Participants

Andrew Wessel; Investor Relations; Lendingtree Inc

Douglas Lebda; Chairman of the Board, Chief Executive Officer; Lendingtree Inc

Trent Ziegler; Chief Financial Officer; Lendingtree Inc

Scott Peyree; Chief Operating Officer, President - Marketplace Businesses; Lendingtree Inc

Youssef Squali; Analyst; Truist Securities

Jed Kelly; Analyst; Oppenheimer & Co. Inc.

Ryan Tomasello; Analyst; Keefe, Bruyette & Woods, Inc.

John Campbell; Analyst; Stephens Inc.

Melissa Wedel; Analyst; J.P. Morgan Securities LLC

Mike Grondahl; Analyst; Northland Securities, Inc.

Madeleine Zhou; Analyst; Susquehanna International Group, LLP

Presentation

Operator

Good day and thank you for standing by, and welcome to the LendingTree Inc. first quarter 2024 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, VP of Investor Relations and Corporate Development. Please go ahead.

Andrew Wessel

Thank you, Justin, and good morning to everyone joining us on the call to discuss LendingTree's first quarter 2024 financial results. On the call today are Doug Lebda, LendingTree's Chairman and CEO; Scott Peyree, COO and President of Marketplace; 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 the listeners have read that letter, and we'll focus on Q&A.
Before I hand the call over to Doug for his remarks, I'll 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'll 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 to all who are with us on the call today. We are very excited to report first quarter adjusted EBITDA increased 48% from last year as our insurance segment produced very strong results with both revenue and DMD up double digits from a year ago.
Many products in our consumer business generated strong sequential growth, a trend we expect to continue into the second quarter. The revenue outlook continues to improve into the second quarter, providing us confidence. We are finally through the worst part of the cycle for our company. We forecast stable underwriting conditions at our lender partners, combined with sizable demand growth from our insurance partners will return our business to revenue and adjusted EBITDA growth for the full year.
Jumping into segment performance, our insurance business generated 11% growth in both revenue and VMD over a difficult comp from last year. Carrier partners steadily increased spending with us to acquire new customers, while a record volume of consumers again came to us looking for auto insurance policies, following significant premium increases over the past year. The momentum has continued in the second quarter, and we are now forecasting record revenue in this segment.
Our consumer segment performance was highlighted by 24% sequential growth in small business revenue. As we mentioned on last quarter's call, we made a strategic decision in 2023 to optimize operating margins, given the uncertain demand trends at many of our lenders.
We have been encouraged in underwriting conditions that most lender partners have remained stable for some time. And so we are leaning into this increased certainty with additional marketing investments aimed at driving higher revenue and VMD for the segment across multiple product categories.
Our home segment continues to perform at trough levels, given the backdrop of higher mortgage rates and Milton and low supply of homes for sale. Our home equity offering continues to provide most of the opportunity for us, our partners and own it and our partners in home, and we expect that the trend will continue for the remainder of the year.
Last but certainly not least, at the end of the quarter, we secured a new $175 million loan commitment from Apollo Funds. The proceeds from this financing in combination with existing cash on our balance sheet and future free cash flow provide us with ample liquidity to meet our remaining convertible note maturity next year.
We would expect leverage of four times or less once we've retired the 2025 convertible notes. And we look to continue optimizing our capital structure thereafter. We are happy to have addressed this financing, which enables us to focus solely on improving our business and our financial results going forward. And we can take any questions.

Question and Answer Session

Operator

(Operator Instructions) Youssef Squali, Truist Securities.

Youssef Squali

Great. Thank you very much and good morning, guys. I guess on the guide, and I was just wondering if you can help us better understand your thinking in terms of the rate environment. And so what kind of rate environment is baked into that mid-single digit revenue growth for the year, I guess and one from expecting six cuts to may be one or two, perhaps even a potential hike by year end.
Does that or how much risk does that post that guide I guess what I'm trying to get to is how much of the guide is really within your control versus just macro and then in your efforts to lean into marketing again, for insurance and consumer and what gives you confidence that this is the right time, I guess for insurance, I understand it for consumer. Maybe you can help us better understand kind of the drivers there? Thank you.

Douglas Lebda

Yeah, let me this is Doug. I'll start at a high level and then Scott can can chime in on. We don't have any plans in our guide for macro, yes, rate cuts and things like that. And Trent can talk more about that, but I hope that gives you confidence.
And in terms of the leaning in on some of the consumer categories on if we see which we're seeing increasing demand, it pays for us to go spend more money and increase a simple level, increase your bids across search and display and other things do that at a lower margin profile, the MDI margin profile than you run it in the past when we were really optimizing for very short term VMD, and that's what we're doing. So it's profitable spend. It just comes at a lower margin.

