LendingTree - Q4 2022

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to LendingTree fourth 1/4 2022 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 will need to press star 11 on your telephone.

You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. 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, Vice President, Investor Relations. Please go ahead.

Andrew Wessel (SVP of Investor Relations and Corporate Development)

Thank you, Michelle, and good morning to everyone joining us on the call this morning to discuss LendingTree's fourth 1/4 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. 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. With that, Doug, please go ahead.

Doug Lebda (Chairman and CEO)

Thank you, Andrew, thank you all for joining us today. We are excited to provide earnings results this morning. First, I wanted to call attention to our launch of the LendingTree Win Card, our first product introduction in the reimagining of the My LendingTree offering that was announced this morning. We believe the Win Card offered exclusively to My LendingTree members will improve user engagement as the 2% cashback feature is only unlocked when cardholders log into their LendingTree account.

Because the Win Card is among the first cards to be integrated with our TreeQual product, we're expecting approval rates to be substantially higher, which will also improve our unit economics and customer satisfaction. We have 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 a best-in-class customer experience. We believe the innovative products such as the Win Card, in addition to the planned enhancements we are hard at work on, will make My LendingTree the leading destination for our customers to shop for all of their product needs.

Moving on to our results. In the fourth 1/4, our insurance division posted excellent results. This can be attributed to initiatives that Scott and our insurance team put in place to focus on higher intent customer traffic to help our insurance partners improve conversion rates. Because of this, we were 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 6 points from the 1/3 1/4. When carrier spend returns to normalized 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 Fed's commitment to higher rates to subdue inflation will continue to have a negative impact on new mortgage loan demand. Additionally, lenders are seeing lower conversion rates because there is less benefit to refinancing as interest rates rise.

A close integration with our largest partners helps us to quickly pivot to sourcing cash out borrowers who are looking to tap the substantial amount of equity they enjoy as homeowners today. This year, we expect cash out transaction will remain the bulk of our revenue opportunity in home.

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 1/2 of 2022, lenders tighten underwriting criteria due to higher interest rates and the slowing effect they have on our economy.

A stricter credit environment generally leads to lower close rates for our lenders, which reduces our revenue. Despite the decline in fourth 1/4 consumer revenue, we were 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 segment our traffic for our lending partners to also increase close rates. Additionally, we remain intensely focused on operating expenses. We recognize it is 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. 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 are 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 1/4. This commitment to financial discipline will remain a key tenet of our day-to-day activities as a leadership team. Now, operator, I'd be happy to open the call for questions.

Operator (participant)

As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from Youssef Squali with Truist. Your line is now open.

Youssef Squali (Analyst)

Great. Thank you very much, and good morning, all. A couple 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? On this you know, obligatory question about large language models and you know, like ChatGPT and potential impacts on the business.

Maybe can you at a high level talk about how you're expecting that to impact both the search for financial products, et cetera, so the demand side, but also on the content creation side, which could actually be a nice, or potentially a good.

Doug Lebda (Chairman and CEO)

AI, ChatGPT.

Youssef Squali (Analyst)

Yeah. Thank you.

Doug Lebda (Chairman and CEO)

Sure. I got card, I got AI/ChatGPT, right?

Youssef Squali (Analyst)

Yep.

Doug Lebda (Chairman and CEO)

If I got that correct. 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 than 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. 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. We have a lot of things on the docket to address that. I would say AI is not one of them yet. As it develops, I can certainly see that helping us improve our communications with consumers. We're not there yet. J.D.?

Trent Ziegler (CFO)

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.

A benefit for us and for all of our partners. We're excited that work is going on in Q1. We are on schedule with it, and it will probably finish sometime in Q2. 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. We need to grow other marketing channels. We're very happy thus far with the progress in both CRM for credit card and specifically for SEO for credit card. Those are 2 focus areas for us in terms of expanding marketing.

Why is that important? 'Cause 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. It becomes prohibitively expensive to do that if you are very dependent on one channel. That's what we're doing in card. The other very important part of becoming more integrated with our partners and delivering them more volume is TreeQual. We continue to add partners there.

