LendingTree, Inc. (TREE) Earnings Call Transcript

Okay. Good afternoon, everybody. Sorry for the delay, technical problems here. I'm Mark Mahaney, Head of Internet Research at RBC. Thrilled to have LendingTree. Chairman and CEO, Doug Lebda's with us via phone. Trent Ziegler, Vice President, Treasurer and Head of Investor Relations, is with us via phone. So you don't need to look at me. You can just listen if you want. Doug, thanks a ton for doing this. You have done this -- you and I have done these conferences for well over a decade and it was like...

I know. I know.

But we were younger, we looked younger, for sure.

So let's see here. I want to start off with -- and this is almost like, I don't want to be too glib about it, but it's almost like the vaccine conference. It's the first time investors have talked with a lot of companies or heard a lot of companies post what looks to be very constructive news. So what I want you to do is to just remind us, what impact the COVID crisis has had on your company? Because then I'm going to ask you, in an environment where we do have a general reopening, how should your company benefit from that? So first, just remind us the negative impact and why the COVID crisis was so negative for LendingTree.

Sure. And I would say it's negative on financial performance, but I'm really, really enthused with operating performance in a number of the product areas. So -- and LendingTree for people who don't know us well, we're a marketplace that basically connects consumers and lenders and consumers and insurance companies, and we've been doing that since 1998. And the business has obviously grown tremendously as more and more financial service companies have come online, and we've enabled them to close loans via the Internet and just continue to chip away and make the consumer interface better. COVID obviously reduced demand among lenders for new customers. Happened in credit cards, happened in personal loans and in mortgage because as the Fed cuts rates and mortgage rates go down, you actually get a burst in volume that comes in through the mortgage process. But in that product, mortgage companies, loanDepot, Rocket Mortgage and hundreds of others are also very busy during those times in a capacity-constrained environment. Typically, they reduce their demand for new customers through LendingTree. And so our volume flows in. We typically have a little bit of the reverse effect and a refi boom, and this one has actually done quite well for us. So that was a very shining light on this, and that's for a number of technological reasons that I'm sure we'll get into just as the industry shapes up. But so COVID basically shuts down several businesses as lenders don't want to lend. There's demand from the consumer. The lenders aren't there. And as those things come back online, then we'll benefit. So we've been focusing on this year, first, I'm really, really happy that in our third or fourth financial crisis we've been that this business model sort of showed its resiliency. And we feel like we're winning in an environment. We're still making money and we're beating our competitors. And so we feel great about it.

Okay. Thanks, Doug. And now take us forward, I don't know if it's 12 months. I don't know if it's 18 months. Hopefully, it's sooner rather than later. But we're back to reasonably mobile economy. We're back to 2019 levels of consumer, small business, credit card, insurance activity. Talk about the path to recovery, like how should this show up in the financial performance? How should this show up in the operational performance? How would you expect -- what's the -- it will probably look like for LendingTree?

And Trent, you should feel free to chime in here, too. I -- the numbers that for next year -- so I would expect that next year looks and we've talked -- looks a lot like we would have expected this year to look like from a top and bottom line financial performance level -- and that's not a perfect -- it's not a perfect analogy. And in some ways, it depends when credit card companies, for example, as they come back into advertising online, we're generally the last place that lenders shut off, and we're the first place that people turn on. And that positioning will enable us to win -- to have better bottom line financial performance whenever that happens. And I have no crystal ball. I can never -- been in this business 25 years, and I'm terrible at predicting interest rates, which is why we like the marketplace. And -- but we're seeing it already. So when I -- when we're talking with mortgage companies, those relationships are great. We're talking to credit card companies, those relationships are very good. And the demand equation, just keep in mind, is both the price that a lender is willing to pay, the quantity of customers they want to see and their coverage, how wide in terms of credit spectrums, product breadth, et cetera. And any 1 of those 3 can be going up and down, but we're seeing like signs of recovery already. So you had a big pause at the beginning of COVID. And then you're talking to your lenders and they're saying, okay, if capital comes back, if capital comes back particularly in small business, et cetera, it flows. And so we've been focusing on this year's gaining market share and wallet share.

Okay. Doug, I also want to ask you one question. I asked you this on the earnings call, but maybe not everybody heard it. And I think you had a quick answer, but I think it's an important answer. If there is a change in administration, would you expect there to be any material impact on your business if you think about all the -- I do not know, regulatory and macro implications?

Knocking on wood, I don't believe so. LendingTree has always taken -- because of the fact that we're saving consumers' money every single day, and the stories are amazing of people signing up for My LendingTree with their low credit and we're able to actually, through the use of technology, fix these people's financial situations, and it's amazing to see, and they're going to become customers for life, that is something that works for any administration. And if anything, more federal oversight and -- is, I don't think, a horrible thing for our industry. And as long as the rules are clear and everybody plays by them, I think that's generally good. And so we are -- we work with the regulators at the state and federal level and not -- and have always played that from day 1 very conservatively because we have to work also with every major financial institution in the United States. So I feel net good about it and maybe even a little bit net good for a little bit more regulation because it might have some smaller companies start to follow some normal rules.