Trent Ziegler

Yeah, Just to add to that, Youssef, you'll recall when we introduced the full year guide. Last quarter, we were pretty clear about the fact that we didn't we weren't baking in any, you know, substantial macro improvement rate cuts or otherwise on. We expected mortgage to kind of stay where it is for the for the remainder of the year, some similar similar macro backdrop for consumer, and we obviously did expect insurance to get better and it is right.
And so the increased revenue guide is largely a function of increasing confidence in the insurance business, and we're seeing that play out four months into the year and then to a lesser degree, kind of piggybacking on your second question, obviously, we are leaning in a bit more aggressively into the marketing side to drive top line and wallet share improvements, particularly in consumer.

Youssef Squali

Great. Thank you both.

Operator

Jed Kelly from Oppenheimer & Co.

Jed Kelly

Hey, great. Just circling up, can you can you talk about your comments around the stable lending environment and what's giving you the confidence to lean back and then in the insurance segment, how should we view the outlook maybe over the like the next 12 to 18 months? I know it's been really volatile and can you talk about how we should think about periods where you're over-earning?

Douglas Lebda

Scott, do you want to take that?

Scott Peyree

Yeah, sure. I'll take that on and start on the consumer economy. And to answer your question, Jed and follow-up a little bit on Youssef's question there on just leaning into consumer. Yeah, in the consumer, the reality is the higher rates a lot of consumers are just becoming more accepting of those rates. And you do still see from a consumer segment, strong demand in home equity has been increasing in demand for personal loans as strong demand from consumers, small business loans, as has strong, commenced demand for consumers.
And when we see we see a level of stability with our clients over the past 12, 18 months. Another tightening there are writing standards constantly as rates were going up. And there's concerns about delinquency while really over the past three to four months, we've really seen a leveling off of that photo art client partners still have tight underwriting team, but they're not tightening anymore. And so that has given us a low level of stability work.
We do see overall lower RPLs in general, but we still see high consumer demand and we don't have the chaos of RPLs continuing to lower overtime. So that us be more consistent with our marketing be more consistent with our projected IVR in lower learning projected revenue models to make our media campaigns more efficient.
And as I've talked about over the past few earnings calls, you know, real focus on the operational efficiency of more effective cross-selling of products, matching alternative products when consumers can get the primary product they're seeking, you know, better, right pricing with our clients to open up further budgets to make sure that profitable is everything to buying with us.
And at the end of the day, better revenue attribution models and our that our machine learning media algorithms can use more smartly by media. All of those things have added up to our ability profitably lean and gain market share in the important market media marketplaces out there where consumers are shopping for these products and for and to be bluntly honest, we're pretty excited with what's been happening the past few months and what we expect to happen through the end of the year, even in this down environment in Lynn.
And then to answer your big picture question on insurance over the next 18 months. I mean, I would just say insurances, it's back is fully back in US. It's not actually that fully back because they're still opening up. We even have a number of our clients are with a plus of new takes on the first couple of days. But we are seeing broad base, whether it's local agents, whether it's corporate direct buyers, whether it's writing policies through our agency.
Everyone is opening up product and geography across the board. We believe that continuous book, I believe that carriers are entering a very profitable period of time on the I feel we're on the front end, our super cycle in insurance couple of years where carries a return to profitability, but due to the high rates of insurance policies right now, consumer demands are our consumer demand was up 19% year over year in Q1. I'm just shopping for insurance quotes. And I add that's going to continue for a while. So I think we're on a long runway in insurance right now.

Jed Kelly

Thank you.

Douglas Lebda

And I know Scott was breaking up a little bit there. Did you get -- do you have any follow-ups on that?

Jed Kelly

No, I think it was was clear. Thanks.

Operator

Ryan Tomasello, KBW.

Ryan Tomasello

Thanks for taking the questions. I just wanted to start with trend just on unpacking some of the guideposts for the year for revenue growth in VMM.s baked into the guide by segment, maybe for 2Q in the food and the full year overall, how much of the revenue guide increase is being driven by insurance versus consumer driven by the increased marketing effort. Sounds like you're alluding to more of it being driven by insurance, but just curious if you can give us some handholding for all the different moving pieces by segment here for the guidance? Thanks.

