LendingTree, Inc. (TREE) Earnings Call Transcript & Summary

Thank you. Good day and thank you for standing by. Welcome to the LendingTree, Inc. Second Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. a message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised today's conference is being recorded. I would like to end the conference over your speaker today. Andrew Wessel, please go ahead.

Thank you, Kevin, and hello to everyone joining us on the call to discuss LendingTree's second quarter, 2026 financial results. On with us today are Scott Parise, President and CEO, and Jason Bangle, CFO. This afternoon, we posted a detailed letter to shareholders on our investor relations website. We've also posted a new investor that we would encourage everyone to look at. For the purposes of today's discussion, we will assume that listeners have gone through those materials and will focus on Q&A. Before I hand the call over to Scott for his remarks, I remind everyone that during this 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, and I refer you to today's press release and shareholder letter, both available on our website. site for the comparable gap definitions and full reconciliations of non-gap measures to gaps. With.

Scott, please go ahead. Thank you, Andrew, and thank you, everyone, for joining the call today. We had a good quarter with strong growth led by insurance. Our insurance business revenue was up 25% year over year, and our adjusted EBITDA was up 11% year over year. Also, I'd like to call out that our adjusted EBITDA as a percentage of VMD was up 225 basis. basis points year over year to 40%, steadily moving toward our 45 to 50% long-term goal on that important metric. Stepping back for a second, from 2023 to 2026, we have roughly doubled our revenue in adjusted EBITDA, showing extremely consistent growth and consistency. Our diversity of product lines in this company has supported resilient and consistent growth regardless of certain industries, such as mortgage, being in a multi-year trough due to high interest rates. rates. Insurance is the standout. Revenue was up 42% and segment profit was up 25% year-on-year on strong carrier demands. In our Our home business revenue was up 9% year-over-year and our segment profit was up 13% sequentially. I feel we are continuing to perform well in what remains near-trop earnings power from a macro environment with high interest rates, continuing to provide strong products to a strong client base. and position well for long-term growth as that industry comes back. Our OpEx held flat year over year. Both AI driven efficiency and just what I would call this operational efficiency in general is converting growth into earnings. We're sitting on very strong free cash flow, approximately $80 million after interest per year. Our net leverage improved to 1.9 from 3.0 a year ago. Whereas debt pay down does remain a strong focus of the business, we are now in a position in a comfortable level from a debt ratio perspective where we are also looking at other strategic uses of our free cash flow. From a product and AI momentum standpoint, we're gaining, we're continuing to gain momentum on our North Star initiatives. In Q2 alone, we rolled out a chat GPT app called the Home Loan Rate Confidence Tool. We're offering six new products to consumers such as pet insurance, commercial insurance, and financial advising. Our homepage and Navigation design is proving 11% performance increase in sessions and 18% form starts off of our homepage. Voice AI continues to roll out across multiple products. We've added AI overviews within our product offering pages to help consumers more efficiently choose the right offer, which is show-off. showing positive performance. Now heading specifically on our consumer segment and more specifically calling out our SMB lending business and the softness there. Now to start with, SMB has been a major growth engine for us over the past two to three years. We've had 40% year over year profit growth on average since early 2012. In Q2, as we alluded to in the last earnings call, we saw some headwinds coming in this industry due to Middle East tension, energy price spike. et cetera, making small business owners more cautious in general. And in all honesty, demand came in softer than we'd forecast, which drove the myths. Softness was initially driven by both merchant sentiment and lender pullback. I will say the lenders have largely come back and are writing and offering loans at similar levels to early Q1, but merchant sentiment does remain soft. You know, looking back at the SMB business in general, we've made significant changes significant investment into our SMB business over the past few years. We've invested in growing the strongest sales force in the industry, growing our lender network and our internal platforms to make quoting more efficient for our sales team and our merchants. myriad AI efficiencies, and growing traffic sources generating more and more high quality merchants looking for loans. Those investments have generated significant profitable growth over the past two to three years. And we expect them to continue to provide profitable growth in the future. look at our original internal S&B budget we set at the beginning of the year, which, by the way, I'll call out in Q1 of this year, we actually outperformed to that budget. If If we would have hit that original budget for the entire year, we would be performing at the high end of the previous guidance we set. We feel that merchant sentiment issues are temporary and macro driven. They're not competitive or structural and fully expect to be back to growth and setting revenue and VMD records in the near future. The long-term macro outlook for the S&P 500 the SMB industry remains very strong in our opinion. We're seeing some encouraging signs already. Improving closing rates, larger loan requests, favorable underwriting shifts. July will be our best sales month since Q1. Performance in July gives us confidence that Q2 was our trough and we have entered the recovery period. Expect stabilization, I'd say, through the second half of the year. S&P to eventually recover and surpass our Q1 record levels. We'll keep monitoring and update investors as that trend develops. Hitting on North Shore's strategy, which remains unchanged, to become the number one destination to shop for financial products. We have a massive focus over the next few years on return customers, referred customers, and logged in user growth. This will create an even stronger and more durable business over the long run for the lending tree. AI is a real structural tailwind to make this happen. Not just efficiency, but consumer facing, such as the ChatGPT app, the rate confidence tool, AI for communication via voice or text or email, AI offer overviews, all driving increased engagement in applications and we feel there is a laundry list of additional things we can build over the next few years that will create even more and better customer engagement. Internally at AI tools such as AI agents we've built on our data infrastructure for marketing teams, sales team, finance teams, is actively compressing what was previously weeks worth of work into real time information, which is providing real efficiencies in the business. One of the key reasons OpEx grew less than 1% while our revenue grew by 25% year over year. Our business model is highly cash generative and capital light. Like I said earlier, approximately $80 million in annual free cash flow after interest with minimal CapEx. Our balance sheet is getting more and more flexible our leverage down to 1.9 times, which gives us capacity for debt paydown, for buybacks, and accretive M&A. Insurance remains a core strength. Again, SMB is softness is temporary and not macro, and I'm sorry, temporary macro, not structural. And bottom line, long-term growth profiles intact. We've got a durable high margin, capital efficient, increasingly AI powered business.

