Lendingtree Inc

NASDAQ:TREE

Good day, and thank you for standing by. Welcome to the LendingTree, Inc. First Quarter 2025 Earnings Conference Call. [Operator Instructions] 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.

Thank you, [ Didi ], and hello to everyone joining us on the call to discuss our first quarter 2025 financial results. On with us today are Doug Lebda, LendingTree's Chairman and CEO; Scott Peyree, COO and President of our 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'll 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 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'll 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.

With that, Doug, please go ahead.

Thank you, Andrew, and thank you, all, for joining us today for our first quarter update. All 3 of our business segments generated solid revenue growth in the first quarter. Adjusted EBITDA, however, came in just below our forecast, driven by temporary regulatory headwinds in our insurance business and onetime expenses related to benefits and legal fees. We are now 1 month into the second quarter, and we are seeing improvements in those areas. As a result, we are still forecasting strong adjusted EBITDA growth of 15% at the midpoint of our annual outlook that we updated today.

As we discussed last quarter, our Insurance segment was impacted by the FCC's pending one-to-one consent. An appeals court rescinded that rule and subsequent rulings have eliminated the possibility that it will be resurrected in the future. We expected a sharp recovery once we've reverted back to our previous customer experience, but it has taken longer than anticipated.

This disruption, combined with a marketing correction in the quarter from one specific carrier led to a somewhat softer insurance performance than we had forecasted. Despite the challenges, insurance still grew revenue 71% year-over-year in the first quarter, and we continue to forecast annual revenue and VMD growth for the segment.

In Lending, the Consumer segment again benefited from growth in our small business and personal loan products. Our investment in the concierge sales team for small business has delivered significant benefits to our unit economics. Conversion rates have increased, and we have captured higher levels of renewal and lender bonus revenue as a result. We expect small business will generate record revenue for us in 2025.

Thanks to success in home equity lending, our Home segment continues to produce great results in a difficult environment. Increased demand for home equity loans from both consumers and lenders is driving Home segment performance. Prevailing high mortgage rates continue to suppress demand for new homebuyers and refinancing. However, slower growth of home prices and an increase in inventory of homes for sale should be helpful for the housing market going forward.

As I mentioned at the beginning of my remarks, we had some onetime items in operating expenses in the first quarter. Going forward, we have offset those expected cost -- unexpected costs with savings identified in the zero-based budgeting process from last year. We remain committed to carefully managing our operating expenses while maintaining the ability to invest in specific growth initiatives, enabling us to produce positive operating leverage on future revenue growth.

I know tariffs are on everyone's mind, so I want to address that here quickly. Obviously, we are a fully domestic company, and we don't expect tariffs to have any direct impact on our business. Obviously, there could be secondary effects with interest rates or significant inflation that may impact our business, but we stayed very close to our insurance and lending clients, and we don't have any immediate concerns.

And now, operator, we're happy to answer any questions.

[Operator Instructions] Our first question comes from Ryan Tomasello of KBW.

Doug, I wanted to start on that last point you made. If you could just elaborate generally what you're hearing from your carrier partners on potential headwinds to profitability from tariffs? And obviously, that -- I think the concern here is how that might impact demand for customer acquisition? And just given all that uncertainty, how you're thinking about the guidance here, what you're baking in, especially for the back half of the year?

Yes. I'm going to let Scott handle that. He's in Seattle, and I know he's closer to the insurance clients. So Scott, take it away.

Yes, sure. Ryan, to answer your question there. We've been staying pretty close and having conversations with our major clients on the insurance side. There's definitely concern around tariffs and what they might do. But they generally, I would say, generally all feel pretty good about where they're at today from a profitability perspective. All of the work they've done over the past few years to get their rates in a good spot from the inflation work is -- they're probably in a better profitability position today than they've been in the past 3 to 5 years. So they're kind of starting at a good point. They're monitoring closely.