Trent Ziegler

Yeah, happy to. Yeah, I mean, on the full year revenue guide, the vast majority of that is driven by insurance. And it's yes, it's based on what we're what we're already seeing a month into the second quarter. As it relates to margin profile, we assume home remains relatively stable compared to where it's where it's been for the last couple of quarters. Some insurance as one would expect, right, as the revenue opportunity continues to unlock as both the carriers and our competitors get more aggressive. We do expect margins to contract some a little bit there.
And then so you know, it's been running in the low-40s, high-30s in Q1, and we expect that to trend down a little bit. And then consumer will continue to remain very high and healthy. But based on some of the dynamics we've been talking about. And we would argue that in the back half of last year, they were sort of unnaturally high the margin profile and many of those businesses. And so we would expect those to come. Yes, it ticked back down closer to 50%.

Ryan Tomasello

And then any color on just top-line revenue growth by segment Trent that you can give us?

Trent Ziegler

Yeah, I mean, the stopping short of guiding by segment from the insurance business, clearly, as we said, was is driving most of that incremental increase from double-digit growth in Q1, which is the toughest comp that we face relative to last year. So I would expect that to accelerate pretty substantially as we continue throughout the year. The other businesses, I would say are there's not a ton of incremental revenue upside consumer, a modest modest contributor to that incremental increase on a full year basis.

Douglas Lebda

And the only thing I'd add is for everybody just to keep remembering the core business flywheel, which is we get demand from clients, lenders, insurance companies, then we go fill that on as efficiently as we can. And if demand exceeds supply customers, then we go out and go get more customers. It's one of the great things about our business models. We can flex up. That incremental spend comes at lower margin and we do market up to the last profitable dollar.
So seeing a higher dollar of VMM and a lower percentages of that margin is generally for me a sign of health of the business because it shows that demand is higher than supply. And so I just wanted to make that point to just tell people like we literally wake up every day and say from a business standpoint, how much BMD can we generate?
The other thing I'd add is around the different trends comment around not guiding at the segment level at the product level. The great thing about this diversification we've put on in the last few years is that at any given time demand and supply of each of these marketplaces have their own dynamics.
And I think we can say like overall everything that Scott just said is absolutely right, like we're seeing net increased demand from clients where also I'll give a lot of credit to Scott and his team on this have done a lot better at operational efficiencies and putting some stuff in that in our short term things that Scott just hit on. And so therefore, we can we can lean in.

Ryan Tomasello

And just one last follow-up here to put a finer point on the reinvesting some of the margin back into marketing. Just trying to understand why we're not seeing VMD guide up here despite the significant revenue guide up. I mean, when should we expect these marketing efforts to start to translate into more of in VMM dollars. It sounds like you do expect the spend to be profitable. So just trying to understand the puts and takes there.

Douglas Lebda

I mean, I would say there's some aspect of it that is certainly conservatism and not wanting to come in wanting to give us enough flexibility so we can do the best we can and we always tried to do better, but we're just beginning this over the last couple of months and we want to make sure that we have the margin for it, margin of safety.

Scott Peyree

And, I would add. It's important also you want to grow our revenue to have higher market share higher, more significant relationships with our clients see no more options for our clients to have, which gives us more opportunities to optimize in the future. It gets some level you get you, you can only optimize the margin percentage to a certain level.
At the end of the day, you need to grow revenue on and that's the key to expanding your VMD over the long run. So even though even though margins might squeeze a little bit in the next few quarters, you are overall the we're expecting our overall DMD to continue to increase and the more revenue you do over time that the easier to expand your overall BFDS. And that's definitely the route we're taking.

Ryan Tomasello

Got it. That makes sense. Thanks, Scott.

Operator

John Campbell, Stephens Inc.

John Campbell

Hey, guys, good morning. This is the I think the first time I think the first time in 10 quarters, we talked about a revenue beat. It's also been a long time since you raised the revenue guidance. So that is great. It seems like you guys are making some pretty major turnarounds, but I wanted to click on the double-click on the insurance business. I mean, if it feels like the early stages of the potential super cycle. I think, Scott, you just mentioned that and this time it does slow a little bit steadier than past cycles. But as far as the recovery.
Scott, I think you also mentioned kind of broadly this largely broad-based and not so much driven by one or two customers. I think last kind of bump that we had was maybe one large customer, but if you could unpack the results maybe this quarter across clicks versus leads and then and I don't know if you want to go more broadly of maybe carrier versus the agent channel.

Douglas Lebda

I was just going to say real quickly the one thing that we're very focused on insurance is and everywhere, but definitely insurance because we because we believe we have a very leading position there, it's gaining share versus competition. I think we've done a really good job with that. Take it away, Scott?

