TREE - NASDAQ

Good day, and thank you for standing by. Welcome to the LendingTree Third 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 first speaker today, Andrew Wessel, Investor Relations and Corporate Development. Please go ahead.

Thank you, Brittany, and hello to everyone joining us on the call to discuss LendingTree's Third Quarter 2025 Financial Results. On with us today are Scott Peyree, CEO; and Jason Bengel, CFO. This morning, 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 Scott 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, Scott, please go ahead.

Thank you, Andrew, and thanks to everyone for joining us today as we discuss our third quarter results. First off, all of us here at LendingTree are deeply saddened by our Founder, Doug Lebda's sudden passing a few weeks ago. Doug was a visionary leader who had an impact on every part of our company. He was truly passionate, creating a marketplace where consumers can find the best financial product for them at the most competitive price. He coined our long-standing and well-known marketing tagline, "when banks compete, you win". Personally, I came to know Doug as he explored buying the company I founded, QuoteWizard, back in 2018. At that time, I appreciated his entrepreneurial spirit that we both shared, his deep passion for the business, and the strong and similar culture he had at LendingTree compared to QuoteWizard. After LendingTree ultimately bought my company, I was able to know him more closely, especially in the last 2 years I served as President and Chief Operating Officer. I viewed him as a great boss, great business partner and a great friend. I also came to appreciate how much he cared about all of the employees at LendingTree. For example, he insisted that full-time employees receive stock as part of their compensation, so they would think like owners. He was present at all kinds of internal company events. Of course, him seeing every quarterly all-hands meeting, but also showing up at small internal meetings or celebrations, always offering encouraging words and pushing all of us to achieve more. The outpouring of condolences we have received since his passing from people across the country and within our industry has been truly overwhelming. All of us at LendingTree mourn him and keep his wife, daughters, parents and family in our thoughts as we carry on with his legacy. I'm honored to become the second CEO in the company's history and carry the mantle of what Doug founded nearly 30 years ago. Doug and I were aligned on driving continuous improvement in the consumer shopping experience, optimizing our business through operational excellence initiatives, which I started to implement 2 years ago upon being appointed as COO. We also share the belief that improvements in AI technology will greatly benefit the consumer experience when they come to LendingTree shopping for financial products. I'm very excited as to how Agentic AI, LLMs and other AI tools can transform the shopping experience of our products over the next few years. Finally, we both agreed we needed to ensure our balance sheet was equipped not just to survive future periods of economic stress, but to thrive in them, allowing us to go on the offense when competitors are pulling back and our customers need us more than ever. Reflecting on the incredible business Doug created, it seems appropriate that in the third quarter this year, our revenue of $308 million was our second highest in company's history, barely missing our high point when the Fed rates were essentially 0. Each of our three segments recorded double-digit year-over-year revenue and VMD growth. This is the sixth consecutive quarter we have reported revenue growth from the prior period. The company's diversification across industries is allowing us to lean into areas of high demand, most notably from our insurance carrier partners looking for new auto customers. We have retaken a leadership position in the insurance marketplace. We will continue matching carriers with quality, high-intent consumers to capture an increasing share of those insurance companies' marketing budgets as we move into next year. This is a similar strategy we employed during the downturn in carrier demand in '23, which led us to being well positioned with leading market share in the industry -- when the industry recovered and then boomed in '24. Importantly, we've begun to see a strong ramp in spend outside of our top three carriers, an important indicator of the health and duration of this cycle. Specifically in Q3, if you look at our 4 through 10 largest carriers in our network, so take out our top 3 carriers, those next 7 spend with us increased by nearly 60% compared to a year ago. Our Consumer segment is also producing fantastic results. Segment VMD grew 26% on the quarter and 11% revenue growth. Our small business team has just been spectacular and it's benefited from our investment in the concierge sales strategy. These high-touch customer service models helped us drive a 30% increase in the number of loans we closed for partners in this quarter versus last year, and driving overall 50% year-over-year increase in revenue. It has propelled growth in our high-margin bonus and revenue referral revenue streams as well. The personal loans business continues to grow nicely as lenders are steadily and cautiously widening their credit criteria for borrowers. Notably, close rates for both prime and mid-prime loans for debt consolidation grew by double digits in the quarter compared to the prior year. Record consumer credit card balances and the forecast for lower short-term interest rates should help accelerate the growth of this vertical in the next year. The Home segment is also doing quite well. And despite persistent high mortgage rates and a sluggish housing market, revenue from our home equity product increased 35% in the third quarter as lenders continue to target this product given the lack of demand for first mortgages. Existing home sales remain stuck around the 4 million annual unit level. You'd have to look back to the financial crisis period of '08, '09 to find similarly low activity. Before we take your questions, I want to let the investor community know that we are extremely well positioned to grow our business. Doug created a revolutionary company, the first true online comparison shopping site, and I'm honored to lead it going forward and continue executing on its original vision. I would also like to thank all of the employees at LendingTree for putting up such strong performance and positioning us well for continued growth in 2026. We are happy to open the line to your questions.