It has been admittedly slower than we projected at the beginning of last year. We think we are on the right track with the solution because ultimately that is driving conversion rates, right? In a typical experience, a typical Click-Out experience, we redirect a consumer from our site to that of a partner, and it will get approved, you know, I'd call it, you know, low teens % rates.

When we're talking about something that is preapproved, it is converting at an 80% approval rate, right? That's the definition of higher conversion. That is what we're focused on with TreeQual. There are different paths for TreeQual with every partners.

Partners, what we found, what we've learned over the last year is partners want to work with us in different ways, all of which we view to be an improvement over the current status quo. Card, as you look at our, you know, each of our big businesses, it is the one that needs the most work in terms of what I'll call the structural margin profile. As we fix that, we think we'll be able to take market share, but take market share in a way that does not hinder our financial performance.

Doug Lebda (Chairman and CEO)

The only thing I'd add to what J.D. said is on the SEO front, as you move from our from the primary domain name for SEO being CompareCards.

Trent Ziegler (CFO)

You move that content over to LendingTree, we expect that, you know, you have to take a dip first, on your SEO, traffic. As that builds up, we think the LendingTree domain will yield much better performance, in SEO over time.

Youssef Squali (Analyst)

Thank you.

Operator (participant)

Please stand by for our next question. Our next question comes from Jed Kelly with Oppenheimer. Your line is now open.

Jed Kelly (Managing Director and Senior Analyst)

Hey, great. Thanks for taking my questions. Going to insurance, I think at the end of your shareholder letter, you sort of gave an outlook for insurance, you know, sort of that you're waiting for the carriers to sort of come back. You know, judging by how some of your competitors have reported, it seems like carriers' spending is sort of accelerating. Can you just talk about the arc of the recovery we should be expecting? Can you just help us around the unit economics with Win Card? Thank you.

Scott Peyree (President, Insurance)

Hi, this is Scott. I'll start on insurance first and then throw it back to the rest of the team for the Win Card. On the recovery of insurance, what I would call it, and what I've been calling it, is we're in the very early innings of the recovery, you know, literally like the first inning of the recovery. It is happening. Revenue is going up.

There's one large carrier in particular is spending more aggressively than the rest in general. A lot of the rest of the carriers are still proceeding with caution at this point, the conversations are more and more optimistic. There's more conversations. There's discussions of when and how the spend is gonna go up. There's testing in certain states with the carriers.

You know, it's -- we're seeing pretty good growth in our auto insurance segment 1/4-over-1/4, going from Q4 to Q1. As we've been talking about, we've been focused on the unit economics and the VMD of our insurance business instead of trying to over-deliver on budget, which the clients aren't really asking for.

We're focusing on the, you know, quality of traffic we're sending to clients and the profitability of that traffic. I think we're doing a very good job of that. Because carriers in general, even the carrier that's gotten a lot more aggressive, at some level, they're still conservative and very concerned about profitability, and it's not just like pedal to the metal. You know, I do expect the recovery to continue.

It's gonna probably take 9-18 months in total for, like, the entire industry to be fully back at full bore, but it is happening, yes.

Trent Ziegler (CFO)

Hey, Jed, this is Trent. I'll hit on economics on the Win Card. I guess what I'd say is, you know, the way that that's gonna work, obviously, we disclosed that we are doing that in partnership with Upgrade, one of our partners.

They will be managing all of the balance sheet risk and, you know, the credit scoring, et cetera. We will get a substantial bounty for every card that we originate through our platform, as well as an ongoing share of the interchange. I guess, you know, as it relates to the financial impact of that, you know, we obviously think it's positive and it will be a contributor this year.

That is more than anything else, as much about, you know, it is the first of many features that we think are differentiated and will help us continue to evolve the value prop for My LendingTree and for our members and continue to drive engagement as we move forward. Expect more of these things as we progress throughout the year.