I think what you'll see out there is where a number of carriers might have started reducing rates for a lot of consumers this year. That's probably not going to happen as they take a more cautious approach. I feel like a lot of the carriers have told us they feel like they can get out in front of any potential inflationary impacts from tariffs to maintain a good spot. So I'd say the general response from carriers has been they feel like they're going to be able to deal with the impacts of tariffs within enough time that it won't really affect their marketing strategies.

Great. And then I guess maybe just digging deeper into that and maybe expanding broadly, what you're kind of baking into the revised guidance here? You're haircutting the top line by about 3 points, it looks like that's being offset by stronger variable margins. So just unpacking the moving pieces there, what you're baking in from a macro standpoint, just across the different pieces of the guidance?

Yes. It's Jason. I can take that one. Just first of all, on the macro point, we're not baking in anything one way or the other from a macro standpoint. That's just something that we're going to have to monitor. We're going to have to monitor delinquencies, combined ratios on the carrier side, consumer spending to make sure shopping remains stable.

But like Scott said, and Doug said, we don't have any indications today that there is tightening happening. So as far as the guide goes, that's just going to have to be something that we continue to monitor. And I can talk through each segment a little bit to give some more color around the guide.

Just starting with Home. Home, we expect strong continued home equity growth to continue, that we've seen. On the rate side, rates have been moving around quite a bit. We're not expecting any change to the rate environment from where it is today in the Home segment.

Consumer from where it is to Q1, Q2 and Q3 tend to be a stronger seasonal quarters for consumer. So we do expect some improvement from Q1 moving into Q2 and Q3 in Consumer. We're not -- Again, we're not expecting any -- we're not contemplating any macro change on the consumer side. That is something that we're going to watch.

On the Insurance side, we do expect incremental improvement from where we are today. We're not expecting any impact from tariffs, like Scott said. But we do expect to improve better -- perform better from where we are. We've had a lot of positive conversations with the carriers, and we're pretty optimistic that budgets are going to increase from where we are. So the back half of the second half of the year -- the second half of the year should perform better than the first half of the year for Insurance in particular.

Expenses. Expenses were a little bit high in Q1. We do expect them to modestly come down in Q2 and the rest of the year going forward. So that will provide a little bit more help in the back half as well.

And generally speaking, the business model is very resilient with the two-sided marketplace, if there's a change in lender or carrier demand. There are marketing offsets to that, both up and down, as you guys know. So we can weather volatility. At the same time, unless there's a shock to the system where either lenders aren't lending or carriers aren't writing policies, the company is generally in good shape.

And if anything, some of this stuff could cause interest rates to move around, and if they go up then they'll go down, and if they go down that's even better. And that will certainly help the business and even weakening in the economy obviously helps rates. So there's lots of different offsets. And -- But unless there's a big shock, we can adjust pretty easily.

And our next question comes from John Campbell of Stephens Inc.

So I just want to touch -- I guess, starting here on SMB. If my math is right, I think you guys got to about $20 million or so in the quarter. You mentioned in the shareholder letter you expect the record SMB rep for the year. If I annualize that, I think it's going to be well above your record. So just remind us again, I guess, on the seasonality of that business and maybe just more direct, if you feel like you can hold near that quarterly level for the balance of the year?

I'm seeing puzzled looks here on the faces of our finance geniuses. So let's see -- let's talk about in general Scott. Youu hit it generally while we make sure you have the numbers right.

Yes. So Jason can maybe hit on the specifics as far as like our revenue projections this year compared to our previous all-time highs. But hitting on the seasonality, there's definitely seasonality throughout the year on small business as you kind of go into like, for example, heading into the holidays, you'll have a lot of small businesses looking for inventory loans and whatnot. But I would say, in general, there's so many different types of small businesses looking for loans for different types of reasons. It will smooth out in general throughout the year.