[Operator Instructions] Our first question comes from the line of Jed Kelly with Oppenheimer & Company Inc.

Just digging into the Consumer segment, in the shareholder letter, you said your credit cards are getting back to your historical margins. And then if I look -- it looks like consumer VMM is going to be at record annualized margins this year. So can you just talk about how we should think about all the moving puts and takes in that segment and the margin profile and what we should look at going out into next year?

Yes, sure. Thanks, Jed. First off, I would say, I'd probably say the consumer VMM being at the highest levels overall is largely driven by our small business -- just because our small business is generally a high-margin category, and it has grown spectacularly. Small business was our biggest lending business in consumer in the third quarter. And we -- with the concierge sales staff, our lead growth, our positioning in that market, we do expect that to be continued strong growth for the indefinite future. And so we're very excited about that business and where it's going. And honestly, I'd also say we have some other businesses for proprietary reasons. I won't say specifically which ones, but we think we can move that similar concierge sales model into, and we will be actively engaging that in '26, and starting to build a direct concierge sales team, which is both great for the customer -- consumer experience as well as the monetization of the traffic. To hit on credit cards briefly, yes, we were -- the combination of rolling out TreeQual and just pulling back the margins in that business had gotten really low. So there was a real focus. Over the past 12 to 16 months of just like, all right, let's get the business back in good, healthy shape, running at solid margins. And we have done that, and it's been a great -- it's a smaller piece of the overall consumer business, but it's much healthier today than it was a year or 2 ago. And I think that is positioned for -- to get back into top level growth mode next year.

Okay. And then obviously, I think to the other real good point about the quarter is just where the balance sheet is. So a great job on your part, getting it down to 2.5x leverage. Can you just talk about where you're going to prioritize capital returns, buybacks, paying down debt or investing in the business?

Yes, Jed, this is Jason. I can take that one. Yes, we're very happy with the completed refinancing this quarter. We think that's a great event that's going to allow us much more flexibility going forward, like you said. Our leverage has continued to come down 2.6x. It was 4.4x a year ago, and it was much higher than that even before that. And so when it comes to capital allocation, I think our first priority, our default is going to be paying down debt. That's a risk-free return of north of 8%. But now because we have a cov-lite term loan, we do have the option to start thinking about buying back shares and doing selective M&A. So we're certainly going to look at those things. And if we do see the stock trading at an attractive price, we're certainly going to consider it. If we do see an acquisition out there that's going to be beneficial to us, we'll consider it. But I would say the default is generally going to be paying down debt.

Our next question comes from the line of Ryan Tomasello with KBW.

My sincerest condolences for the loss of Doug. In your insurance business, Scott, if you can just elaborate on what gives you confidence that this cycle has legs into next year? And then just remind us the typical composition of revenue between the top and low end of the funnel. It sounds like variability in that mix is a main driver of the margin volatility. And just how you're thinking about what a reasonable trajectory is for segment margins in the insurance business from here?