With that, I'll hand it over to Q&A. Ladies and gentlemen, if you have a question or a comment at this time, please press star 1-1 on your telephone. If your question has been answered, or you wish to move yourself from the queue, please press star 1-1 again. We will pause for a moment while we compile our Q&A roster. Our first question comes from Ryan Tomsella with KBW. Your line is open.

Hi, thanks, everyone. Apologies, still juggling a few things with the release here, but maybe just to start off if you could put some guardrails around what the second half guidance assumes across the various segments. from both a revenue and variable margin standpoint. And then as a follow-up to that, regarding the lower variable margin, variable margin specifically in the insurance segment. If you could just elaborate on the specific drivers there and what you're baking into the second half on a margin front for insurance. Thanks.

Yes, Ryan, it's Jason. So I'm happy to talk through the guidance assumptions here. Like Scott said, if you take a big step back and look at the midpoint of our guidance, that does look at us almost doubling EBITDA in the last three years and growing 12% this year. And like Scott said, if SMB had performed as expected, according to budget, we would be at the high end of the prior guide. And to be totally transparent, we beat budget by almost 15% in small business in Q1. So the trajectory was very, very strong for small business until the headwinds. presented. So just talking a bit about each segment here, you know, home, rates have been going up. So that's a bit more of a headwind. Margin has been down. I would say it's below what we'd consider normal historically. And that's just a function of home sales being 4 million units. There just aren't that many borrowers out there and the competition for those borrowers is just very, very high. So with home, I think long term, there's still lot of upside in home. I think margins would normalize when the market returns, but we're just not contemplating any real upside in the guide with home margins sort of where they are now. Consumer, like we said, you know, SMB, you know, had real headwinds. We talked about that on a call quite a bit. When we saw this coming, it was just much worse than what we expected. So Q2 definitely underperformed our expectations. was just a large drop in lender appetite and merchant demand. Like Scott said, things like loan size, close rate, volume, we're just far below even our lowered expectations. But we've seen signs of improvement there. So lender demand has started to recover, but on the merchant side, it's still just not where it needs to be. There's a long way to go in merchant sentiment. And so the guide is only really looking at what we have line of sight into. And so we're really only contemplating that return of lender demand that we've seen today. And so that will result in, you know, a sequential improvement in consumer revenue in VMD, but it's just not back to, you know, sort of SMB won't be back to Q1 levels that we were seeing before. You know, this was our growth engine. You know, like I said, it was growing 40% a year on average. And now for this year, it's looking like, you know, we might be flat to down. The good news is that should really be temporary. There's nothing structurally wrong with that business. We operate very, very well in that business and the market opportunity is really strong. So that will recover. Once merchant sentiment returns, that will return to being a very, very strong growth driver for us. We're very optimistic with small business, but with a guide, we're just, we're not assuming any real return from what we have direct line of sight into today. With insurance, the backdrop is still very favorable. Carrier profitability is very strong, competition for policy is very strong. That helps us in the partner demand, but it does pressure immediate costs. So that's kind of what you see coming through in margin. So, you know, we do expect, I would say, healthy growth in the second half for insurance. I think we're very happy with how insurance is doing, and we expect that to continue going forward.

And this is Scott, just to add on there. As we've always historically been, our first goal on insurance of this growth is like overall V&D growth. And that's what we plan to continue to see through. It's been very strong the first half of the year. We can continue to see growth next year. And also, as we've talked about, talked about before, if you look at our consumer segment from a margin perspective, small business is, within the consumer segment, is by far our highest margin business. And so when that's suppressed, it will inevitably affect the overall margins in the consumer business.

