Q3 2021 Transcript

REFINITIV STREETEVENTS

EDITED TRANSCRIPT

TREE.OQ - Q3 2021 LendingTree Inc Earnings Call

EVENT DATE/TIME: OCTOBER 28, 2021 / 1:00PM GMT

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OCTOBER 28, 2021 / 1:00PM, TREE.OQ - Q3 2021 LendingTree Inc Earnings Call

C O R P O R A T E P A R T I C I P A N T S

Andrew Wessel

Douglas R. Lebda LendingTree, Inc. - Founder, Chairman & CEO

John David Moriarty LendingTree, Inc. - President of LendingTree Next

Trent Ziegler LendingTree, Inc. - CFO & Treasurer

C O N F E R E N C E C A L L P A R T I C I P A N T S

James Eric Friedman Susquehanna Financial Group, LLLP, Research Division - Senior Analyst

Jed Kelly Oppenheimer & Co. Inc., Research Division - Director & Senior Analyst

John Robert Campbell Stephens Inc., Research Division - MD

Melissa Marie Wedel JPMorgan Chase & Co, Research Division - Analyst

Michael John Grondahl Northland Capital Markets, Research Division - Senior Research Analyst & Head of Equity Research Youssef Houssaini Squali Truist Securities, Inc., Research Division - MD & Senior Analyst

P R E S E N T A T I O N

Operator

Good day, and thank you for standing by. Welcome to the LendingTree, Inc. Third Quarter 2021 Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions) And without further ado, I would now like to hand the conference over to one of your speakers today, Mr. Andrew Wessel, Head of IR. Please go ahead, sir.

Andrew Wessel

Thank you, Vic. Good morning, everyone, and thank you for joining us on the call this morning to discuss LendingTree's Third Quarter 2021 Financial Results. On the call today are Doug Lebda, LendingTree's Chairman and CEO; J.D. Moriarty, President of LendingTree Next; and Trent Ziegler, CFO. As a reminder to everyone, we posted a detailed letter to shareholders on our Investor Relations website earlier today. And for the purposes of today's call, we will assume that listeners have read that letter, and we'll focus on Q&A.

Before I hand the call over to Doug to give his remarks, I want to remind everyone that today's call -- that during today's call, we may discuss LendingTree's expectations for future performance. Any forward-looking statements that we make are subject to risks and uncertainties, and LendingTree's actual results could differ materially from the views expressed today. Many, but not all of the risks we face are described in our periodic reports filed with the SEC.

We will also discuss a variety of non-GAAP measures on the call today, and I refer you to today's press release and shareholder letter, both available on our website at investors.lendingtree.com for the comparable GAAP definitions and full reconciliations of non-GAAP measures to GAAP. And with that, Doug, please go ahead.

Douglas R. Lebda - LendingTree, Inc. - Founder, Chairman & CEO

Thanks, Andrew, and thank you to everyone joining us today. Before we get to questions, I'd like to discuss the sustained momentum we have seen across most of our businesses and the diversification benefits we enjoy from the various financial industries we work with. Our deep network of lenders across both the Home and Consumer segments helped us to achieve the high end of our revenue guidance despite the temporary partner

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OCTOBER 28, 2021 / 1:00PM, TREE.OQ - Q3 2021 LendingTree Inc Earnings Call

spend declines occurring in the insurance industry. In addition, our new credit facility and strong balance sheet allow us to remain on the offensive while many of our competitors are struggling to operate profitably.

The recent monetization of a portion of our ownership in Stash provides us with additional liquidity. All capital allocation options remain on the table, including further investment in the business, share repurchases and exploring inorganic growth opportunities. This quarter, the Home segment generated record VMD, up 65% of last year as low interest rates led to sustained refinance opportunities and improvement in the purchase market. Mortgage revenue per lead was up 78% over the prior period, an indicator of the value we deliver to our lending partners every day and our ability to survive multiple different types of interest rate cycles.

The Consumer segment also generated impressive results as the recovery from the trough experience at the outset of the pandemic continue. We have more lenders on our personal loan platform than ever before, and our credit card partners remain eager to acquire new borrowers and as the effect of sustained government stimulus wanes. We have new initiatives rolling out, which will help sustain momentum in the consumer business as we move into next year.