Okay. Yes. I mean just starting at the sustainability of the industry levels, I mean, I would just open with the insurance industry as a whole on a macro level remains in a very, very profitable position. These companies are -- after the deep downturn that they're in a very healthy position now, a healthy position to the level of where a number of companies are starting to look at rate reductions for their policies, I mean they're that profitable. So I think we're just in a good position where all of the major clients that are spending marketing dollars with us are in very healthy positions. So there's no reason to think that they won't continue to aggressively pursue market share in the upcoming year plus, which obviously is -- we're a major place to go if you're looking to increase your market share. Talking about the product lines within insurance and how it affects margins, that's a very true statement you're just making. We've got clicks, leads and calls are our main product lines in insurance. And if you -- the clicks is generally by far the lowest margin product where leads and calls are much larger margin products, but they all work together. So -- but what happens when you have some of our major clients that are click buyers, it drives your revenue way up, but at a lower margin profile. But what that does is by -- it allows us to go out and buy and secure way more traffic, that means we can sell more leads and calls at the end of the day. So your overall margin profile goes down, but you're generating so much revenue and you're selling off so many more leads and calls that your overall VMD goes up quite a bit. So that's just kind of the wave of the up and down as those click budgets may go up and down a lot. But I would say we're a total VMD dollar company. We will -- we want to drive as much high-quality traffic as possible and make as much total VMD while we're doing that. And I think Q3 is very reflective of that strategy, over $200 million of revenue with just under $50 million of VMD, our second biggest VMD quarter of all time there outside of Q4 last year, which was just abnormally high as we've discussed on previous earnings calls. And I think that this business, we are well positioned, especially the first six months of next year to see very strong VMD growth in the insurance segment.

Yes. And I'll just tack on to that. Just to Scott's point, if you look sequentially, Q2 to Q3, insurance VMD went up $8 million. $8 million that are largely going to fall to EBITDA. And so that's what we're focused on, driving operating leverage, keeping expenses under control and dropping VMD dollars to EBITDA. When it comes to expenses, we're happy to invest in variable expenses that are going to drive VMD and then focus on efficiency everywhere else, just so we can really focus on driving operating leverage into 2026.

And then consumer credit has come under more scrutiny of late. So I'm curious what the latest is you're hearing from your lending partners on appetite and credit boxes. And this is obviously with respect to your -- mainly your personal loans business. Have you noticed any signs of tightening more recently? Or do you think that there's still room to run on the conversion rates, which sounds like they improved pretty nicely here in the quarter?

Yes. I mean, I would say, overall, at a macro level, and I've seen the same things that you're seeing and referring to. I would say when you actually get to our clients, they're not really saying the same -- their credit boxes and their delinquency rates and all are generally well within acceptable ratios for them at a high level. We've seen a few of our clients on the more deep subprime side of it pull back a little bit. So maybe there's a bit more concern when you get down towards the more deep subprime. But I mean -- but I would say for the most part, at a macro level, we're seeing more expansion than contraction for credit boxes.

Our next question comes from the line of Mike Grondahl with Northland.

Condolences and prayers for Doug's family and the LendingTree family. Two questions. One, could you talk at a high level about the SEO, the GenAI sort of environment and how that's changing and kind of the quality of leads you're seeing overall and the conversion trends. And then secondly, I'd be curious just overall visibility in the business today vis-a-vis or as compared to a couple of the previous quarters.

Can you be a little bit more specific with your second question there?

Yes. Just we debate from time to time revenue visibility that you guys have. Can you see out 60 days, 90 days? Just sort of how you feel about your revenue visibility today versus prior quarters?

Okay. I would -- okay. So starting on the SEO front, along with LLM, AIO strategy around there. So LLM and AIO type traffic is going up. We have -- like from a conversion perspective, it's night and day when you get traffic from the LLMs or AIOs. I mean it's literally like 4 to 5x the conversion rate. And I think that's just because they've gotten so many answers at that point, we feel like these people are ready to transact by the time they come to you. So -- but that said, the traffic is way lower than the SEO. And it's way lower on 2 levels of just obviously, the consumer uptick of it. There's still vastly more consumers going to the traditional like Google-type search results versus the vLLMs. And then it's just the newness of placement within the LLMs and the SEO strategy of getting that place in the LLM. So SEO is one of those categories. It's been very -- I mean, I'll be honest, it's been very turbulent in Q3 as traffic has shifted and changed in legacy SEO. The entire financial services industry has been hit pretty hard by it. I would not want to be a company that's highly dependent on legacy SEO traffic. I'll make that statement. I think it's fair to say the era of [ "free rein" ] on Google is coming to an end. But then at the same time, the paid search traffic, which we are very, very good at ourselves is continuing to be very strong and growing. So we're happy with that. So yes, it's definitely a turbulent market, and it's definitely a transitional period where there is still legacy SEO and that is still important to be participating in, but it's also very important to be focusing on building your content and tools and data openness around LLMs and AIOs. And then getting -- and then moving to your second question, just about revenue outlook. I would say after -- starting with insurance, after that's been so turbulent over the past few years, I would say we're probably -- it's a little bit more steady and predictive now going forward after that hyper growth era. And I think it will still grow at some level, but not in the hyper growth area. Consumer and mortgage -- mortgage is a little trickier because mortgage is really about when do we get that inflection point where the refinance snowball starts to grow, right? We were looking at some stats here, and you look at about 5.75% mortgage rates, that is about 3x as many mortgage borrowers are in the money at that rate versus what the rate has been most of this year. So if you trend down to that level, that's probably where you really see the snowball start to happen. Now I'm not a soothsayer. Like, I can't tell you at what exact point we trend to that level. But that -- when you hit that inflection point and it gets 5.75% and it keeps fading down below that, that snowball could build really fast, and revenue could blow up and VMD could blow up really fast there. And it will be hockey stick growth for a while. There might even be a little bit of an upfront wave that comes through when it happens. But you just -- I think you kind of got to get down to that 5.75% level for enough people to be in the money there. Consumer, I think consumer is probably the most steady where like we can look at just like our media practices growing our media traffic, growing our direct sales force. That's just a bit more predictive on what the revenue will generate there. So I hope that answers your question.