And I would say just our growth we've seen growing our direct sales staff, has been very successful. As Doug mentioned at the top of the meeting, the unit economics are much better when we write the business directly. We've, at the same time, been able to grow our consumer lead flow quite a bit. So there's lots of small businesses out there. There's a lot more today coming through our network than we had 1 year ago, and we plan on that continuing to grow.

Over time, we're adding more lenders onto the network. So that should provide us more options to provide loans to the merchants and businesses as time goes on. So I mean, I think we've got a lot of tailwinds in the small business world.

There's a little bit concern around all of the political stuff going on, as far as these small businesses kind of get a little bit more conservative. We're not seeing that at a real macro level as of yet. Maybe the average loan size is slightly less than we would historically expect over the past 30 to 45 days, but the data is a little bit thin there. It's nothing significant enough that we would change any expectations going forward. I think I would say, in general, we're very happy with where we're at and where we're projecting the small business category to be over the next year plus.

Yes. And my take on it would be we're still very small. We're growing. If you grow the lender network, you're going to grow your unit economics, which means you can grow market more. And we're growing off such a small base. This is the most probably complicated -- most complicated and opaque underwriting of all the products, loan products that there are, which means it's kind of the last to come online. It's kind of fun to have a small grower again that's getting big. To the $20 million a quarter, you guys want to talk about that, the numbers?

Yes. I mean in general, your math is right. And we do expect continued strength in this. We are leaning in. Like Scott said, we are hiring concierge reps as those unit economics work out. So I think the other thing to point out is this is a very profitable vertical of ours. So as it continues to grow, it should provide more and more margin support for us. So yes, I mean, I think we're optimistic about the rest of the year performance around small business.

That's helpful. And then on the mortgage marketplace, I mean, obviously, that used to be like the core business for you guys. And it's been largely dormant. Obviously, the macro has been incredibly tough. A couple of years ago, I think you guys had $376 million in that business. Last year, it was $40 million. So it feels like that is a growth driver one of these days. So I'm just curious about what you guys are thinking about as far as like a level of mortgage rates where you feel like that could start to unlock some values, maybe unlock a little bit of growth for you guys?

I don't have a specific number, but you're definitely right. It should be a huge growth driver and is largely, in many ways, stuck from a refinance standpoint. That's why home equity is a great substitution product for lenders and consumers in this type of an environment. So you really need to look at it in total. I don't know what the amount is.

Scott, I don't know if any of you guys have a specific number, but it's going to happen someday. And the good news is this time around, I think technology will enable more loans to go through the pipes, which will mean that you won't have lenders shutting down as much as they had to last time. I think the mortgage process become much less manual. Scott?

Yes, I'd just add, yes, you are 100% correct when you say the combination of refinance, cash out refinance, new purchase is a massive business for us in the good times, that has been dormant over the past few years. Home equity is really the driver of the growth we're seeing right now. Even though our purchase and refinance business is growing, but it's coming off of, as you said, pretty low levels last year.

A lot of what I hear in the industry is, if you get interest rates to a 5 handle, if your 30-year starts with a 5, you're probably going to see a seismic shift in the industry with dramatic growth returning. So in the meantime, we're just -- we're growing and doing what we can and working hard with our clients and making sure we have a good distribution network. I mean the demand for our product is very high. It's more of just about the number of consumers that are looking for those products right now.

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

Just back on Insurance, can you kind of give us a sense how we should think about the VMM margin as revenue starts to normalize in that segment? And then just again on Insurance, how should we view the Home segment? I know auto is still the main portion, but it seems like home is an attractive market as well.

Yes. Jed, starting on the VMM side, and I'll say today what I've said in the past couple of earnings calls, is I think as things normalize over time, low to mid-30s is where we want to be on the VMM side. We started -- we had some good improvements in Q4. I think some of the points that Doug talked about at the top of the call as far as like the SLC headwinds we had, some carrier budget shifts, some new technology bugs that happened in our system. We had a little bit of a step back in Q1. But those were one-time events that we're working through and solving. And so we're going back to optimizing that. But low to mid-30s is where we would expect to be long-term in a normalized rate. And I think we'll be there sooner rather than later.