Scott Peyree

Yeah, I think starting at the channel level, was it which I think is even better than clicks versus leads versus causes? Because you know from different carriers buy different things. But on at the corporate, the direct corporate carrier buyers, it has a huge growth. And those are largely part of a lot of the quick buyers.
But to talk about being broad-based, our top seven corporate property and casualty buyers all grew over 100% year over year compared to Q1 last year. So to your point of last year, maybe being one or two, not maybe it was it was just a couple really that were driving the growth is from the corporate carrier standpoint is broad-based across the board and they and they're all expanding.
We're expecting significant expansion from all of them in Q2 sequentially compared to Q1, we're going to do an all-time revenue record. It will probably be the first time we ever do over $100 million in our insurance division on the local agent.
That was an all-time record in Q1. It's more of a big shift the mix slowly, but it but it was it was up over in double digit percentage-wise. Our agency where we write our business ourselves by carriers have opened up enough deals and product that as we look at our KPI agency management models is telling us our staff should be three times the size. It is today very profitably running a staff three plans in place today. So we're diligently in the process of expanding our agency.
So you know, the carriers, the right through independent agencies are also expanding dramatically. So it is really just completely across the board. And as I said in answer to an earlier question, it's of the expansion continuous. It's not like all of these carriers are fully open at this point. They're continuing to open up each month.

John Campbell

Great to hear. I appreciate all that color. And on the home segment than it had been, I think a key driver of the beat at least relative to our model. But if I unpack it just rather than what we had, I mean, I'm thinking mortgage was maybe down 80% or so year over year, just given the strength in HELOC is up, is that right?

Scott Peyree

Yeah, [down 80%] and so on. But is there I mean home equity was more steady in mortgage was down pretty significantly year over year. And that is and I think as Doug said, at the top of the beginning, you know, home equity is probably going to be the big driver through the end of this year.
But we have been, I would say, pleasantly surprised your points on revenue did grow pretty decently sequentially from Q1 from Q4 overall in mortgage, and we are expecting it to grow decently from Q1 to Q2 as well.
And a lot of that's just been driven by I think consumers are just a little bit more accepting of the high rates. And so you're seeing increased shopping behavior for home equity products mainly. But honestly, we've seen a little bit -- at a very low level, but an uptick in purchase and refinance as well.

Douglas Lebda

And the only thing I'd add onto the -- so one just highlight on mortgage on on that is mortgage and home equity are basically fungible. So it's you're looking at them separately. Doesn't necessarily is not. I don't think the best way to look at it. You're the mortgage companies will sell on a loan that has the consumer's best fit for them.
And so if it doesn't make sense to refinance and you're not purchasing a house, then there are consumers who can get benefit from a second mortgage loan and they make a lot of sense for people certainly better than credit card debt, et cetera, and home prices are home values are up.
So home equity in this market is a natural product that both consumers are seeking and lenders are doing but it's basically just the but substitution for and when purchase comes back more aggressively and conversion rates are there, they'll be in purchase, which we view, as Scott just said, we're starting to see. And certainly when rates fall, even a little bit on these high rates for so long have really just made a treasure trove of future refinances in the home sector makes a lot of cash.

John Campbell

Makes a lot of sense. Thanks guys.

Operator

Melissa Wedel, JPMorgan.

Melissa Wedel

Thanks for taking my questions today. And I was hoping to follow up on a couple of the comments from earlier about and that sequential strength into the second quarter. Just based on piecing together comments across the different segments, certainly hearing the strength in insurance coming through.
Also sounds like increased sequential revenue growth in Q2 for both home and consumer within consumer. Should we think about that as fee driven small business and noticeably, absent from your comments for any sort of current trends, though?
We did note the reference to Bank of America onboarding to recall in the shareholder letter. I was hoping you could just elaborate on that a little bit and then maybe speak to any seasonality in certain home equity trends that you've seen historically. Thanks.

Douglas Lebda

Trent, why don't you start that? And then Scott, add on.

Trent Ziegler

Yeah, just as it relates to the sequential improvement, Melissa, obviously a lot of that is driven by insurance for the reasons Scott just detailed. And we continue to see partners opening up budgets, opening up geographies, et cetera, which is encouraging. We do expect some sequential growth in home, again, mostly driven by home equity, which is where the which is where the opportunity is right now. And then in consumer, I would probably point to mostly personal loans and small business, there's there's a seasonal component to those businesses, the seasonal trend where we tend to expect things to pick up Q1 to Q2 and into Q3 from the card business.
While we're excited about some of the product work that's going on there, particularly around three wall. We're not expecting a ton of growth in that business or certainly not baking it into our guidance for the rest of the year. And but we're going to continue to chip away at the kind of the blocking and tackling around rig wall and onboarding new partners there. And we think that's that's ultimately the future of that business for us. And Scott, you want to add to that?