Okay. All right. Let's go -- Doug, let's go through some of the segments here. So the consumer segment, that's about 30% of your revenue, it was down materially the last 2 quarters, something like 70% year-over-year. Take apart the 3 segments that are in there, personal loans, credit cards and small business, which of those do you think would you -- in an economic recovery, which of those do you think would recover the quickest? Which would be the slowest to recover?

I think -- and Trent can chime in. I would say personal loans soonest, credit card right behind it and small business probably a little longer. And the only reason there is the liquidity of the lenders in the small business space. We really have a bifurcation now between the SBA/PPP and then the -- and in the nongovernment space, working capital financing, et cetera, where you have some things like OnDeck, et cetera. That seems to be taking a little bit longer to come back. However, the people who buy those loans, like that's there. Like those are investment-grade quality bonds that they're lending. So I don't expect that to be tremendously slow either. And again, once the demand is there from the lenders that we just step on the marketing gas.

Okay, okay. And then in the -- maybe we'll take it apart just a little bit. And let me ask you this with the -- you started off by talking about -- acknowledging that COVID has had a negative financial -- a negative impact on your financial performance but arguably a positive impact on your operational performance. In the consumer segment, have there been some new operational efficiencies you've been able to find or have been forced to find because of COVID?

I wouldn't say be forced to find. I would say -- so first off, our finance team has done a fantastic job, led by J.D., who is a world-class CFO and the rest of his team, on keeping costs in line. And so we have been very judicious this year at being smart about investing where we're going to get -- we know we're going to get it in ROIs and pulling back in areas where either we know we won't, like TV advertising in monetization orders where we might not be. And so call it sort of the plan B, and we slowed things down. And so I would expect that the rate of cost increase would go down considerably next year, but we were really investing this year in product mix and in things that pay dividends in both the short term and the long term you can see in increased conversion rates, et cetera. So I would say, just taking on a couple of things, great new things going on in personal loans around getting much more integrated with our lenders and getting more guaranteed offers, and that is small now, but again, it'll expand dramatically. The -- in credit card, moving more towards also more guaranteed offers in that category, which credit card companies have been historically reluctant to, we think, we've got some -- we're working on a number of things in that area. So that's been fantastic. And then integrating those, particularly inside of My LendingTree, where we've, as I said, seen phenomenal consumer effect and continued engagement, particularly that as you layer over top of it the Plaid integration and the things that we'll do down the road with our investment in a company called Stash. Those things feed the consumer segment because credit cards and personal loans are the most engaged products inside of My LendingTree.

Okay. You just touched on something I was going to ask about later, but since you mentioned, let's go at it now, the Plaid partnership. So talk about the thinking behind that and where do you see the upside to LendingTree coming from that partnership.

Absolutely. So quick of a history, in 2008 after that financial crisis, as we sat down and thought about what's the next evolution of LendingTree, we said comparison shopping is awesome, and it's a great flywheel, and we're going to make some changes that we talked about in diversification and all that, and we're going to have a product which is just going to solve your questions for you. It doesn't need to be highly engaging because, quite frankly, we just want to send you the right answer to save you money, improving your credit, whatever it is. And we -- and so that was the strategy there. And so what we've been doing over the past years is just layering in more and more features that are -- behind the scenes, putting in more smarter alerts that those are obviously improving monetization but also really improving our relationship with the customer and engaging them at the right time with the right message and the right -- whether it's an e-mail, a text, a phone call, just doing it the right way. Delivering customers to lenders deeper down in the funnel is another part of that strategy. Does that answer your question? Or does that not fully get it?

No, no, no, you're getting there. That's good. That's good. And then the partnership with Plaid with their...

So with Plaid, so then you're just layering more -- so then Plaid, what you're able to do is obviously connect your accounts. And with the other budgeting tools that we added, now we can see your spending. Our view on financial literacy and wellness is to like keep it simple. So we don't think we need to have the world's most in-depth product that gets every one of your categorizations right. However, you can do high-level budgeting, high-level income and over time with Stash and you can do investments and sitting over top of Plaid with the Plaid data, then we start seeing your transactions. And we can do things in a non-creepy user opted in way, like say, "Hey, Mark, we see you just paid your auto insurance to GEICO. Would you like us to comparison-shop that for you, see if we can save you money?" And with all the data we've got from third-party sources as well, that will be smooth and easy and customers will love it.

I like that. Okay. Let me swing it back now and ask you about the home vertical. And that seems to have held up the best. It's also about a 30-year revenue, it's up low single-digit percent year-over-year the last 2 quarters. I know you already mentioned that you've got a nice boost in the refi business because of low interest rates. Any steps -- operational improvement steps that you've taken over the last 9 months as you try to get ready for the post-COVID world?