And then just answering the question on home insurance, yes, that's absolutely. That's a very popular product. It's a growing product for us. And I even feel like the first quarter, there was even more growth there than we expected, as the carriers are getting more and more interested in driving growth via home insurance. So yes, that's correct. That's a good industry right now.

And then, Jed, maybe just to touch on the guide. We do expect, like we said, insurance to improve from where it is today. We do expect margin to improve from where it is today, not yet in the more normalized levels that Scott mentioned, but we do expect continued improvement.

Our next question comes from Melissa Wedel of JPMorgan.

I wanted to start on the Home segment margin. It came in a little bit stronger than we were expecting. And I guess the question would be, is there any reason to think that, that would inflect lower? Or is this sort of the run rate, particularly with home equity demand right now?

Yes. I mean we are generally expecting that to be sustainable going forward. And home equity monetization is just really strong. And that's a function of -- this is a product that works really well for consumers, and it works really well for lenders. On the lender side, true home equity, the loan amounts are lower. So that's a negative for lender unit economics, but the close rates are just so much higher that the lender economics really work because that's a product that works for the consumer. So a lot of this margin improvement is just a function of the unit economics that we've attained building out that network, and we do expect them generally to be in that range going forward.

And I would just add to that, there's been no intentional effort to expand margins there. As Jason said, we're within a range where we're comfortable with, works for us, works for our clients.

Yes. If demand for volume shot up tomorrow so much and we had to like step on the marketing gas, you'd see percentages decrease. But other than that, we feel good.

Appreciate that. We've talked -- touched on this a little bit about the volatility that we've seen post quarter end, but it's been more from the perspective of what are you hearing from network partners. I'm curious if you're seeing anything different in terms of changes in consumer behavior and search on your platform in the last month? Any conclusions you can draw from that?

I would say consumer demand across most of our products has remained pleasantly strong. We have not seen a significant reduction in demand as a byproduct of consumer sentiment, I would say. The one category that we probably have seen a little bit less demand is, again, getting back to the mortgage purchase and refinance traffic. That's a major product for consumers to purchase. And I think there is a little bit of cautionary approach that has affected the amount of consumers searching for those products over recent history.

But as we're -- I was talking about earlier, that's already kind of at a low dormant point. So it's one of our lower consumer traffic areas right now. All of our other product lines right now, I would say that the consumer volume is coming right in where we would expect it to be in normal times.

Yes. And it's broad-based. It's all loan types. Our marketing is working well in all channels. Our content strategy is working well. People are engaging with our content. We're appearing well in emerging AI results. So yes, we feel good about where we are with the consumer.

[Operator Instructions] And we have a follow-up from Ryan Tomasello of KBW.

I guess just entertaining more of the downside risk on macro, you guys have done a good job historically of managing to the bottom line by pulling some expense levers. I guess maybe you could just help us understand how much of those levers still remain to help protect earnings power to the extent macro does move against us here?

Yes. I'll start and then Jason can put a finer point on it. Look, we made -- with everything possibly going against us and costs high. I think our worst year was [ 198 ]. That was our trough, give or take. So that was its worst. As I think about the puts and takes, the insurance inflation and when the insurance companies could -- like on the lending side, I don't know what could significantly change there that would make that business change in size downside dramatically.

On the Insurance side, we had that -- the issue of insurance companies chasing inflation. I mean, you'd have to have really rampant long-term inflation again to be doing that. And we -- hopefully, we'd see it coming. And then on the cost side, yes, there are always costs you can do because we're always investing. So like right now, we're spending -- everybody here is working on things that are positive VMD projects to keep the company going, but at lower unit economics. If your insurance is unit economics bust or your home bust, then you don't do those projects and you pull back on those. And -- so there are more levers.