Scott Peyree

Yeah, I mean, I might just come in at kind of, honestly, a hybrid of global warming, like I do believe we are seeing we are going to see sequential revenue improvement and just in almost every single major industry. We operate it with the exception of maybe credit card on. And so we are a small business is growing. Personal loans is growing deposits, auto loans, mortgage home equity. I mean, we're seeing growth across the board and it's a lot of work in its hard work in this down lending environment.
But we do believe it's we've done a lot of the proper things to be able to it takes market share in the important media marketplaces on, you know, and drive more traffic and have the distribution with our clients to deliver that traffic. So I'm feeling pretty good about pretty broad based revenue growth from Q1 to Q2.

Melissa Wedel

Thanks. And I guess could I just ask two, is there typically anything we should think about in terms of seasonality or consumer behavior around home equity? Certainly understand there's a lot of HPA embedded in housing prices right now. But do you typically see an increase in demand for that type of product in the spring summer months? Thanks.

Douglas Lebda

And we don't normally see a lot of season seasonality. And in home equity, I would say that's more like one of our normal products that Q4 would be more seasonally light. And the rest of them would be seasonally normal by if there's not a lot of seasonality of that product. That's really just based on consumer needs.

Scott Peyree

If I see more seasonality in personal loans, you would see some in home equity. But it's I think a lot more of the growth in home equity is just more of the fact that buying and purchasing homes that has come to a crashing halt. So just a lot of consumers are turning more to home equity remodeling or whatever versus selling. So we're seeing more of that. We're out there because of that.

Melissa Wedel

Got it. Thanks so much.

Operator

Mike Grondahl, Northland Securities.

Mike Grondahl

Thanks, guys. Two questions one. Could you talk kind of talk about the significance three to recall getting into BFA on the credit card side, kind of what's your goal for that? And then secondly, did you guys disclose home equity revenues or credit card revenues in the first quarter? Thanks.

Douglas Lebda

I'll take part of the first one and let Scott add in on that getting BFA I recall is fantastic from the standpoint that we've landed a significant card issuer and gotten through the integration and to Bob, and that will lead to a better consumer experience and from a financial standpoint from we to get to the point where you can give multiple offers to all consumers, you probably need one T. of those types of issuers of different sizes.
So we've got a lot of interest. We've got a good pipeline. We have people live the product works, consumers like it, clients like it on, but it's got to get to enough scale that we would be able to supplement and or replace the crazy click walls of the credit card business.

Scott Peyree

Yeah, then, Mike, on your second question, we we did disclose revenue for home equity was in the press release, $20.8 million in the quarter. We did not disclose credit card revenue and our some kind of guidepost as we disclose anything that is 10% or more of total revenue guidance.

Mike Grondahl

Got it. Thanks, guys.

Operator

(Operator Instructions) Madeleine Zhou, Susquehanna International Group.

Madeleine Zhou

Hi, thanks for taking my question. Can you just walk through the math for the 2025 convertible notes as it looks like there's still a significant gap between cash on the balance sheet once you take out about $50 million in cash as being necessary to keep on the balance sheet and the remaining balance of $284 million of the July 2025 convertible notes? Thanks.

Trent Ziegler

Yeah, I mean, $175 million of new money, there's a lot more like $60 million to $70 million of excess cash flow on the balance sheet that we feel like we could that we could put to work some. And then we and then we think we can free cash flow, the remaining balance over the course of the next 15 months.

Operator

And thank you. And I'm showing no further questions. I would now like to turn the call back over to Doug Lebda, CEO for closing remarks.

Douglas Lebda

Thank you, and thank you all for being here. A look over the last several years, they have not been easy for us and certainly not easy for you as shareholders on the business faced via RPLs and demand pulling back from clients, which then forced us to have to obviously rightsize the business and we had a looming debt repayment.
However, from that and chaotic couple of years actually came some reps came in very, very good things today in operations, operational improvement with Scott and his team are gripping and more operators are working much more closely with with finance and other areas of the company and really approaching things together on product and tech.
We are now able to work on discrete, our key projects that we hope will have positive financial returns. We've got a new product process and a number of new people there. And I'm excited to be showing you some results from that in the future. And I think that's shown with triple. Our clients are optimistic and strong and financially, and I think that bodes well for the future of our company and all of our employees are fired up to be taking the hill to win.
And I want to thank you all, I want to thank you for your stick-to-itiveness with LendingTree, and I look forward to showing you guys and continued growth and continued growth and profitability as this company plays to win in the future. Thank you.

Operator

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