Yes. No, it does. And maybe just one quick follow-up. On the mortgage side, are you seeing lenders engage more and get potentially ready for that refi environment at 5.75%. Are they moving today to be in a position to capture that?

Yes, I think so. And I think what you see is like our home equity business has grown so much. I mean home equity is not near as profitable for these lenders as refi is. But the reason they're so staffed up and want to buy so much of that home equity traffic, a big part of that is they want to be ready for -- when the refi boom comes around and be staffed up for that. Another thing we're doing in the more control your own destiny mode, we're really actively pursuing a small lender growth strategy, and we're really ramping up now pretty quickly just our total distribution network. So not just the major direct-to-consumer players, but I mean, when we hit that inflection point, we would like to have 1,000-plus clients on the network to really soak up that demand when it explodes.

Our next question comes from the line of Melissa Wedel with JPMorgan.

Most of mine have already been asked and answered. I thought it would be helpful, though, to follow up on a reference earlier to potentially considering some M&A with the balance sheet flexibility that you now have. I think in the past, most of the acquisition activity that LendingTree has done has been sort of bolt-on type acquisitions with the exception of QuoteWizard of course. So as you think about that going forward, do you expect that to continue? Or would you consider larger potential deals?

Yes. I mean, at this point in our cycle, I don't think we're looking at any sort of larger, like QuoteWizard size deals, to be bluntly honest. But I mean, yes, if there's -- if you think about and you look at our network, I mean, like one way you can look at it is what are the products and services -- financial products and services we are not offering right now. And is there a small company out there that's built something good that helps round out our services that we can like use the power of our remarketing and e-mail and SMS and call center like to really drive a lot of growth on one of those products. That is the type of thing we would be interested in. You look at something, hey, if someone has come up with something that is really unique on really improving the consumer shopping experience, that's probably something we would look at and be interested in. But yes, that's just kind of a high level of the types of companies we look at.

Okay. Appreciate that. And then finally, this is a small point. I think in the shareholder letter, there was a reference to some homeowner type insurance policies and also health. Just wondering if you could give us an update on where those categories fall in terms of sort of contribution to revenue. Obviously, auto is going to be the dominant one in insurance. I'm just curious where those have grown to.

Yes. I'm actually glad you asked that because I actually made some notes because those are -- they kind of get hidden in the numbers, but those are really good stories for us as a company. And I'll take this opportunity to give a lot of credit to the teams at LendingTree that are working on those product lines. Our home insurance VMD is up 80% year-over-year. Home insurance is a hot, hot product for us. That's probably the biggest growth product we have in the company. And it's about 20%. I think it's just under 20% of our insurance business. So it's not a tiny piece. Health insurance is another great story. It's up 41% year-over-year VMD, and it's just over 10% of our insurance business. So that just hopefully gives you a high level of where those products are at.

[Operator Instructions] I am showing no further questions at this time. I would now like to turn it back to Scott Peyree for closing remarks.

Thank you, operator, and thank you, everyone, for your questions today. I look forward to speaking with you all on follow-up calls and in person at investor conferences in the near future. Have a great day.