LendingTree, Inc. (NASDAQ:TREE) Q4 2022 Earnings Call Transcript

LendingTree, Inc. (NASDAQ:TREE) Q4 2022 Earnings Call Transcript February 27, 2023

Operator: Good day and thank you for standing by. Welcome to the LendingTree Fourth Quarter 2022 Earnings Conference Call. At this time all participants are in a listen-only mode. After the speaker’s presentation there will a question-and-answer session. . I would now like to hand the conference over to your speaker today, Andrew Wessel, Vice President, Investor Relations. Andrew, please go ahead.

Andrew Wessel: Thank you Michelle, and good morning to everyone joining us on the call this morning to discuss LendingTree’s fourth quarter 2022 financial results. On the call today are Doug Lebda, LendingTree’s Chairman and CEO; J.D. Moriarty, President of Marketplace and COO; Trent Ziegler, CFO; and Scott Peyree, President of Insurance. 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 will focus on Q&A. Before I hand the call over to Doug for his remarks, I remind everyone 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 for the comparable GAAP definitions and full reconciliations of non-GAAP measures to GAAP. And with that, Doug, please go ahead.

Douglas Lebda: Thank you Andrew and thank you all for joining us today. We are excited to provide earning results this morning but first I wanted to call attention to our launch of the LendingTree Win Card, our first product introduction in the reimagining of the MyLendingTree offering that was announced this morning. Today the Win Card offered exclusively to MyLendingTree members who improved user engagement as the 2% cashback features only unlocked when card holders log into the LendingTree account. And the Win Card is among the first cards to be integrated with our TreeQual product we are expecting approval rates to be substantially higher which will also improve our unit economics and customer satisfaction. We had many new features and products like this planned for introduction as we move through 2023 and beyond.

The focus of all of this work is to combine our market leading partner network with the best in class customer experience. We believe the innovative products such as the Win Card in addition to planned enhancements we are hard at work on will make MyLendingTree the leading destination for our customers to shop for all of their product needs. Moving on to our results. In the fourth quarter our insurance division posted excellent results. This can be attributed to initiatives from Scott and our insurance team for the employees to focus on higher customer traffic to help our insurance partners improve conversion rates. Because of this we are able to capture increased budgets from insurance carriers and at the same time reducing marketing costs.

The team did a tremendous job executing on all of these projects which led to margin improvements by a full six points from the third quarter. When carrier spent returns to normalize levels we expect these initiatives will be rewarded with increased market share. Our home segment not surprisingly faces a very challenging part of the interest rate cycle. The firm’s commitment to higher rates to subdue inflation will continue to have negative impact on new mortgage loan demand. Additionally, lenders are seeing lower conversion rates because there was less benefit to refinancing as interest rates rise. Of course integration with our largest partners helped us to quickly pivot through sourcing cash out borrowers who are looking to top the substantial amount of equity by homeowners delay.

This year we expect to cash our transaction with a bulk of our revenue opportunity at Home. However, our key growth initiative within the segment is to gain share in the purchase market by improving close rates for our partners to the extent we see a pickup in purchase application rates as we move through the year, we believe this project will have a positive impact on our financial results. In our consumer segment we saw throughout the second half of 2022 lenders tightened underwriting criteria due to higher interest rates and scoring effect they have on our economy. A stricter credit environment generally reads the lower close rates for our lenders which reduces our revenue. Despite the decline in fourth quarter consumer revenue, we’re able to grow segment profit by relentlessly focusing on unit economics.

Our growth initiatives in consumer include completing technology enhancements for our credit card business, which we believe will help to improve financial results going forward. In small business, we are also implementing technology solutions to automate capture of applicant financial data, which will help better set segment our traffic for our lending partners to also increase close rates. Additionally, we remain intensely focused on operating expenses. We recognize it as a key financial metric that is entirely within our control. The variable marketing model this company was built around is designed to avoid outspending the revenue opportunity available and similarly it is our job to properly manage our fixed costs based on our outlook for future revenue.

We will invest in projects when we see an attractive risk adjusted return. We’re doing that currently to support the improved customer experience and our other key growth initiatives. However, we will also move quickly to decrease funding for parts of our business that are unable to meet return targets evidenced by our exit from the reverse mortgage segment in the fourth quarter. With commitment to financial discipline we will remain a key tenant of our day-to-day activities as a leadership team. And now, operator, I’d be happy to open the call for questions.

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Q&A Session

Operator: . Our first question comes from Youssef Squali with Truist. Your line is now open.

Youssef Squali: Great. Thank you very much and good morning all. So a couple of questions for me. One, on credit card Doug, can you maybe talk about what you’re seeing there, it seems like you may be losing a little bit of share there, yet you just talked about planning initiatives to kind of reverse that, maybe can you speak to exactly what you’re doing there to help reaccelerate that business in 2023? And then on this obligatory question about large language models and like ChatGPT and potential impacts on the business. So maybe can you add a high level talk about how you’re expecting that to impact both the search by financial products, etcetera, so the demand side but also on the content creation side which could actually be a nice or potentially a good?

Douglas Lebda: ChatGPT?

Youssef Squali: Yeah, thank you.

Douglas Lebda: Sure, so I got a card and I got AI/ChatGPT right, if I got that correct. So on card and I’ll let J.D. chime in here, I’ll hit the high level — high notes. With every credit card marketplace on the internet, you typically have what we refer to as a click out model. What we’re trying to do there with both TreeQual and the Win Card is to have access to the real underwriting criteria of lenders so that we can improve close rates. On AI and ChatGPT we’re using more machine learning and AI right now, although it’s something that we would potentially want to look at. One of the key initiatives that we have is I talked a lot about close rates and if you dig into mortgage which is a long cycle product, we need to improve our communication with consumers post submit while lenders are making phone calls.

And we have a lot of things on the docket to address that. But I would say AI is not one of them yet. But as it develops, I could certainly see that helping us improve our communications with consumers, but we’re not there yet. J.D.

J.D. Moriarty: Just Youssef, let me focus on the first credit card question, which is really with regard to our credit card marketplace. We have a tech platform migration going on right now internally, we call that to the Lightspeed platform that will make our page load speed faster. It will make partners interacting with us easier. It will make compliance which is a very important thing in the credit card world way more efficient and so benefit for us and for all of our partners. So we’re excited that work is going on in Q1. We are on schedule with it and it will probably finish sometime in Q2. Now that’s not the only solution to the credit card business for us and we’ve talked about this in the past. We are way too dependent on paid search.

And so we need to grow other marketing channels. So we’ve got actually very good, we’re very happy thus far with the progress in both CRM for credit card and specifically for SEO for credit card. Those are two focus areas for us in terms of expanding marketing. Why is that important? Because all of our partners in credit card need us to get to certain volume targets and if we hit those volume targets we get paid more and it becomes prohibitively expensive to do that if you are very dependent on one channel. So that’s what we’re doing in part. The other very important part of becoming more integrated with our partners and delivering them more volume is TreeQual and so we continue to add partners there. It has been admittedly slower than we projected at the beginning of last year, but we think we are on the right track with the solution because ultimately that is driving conversion rates, right and the typical experience, a typical click out experience, we redirect a consumer from our site to that of a partner and it will get approved call it low teens percentage rates.