My LendingTree is benefiting from the realignment of our management team that we put in place earlier this year. We added 1.1 million new users in the quarter, bringing the total to 20 million. We see an incredible opportunity to add product and functionality to My LendingTree, which will help to provide a best-in-class customer experience that will, in turn, attract additional partners to the platform. We look forward to discussing more about our plans for My LendingTree and all of our businesses at our upcoming Investor Day early next year. Now operator, we're happy to open the line for questions.

Q U E S T I O N S A N D A N S W E R S

Operator

(Operator Instructions) Your first question comes from the line of Youssef Squali from Truist.

Youssef Houssaini Squali - Truist Securities, Inc., Research Division - MD & Senior Analyst

So a couple of questions for me. First, on the, Doug, on the insurance business. I think in the letter, you talked about how you believe it's a temporary phenomenon. And I was just wondering, and I know you went through this in 2016. I was wondering how do you know that it's temporary versus maybe something structural or potentially competition? And maybe just remind us what happened in 2016 and how long it took you guys to recoup from there? And then...

Go ahead.

Douglas R. Lebda - LendingTree, Inc. - Founder, Chairman & CEO

Go ahead. Sorry, Youssef, finish up.

Youssef Houssaini Squali - Truist Securities, Inc., Research Division - MD & Senior Analyst

Yes. I mean just kind of how you think we, the investment community should kind of look at that segment over the near term as you've rolled out

the Medicare offering, et cetera? And then I have a quick follow-up for...

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OCTOBER 28, 2021 / 1:00PM, TREE.OQ - Q3 2021 LendingTree Inc Earnings Call

Douglas R. Lebda - LendingTree, Inc. - Founder, Chairman & CEO

Yes. So let me just broadly, I'll give you my perspective, and then this is -- that's a many angles on that question that these guys, J.D. and Trent should add on as well, too. Without going back to 2016 because every cycle is different, what you're seeing right now is basically insurance companies that are obviously enormous spenders of advertising pulling back -- some insurance companies pulling back bids to reduce the flow of inbound volume because they're facing right now higher loss rates in some, particularly auto insurance. And those rates have not gone through regulators yet.

So -- and that's what our partners tell us that we know our business works. We know our partnerships are strong. And then we're -- and that's what they tell us is going to happen. And it's never fun when that happens. However, it also shows the flexibility of the model when you've got your marketing dialed in like that. I mean this is still a very profitable business for us and because we can market at scale, we can weather this better than most companies can. And I think that's going to create a lot of opportunities.

So when something like this happens, it happens to every, call it, lead supplier in the industry, and they're probably working with 10 or 20 with us being one of the biggest, you'll start to see a lot of weeding out in the same way that we used to have a lot of search engines and now we only have 1 or 2. During cycles like this, it will weed out a lot of the buyers, and it will probably be a long-term benefit for us because we won't have as much media competition. Go ahead, J.D.

John David Moriarty - LendingTree, Inc. - President of LendingTree Next

Youssef, it's J.D. The only thing I would add is let's just talk a little bit about what that cycle is. It's well publicized that the results at the carriers have not been good. It's a combination of 2020 was a great environment, consistent premiums and very low claims because no drivers were on the road. In 2021, drivers get on the road. Obviously, premiums are quite low given the environment that we've had where prices have been driven down, premiums have been driven down. So it was not a good environment and then Hurricane Ida made it worse. So it's pretty obvious to us. It's not an issue of competition. It's an issue of the health of the carrier.

Now if you think about that business relative to our other products, it is somewhat unique in that it has subscription-like qualities to it. The difference is for carriers to increase prices, they have to get state-by-state approvals. So they work through their models, they apply to increase prices. How does that matter for us? We should assume that, that isn't going to change. It's obviously not going to change in 2021. If they get approvals in early '22, they then increase prices.

