebda: On search, here’s what I’d say is we work very, very closely with Google on both the SEM and the SEO front. And on SEO we know where we are, and we continue to advance that on SEM. We work very closely with them, and we try to win our fair share of the auctions. Google is by no means the only, and it’s also the largest source of traffic for people who are typing in search queries or stuff that they’re looking for. The second question was…

Robert Zeller: Yes. The second question. Sorry, yeah. Go ahead. Thank you.

Doug Lebda: No, you tell me.

Robert Zeller: It was on the $4 million litigation charge.

Doug Lebda: The litigation charge. So all we’re doing with any litigation thing is just accruing for prospective settlements that we may or may not have with in arbitration and mediation and things like that. So I wouldn’t put too much stock in any one number around any one case. What I would do is just see it as just accruing for normal costs that we have to incur for doing business.

Robert Zeller: Okay. Thank you.

Operator: Thank you. Our next question comes from the line of Melissa Wedel of JPMorgan. Your question please, Melissa.

Melissa Wedel: Good afternoon. Thanks for taking my questions. I believe it was in the shareholder letter where there was a reference to some initial promising talks with lenders about maybe expanding loan offerings to different customers. I was curious if you could maybe provide a little more context on that. And apologies if I missed it earlier. But wondering if you’re seeing more – is this more of a general credit box reopening across the board that might impact existing products like card or something else? Or is this a different effort, a new effort, an extension of personal loan? Thank you.

Doug Lebda: Scott, do you want to take that?

Scott Peyree: Yeah. Yeah, sure. Melissa, what I’d say on that subject is what we’ve seen from our clients, you talk about personal loans or a number of our lending categories is we’ve been having good conversations around the edges. They’ve been opening up credit boxes in certain scenarios, not any dramatic anywhere. Where we have seen a number of our clients come in, and again, this goes down to us focusing on high quantities of high-quality traffic is a number of our clients have come and opened up their spend per consumer for the same type of demographics they’ve been writing loans to all year. So that’s a very positive like, hey, we want more of the same. Could you please send us more of that? Where we do think things are going to change in the next 6 to 12 months is a lot of those lenders are going to start opening up their credit boxes.

And so that just means they will take a much wider swath of consumers we’re generating every day right now. Here’s a perfect example. Our personal loan consumer traffic was up 50% year-over-year in Q3. Our personal loan revenue was only up 7%. And that’s just that’s because of tight credit boxes we have. And we can’t – there’s a limited number of loans they can write to all of those consumers. But as they – all of these consumers, we’re excited about because we’re adding them to our database, we’re going to be able to remarket to them, and they’re going to come around and be shopping as interest rates go down. They’re going to be wanting to reshop their loans, et cetera, and so we’ve got all these. And we do feel the lenders are going to get to a spot as interest rates go down, as the spreads that they make get larger between interest rates, they’ll open up their credit boxes and accept more consumers.

that’s what we’re referring to in that letter.

Melissa Wedel: Thank you.

Operator: Thank you. Our next question comes from the line of Mike Grondahl of Northland. Please go ahead, Mike.

Mike Grondahl: Hey, guys. A quick question. The $125 million of AR on the balance sheet, I assume that’s a couple of large insurance companies. And what’s kind of the cash collection cycle there?

Jason Bengel: Yeah. This is Jason. I’m happy to take that one. Yes. This – so this is primarily related to the significant insurance growth that we’ve seen this year. And if you look at our change in AR and change in AP and accrued expenses versus the beginning of the year, you’ll see those are roughly offsetting, and so we’re generating a significant amount of cash this year. We’ve done quite a bit of work to manage that working capital so that we’re like lining up the inflows and the outflows pretty well just in response to that insurance growth.

Mike Grondahl: Got it. And then just a follow-up to that. How should we think about sort of free cash conversion from adjusted EBITDA, like as a percentage?

Jason Bengel: Yeah. I mean – so yes, if you start with EBITDA, the next things kind of coming out of EBITDA are really going to be capital expenditures. Roughly, that’s going to be around $3 million a quarter. And then you have your interest paid that we have for the – primarily the Apollo and the original term loan. And then you have working capital. And we’ve done quite a bit to smooth out that working capital over the last few months. So that working capital change really shouldn’t be that dramatic going forward. It was significant in Q1 and Q2, and I think we’ve worked – done quite a bit of work to smooth that out. And so it’s really those couple of things that would generate free cash flow from EBITDA.

Mike Grondahl: Got it. Okay. Thank you.

Operator: Thank you. I would now like to turn the conference back to Doug Lebda for closing remarks. Sir?

Doug Lebda: All right. Well, thank you all, and I am thrilled with our third quarter results, and I’m very enthusiastic about the outlook ahead. I’m also grateful to all the people who helped to make these results happen. Our updated financial guidance implies adjusted EBITDA this year will grow 19% at the midpoint compared to 2023. Our team is well aligned around our goals and financial targets, and we are optimistic about the outlook for next year. The company is well positioned to benefit from the current economic environment, and I look forward to updating you all on our results in the quarters ahead. Thank you very much.

Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.