Jason, you could put a finer point on it if you wanted to. And by the way, like we don't think we have to. We feel like right now, we've got a workforce that the fixed costs are fixed and the variable ones can float. And we know where the fixed costs are and we know where everybody is working on and the zero-based budgeting really, really helped with that. And then anything incremental from here is really going to be tracked. Jason?

Yes. I mean, yes, like Doug said, I think we've invested in zero-based budgeting, I mean, across the whole management team. And so through that process, we've identified the core of the business that we absolutely need to generate VMD and satisfy legal and regulatory obligations. And we are then able to see very clearly above that, where are we spending money. And are we happy with what we're getting in return for spending that money. And so should push come to [ shove ], I think we have a pretty detailed understanding of our cost base, and we should be able to react. The name of the game is being quick, especially in a business like this.

So to the extent that we see an opportunity out there to lean into a marketing channel or lean into more concierge reps in small business, we will do that very quickly and monitor it very closely. And then if it doesn't work out, then we'll react to that. But should things turn down, I think we should be able to respond well with expense savings. And also, there is a significant part of our variable compensation in the cost base that will naturally decrease with decreasing top line. So overall, I think we feel pretty good about our understanding and ability to execute any savings that we might need.

And then obviously, the ultimate lever, if you don't have demand in one of your products is marketing spend. And then you're pulling back marketing spend as your unit economics go down. And you could even go further than that. You could not do any paid marketing if you had to for a period of time, and live off your organic and name recognition and SEO. Like there's a lot of options in a horrible scenario. And we've been able to navigate those before. And each of these individual products can be cyclical, but the 2 sides of the marketplace you always need to keep in mind, and there's always the marketing -- and they generally work together.

And then one more for me. Regarding the QuoteWizard litigation, how much -- can you say just how much you have fully reserved for that after the $15 million you took this past quarter? And how confident you are that you're fully covered for the potential outcomes there?

Yes, it's Jason. I'll take that one. We've talked about this previously on other calls, and this is related to Mantha. QuoteWizard has reached a settlement in principle in the Mantha versus QuoteWizard matter, which involves class TCPA claims related to activity from 2019. The details of the settlement will be made public in the near term when the appropriate filings are made with the court.

But to answer your question directly, we have a liability on the balance sheet of $19 million in this quarter. It's important to note that this $19 million is payable in 3 equal installments, the first being in Q4 of this year, the second in Q1 of 2026, and the final in Q2 of 2026. So these -- we have reached a settlement with regard to this. It has to be confirmed with the court, but we have reached a settlement with it, and the payments are due after we are due to repay the convert in July, which I think is important to call out.

And we have a follow-up from John Campbell of Stephens.

Just one more for me. I noticed in the annual filing some commentary about the student loan business that you guys are potentially looking to -- at options there. So maybe if we can get an update on that?

Yes. The -- I mean we've largely gotten out of the student loan business. That's been a declining business for the past few years. So we are not doing any more direct marketing into that business just based off of client demand.

And obviously, the can change if the -- yes, if the student loan refi market comes back, that's easy to start marketing again and doing it. But right now, we're just -- we're not seeing [ low ] demand for it.

On hold for now, but any rough sense for revenue impact year-over-year, what you guys put up last year?

It was very small last year. So -- I don't know, Jason, do you have any details on the revenue?

Definitely not material.

Yes. I would say in the -- twinkle in my eye is that with the changes in the administration and people paying back their student loans that, that business someday returns. It's not like we're, like -- not like we can't have our student loan form and turn on the lenders. It's just that we're not actively marketing it.

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

Thank you. We are definitely pleased that all 3 of our segments returned to annual growth in the first quarter. Over the past 5 years, unexpected economic impacts from the pandemic and inflation have been significant in the company. And yet, thanks -- we've been able to suppress them, thanks to our diversified business model. We remain optimistic for the remainder of 2025 and look forward to updating you on our second quarter call. Thank you for joining us today.

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