That is the greatest call to action to a consumer to go search for a new provider or for a better rate. And so that will actually be a good thing for our business. It's just a matter of the cycle. So getting back to your point around comparing this to '16, it's not perfect. It is the most recent period. The business recovered nicely in '17. And then obviously, we were in a position to acquire QuoteWizard at the end of '18. So it recovered pretty quickly. And there is an interesting aspect of it where it drives consumers to comparison shop.

So that's the part that one of the things that we really like about the business is that when prices increase, which they undoubtedly will, it will be to our benefit in terms of focusing consumers on comparison shopping. So we think that will be good. Now in the period, we're really happy with everything going on in our insurance business. And the strategy there has been diversified across products. We're doing that. We've talked a lot about our agency initiatives in P&C and in Medicare. And so there are a lot of really good things going on in insurance.

And then as Doug said, competitively, we come at this with a very profitable insurance business. Many of our competitors are not as profitable. They don't have as much to work with.

So while our margins have come in, in the most recent period, we're still operating a very -- we're able to weather this period better than our competition. And so we're going to continue to invest in a business that we think is a great business for LendingTree.

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OCTOBER 28, 2021 / 1:00PM, TREE.OQ - Q3 2021 LendingTree Inc Earnings Call

Douglas R. Lebda - LendingTree, Inc. - Founder, Chairman & CEO

Yes. And that was excellent. And I would -- I wrote down a couple of things while J.D. was talking of -- answering that with my -- answering your question with also my shareholder hat on, it's been excellent capital allocation. It was a great deal, which added a significant leg to the stool. The business has been doing better than we expected and really showed the benefits and synergies that we can also unlock together with an amazing team, but they've been doing better than we expected, and the third thing is they're winning in the market.

And in a tough market, you go through these cycles, and it's worse when I was just in the mortgage business in this type of business, you want to have broad coverage because it makes a lot of things easier and single product is really hard. And so there's a benefit for them being part of us, and there's a benefit of us being part of them, and that's helping us to win in the market right now. And that's -- you weather those and you come back even stronger as you keep gaining market share. That's the whole plan.

Youssef Houssaini Squali - Truist Securities, Inc., Research Division - MD & Senior Analyst

That's super helpful, and very thorough. Just one very quick one. On that capital allocation priority that you just talked about. So congrats on cleaning up the balance sheet, looks a lot stronger now. A little surprised that you guys have not already announced the buyback, just considering how the stock has been acting. Just wondering if you can maybe expand on that a little bit and what are your capital allocation priorities short term?

Douglas R. Lebda - LendingTree, Inc. - Founder, Chairman & CEO

Yes. I've -- it would be a little premature to talk. I've got a Board meeting next week, and we're going -- we just -- we're going to present our strategy to the Board, and that will be one of our discussion topics.

Trent Ziegler - LendingTree, Inc. - CFO & Treasurer

Yes, Youssef, it's Trent. We've been limited in terms of flexibility just due to the prior credit agreement that we were in and the covenant set up with that, obviously, our leverage profile blew up a little bit just given the trailing EBITDA profile during COVID. But clearly, we're addressing that piece of it. And we've also -- in terms of the new covenants, we've moved from a sort of a total leverage test, the one that just factors in our secured borrowing of which there's very little right now. So we'll have a whole lot more flexibility to put that new found capital to work on a go-forward basis.

Operator

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

John Robert Campbell - Stephens Inc., Research Division - MD

So you guys called out the SMB rev. I mean, obviously, a pretty good spike, I think, 50% sequentially. I know you guys don't break out that exact amount anymore, but I be might off course here. I just want to check on this. But if our run rate, what I've got for quarterly SMB revenue, it's implying that you guys are kind of tracking back to that pre-pandemic level. So first, is that about right? And then secondly, you talked to that concierge business as a main driver. Just remind us again what that is and kind of how you feel about SMBs trajectory from here?

Trent Ziegler - LendingTree, Inc. - CFO & Treasurer

John, it's Trent. So you're right. So profitability in that business was actually back to or better than pre-COVID levels that we saw in '19. The concierge piece of it that we're referring to is [come the] bifurcation in the model. So we bought SnapCap back in 2017, as we were trying to build our own

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