LendingTree, Inc. Q3 FY2025 earnings call

• Mourned the passing of Founder Doug Lebda, Scott Peyree appointed CEO. • Aligned on continuous improvement, AI potential, and balance sheet strength. • Revenue of $308M was second highest in company history, sixth consecutive quarter of revenue growth. • Segments had double-digit Y/Y revenue and VMD growth. • Insurance retaken leadership, Consumer segment performing well with small business success, Home segment saw 35% growth in home equity.

LendingTree's revenue in the third quarter was $308 million, its second highest in company history. Each of the three segments recorded double-digit year-over-year revenue and VMD growth. The Consumer segment had a 26% quarter-over-quarter VMD growth and 11% revenue growth. The small business team saw a 30% increase in loans closed and 50% year-over-year revenue growth. The Home segment had a 35% revenue growth in home equity. The insurance segment retaken leadership, with spend from the 4th to 10th largest carriers increasing nearly 60% year-over-year.

• Balance sheet refinanced to 2.6x leverage, default priority is paying down debt but considering buybacks and M&A if attractive. • Insurance segment expected to see strong VMD growth in first six months of 2026. • Mortgage revenue dependent on mortgage rates trending to 5.75% for potential hockey stick growth. • Consumer segment expected to be steady with media traffic and direct sales force growth.

• Transition in SEO and GenAI environment posing challenges to lead quality and conversion trends. • Uncertainty in mortgage rate movement affecting revenue visibility. • Balance sheet risks related to economic stress impacting business performance.

Q: 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?

A: 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.

Q: 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?

A: 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.

Q: 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?

A: 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,我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.

Q: 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?

A: 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.

Q: I'm just curious where those 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.

A: Yes. I'm actually glad你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它'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你a high level of where those products are at.