I appreciate all the color guys. Maybe just double clicking on insurance. I guess several part question here. One, the mid 20s variable margins, I think you posted in the quarter is that, a good assumption for kind of a new run right here in this environment. And then, you know, as you look out to what you're seeing with carriers, how confident are you that the insurance business can continue to grow VMD off of what you're assuming for the second half of this year into 2027? And then just given the tenure you have in this space, Scott, if you can just talk about what leading indicators you tend to focus on for signs that the cycle may be peaking and when we might start to see those signals.

and the signals emerging. Thanks. Okay, yes, so just to hit on a few of those, I mean, I would start like, you know, starting with like the leading indicators from the macro level. I mean, you would first start at the top level of just the insurance industry profitability in general. And there's a number of massive public companies out there. So, so you have a very good outlook into what the general profitability business is. And it is a very... stable profitable environment and in the end then and then the secondary signals below that I would say if you're seeing trends of carriers either increasing pricing, you know giving rate or taking rate, which is essentially either giving pricing, increasing pricing, or reducing pricing. Because from a company like ours, where we're very shopper dependent, we want shoppers coming through the network, when you have environments where pricing is changing for policies, that drives more shoppers, obviously. obviously. So, as I said in earlier calls, a bit the early part of the recovery was all about, are insurance even willing to offer insurance policies to consumers? That's largely, we're now at the point where insurance is healthy and every, they're offering insurance policies to everyone. So now, we'll be looking at indicators of coming up in the next year or two, are they going to start giving rate back to the consumers, which means they're reducing pricing, which will drive another shopping cycle. But I would say, as we look at the environment today, It is extremely stable environment from an insurance industry standpoint, and there is strong demand and fighting over market share from some of the top companies in the industry. I would call it very healthy and stable and growth is largely dependent on us executing well as a company, driving a lot of active shoppers to our network, which I think we're very good at doing. Oh, and in the VMM margins, yes, I would say, like I said, first our primary goal is VMD. Some of these carriers, just the dollars they're spending are so high and growing so fast, you're starting with overall VMD and you want to make sure you're providing the best high quality product to them so I would say as we look at this since it is just still in such a growth mode as we're looking through the second half of the year yes I would expect margins to be probably similar to where they were at in Q2, with VMD hopefully growing a little bit sequentially. And yes, and again, I think it's kind of one that, super high revenue growth levels out is when you really start leaning into more of the But I think we're going to see strong revenue growth throughout the rest of this year in insurance. Hopefully that answers all your questions.

Great, thank you. One moment for our next question. Our next question comes from Jed Kelly with Oppenheimer. Your line is open.

Hey, great. Thanks for taking my questions. Just circling back to the consumer segment, we're trying to track the health of your small business products. product, is it more, are they more, are they kind of more sensitive to gas prices or is it more interest rates or is it a combination? And then just, just circling around your personal loans, you know, some of the bank earnings we've heard and the health of the consumer, that seems pretty stable. So can you just talk about where we are with personal.

personal loans and then I have a follow up. Okay, yes, Jed. I'll just start, I'll hit on personal loans briefly. I would say yes, I would echo that sentiment. Personal loans is a fairly stable business right now for us. You know, similar amount of revenue and consumer shopping. for personal loans and whatnot. Not a lot of change there year over year. On the small business side, specifically on that, I would say, you know, I think it starts more at a sentiment level than an interest rate sensitivity level. And I think there's, you know, a lot of these... and I'm pontificating here a little bit, but a lot of these smaller and medium-sized businesses, they're kind of on the front lines of when you're seeing consumer sentiment change and people complaining about gas prices and maybe tightening their wallets on stuff they might spend with a lot small businesses and then that translates into a small business you know for example saying like you know i was going to hire those four people that maybe i won't or i was going to spend a hundred thousand dollars on that capital equipment you know that maybe i won't or at least i shouldn't say won't just like hold off on that's why that's why we call it temporary because i i think it's just a lot of right now there's a smaller number of merchants requesting loans. And then you look at the average loan size they're requesting is generally smaller than we historically see. And we've been doing this for a long time, so we've got good history here. And then I would say, and then there's a general lower percentage of people then accepting the loan offers they're getting. And I don't think that's rate sensitivity as much as just math. macro sentiment of like, ah, maybe I'll just hold off. Maybe I'll get a little bit less money or just hold off for another few months before I do this just to make sure we don't, you know, some major war, et cetera, et cetera. So that's where I'd say it. That's where we have, I mean, and this isn't just us alone. This is like all of our big client lenders in the small lending space, some of our competitors slash frenemies. I mean, I think everyone's seen a lot of this office in Q2. but everyone just believe that it's going to come roaring back here sooner rather than later.

Okay. And then, Jack, can you just – yes. Sorry. I was just going to tack on with PL. You know, we – you know, in this environment, sequentially, PL performed very well. PL was definitely a strong grower from Q1 to Q2, so it's not like this environment has really held back here.