I would argue that that's, you know, that piece of it is as important, if not more important than the financial impact that we expect to see near term. The only thing I would add to that is, if you think about a normal credit card bounty in the industry, but then you can apply higher conversion rates to it, your unit economics should be higher.

We believe we can actually market this as a separate stand-alone proposition. Again, as part of the My LendingTree, as part of being part of My LendingTree, the 2% cashback, which I referred to, is unlocked when you are logging into My LendingTree once a month, where you're going to be seeing actions that you can take to improve your financial life. We think that will really help My LendingTree in total.

Jed Kelly (Managing Director and Senior Analyst)

Thanks. Just on a follow-up to Scott's comments about higher traffic, insurance segment did have, I think, 38% VMM margins. I mean, is that the right way to look at the business in 2023, that you're gonna have VMM margins above mid-30s?

Scott Peyree (President, Insurance)

Yeah, I would say, you know, as we look at 2023, you know, we would like to keep those margins in the mid to high 30s. When, when the entire industry starts getting more aggressive, and I'm talking about from a carrier standpoint, you know, when everyone's back in and playing, then you may start going a little higher fruit on the tree where you're trying to get per revenue that is at lower margins.

Honestly, in a, in a lot of scenarios right now, that revenue isn't always the highest quality traffic, and it's and you have to run it at lower margins, and the carriers in today's market aren't really begging for it. We're not trying to force it down the throats, so to speak. Mid to high 30s forever.

Like, if you get into serious, like, Top-End revenue growth mode and, like, all the carriers start getting really aggressive, that might change. I don't foresee that, you know, in the next six to nine months.

Trent Ziegler (CFO)

Thanks, Jed. Jed, based on Scott's commentary, I'd say, you know, implied in our full year guide is pretty modest revenue growth based on what we're seeing today, sort of in the mid-single-digit % range. We do assume that those margins hold in kind of the mid- to high-30s %. Obviously, that can evolve as the market evolves throughout the year, but that's our baseline expectation.

Jed Kelly (Managing Director and Senior Analyst)

Thank you.

Operator (participant)

Please stand by for our next question. Our next question comes from Christopher Kennedy with William Blair. Your line is now open.

Cristopher Kennedy (Analyst)

Good morning. Thank you for taking the questions. Can you give us an update on your advertising initiatives that you started last year and kind of what your plans are going forward?

Doug Lebda (Chairman and CEO)

Sure. The advertising we ran last year worked extremely well. It elevated our brand again to in the right direction across all of our metrics. One of the things that we're doing this 1/4 is implementing something we call Multi-Touch attribution, which, you know, uses data to allocate your marketing returns over the channels that you run.

Right now, we're not looking at any significant brand investment because of the just unit economics and where they are, it wouldn't make sense. However, with the Win Card, we do have Molly Shannon doing some fantastic video that we can do and put on YouTube and other sites.

We expect to use more of that, and we can do that much more, inexpensively than running big brand on TV. That will happen as the unit economics get better and demand returns, but I'm guessing that's gonna be when interest rates start to fall a little bit.

Cristopher Kennedy (Analyst)

Okay, very helpful. Just an update on your capital allocation priorities for this year. Thanks for taking the question.

Doug Lebda (Chairman and CEO)

Sure. On capital allocation, one thing that we're doing, first off, I don't see us doing any acquisitions. Trent can talk more about just, you know, other things. We are very, very focused on EBITDA, cash flow generation, you know, maintaining costs and then investing. One of the things that we've done is we've moved to a quarterly planning cycle where, every 3 months, we are prioritizing initiatives based on where we expect the returns to be, and we're willing to make pivots inside of the 1/4.

Right now we're working, as I said earlier, on improving conversion rates really across all of our products, and all of our key initiatives, whether it be TreeQual, working on the post-submit mortgage experience, the purchase initiative, the Win Card.

Those are all aimed at improving conversion rates, which improves customer satisfaction, and gives us more unit economics to go market against.

Trent Ziegler (CFO)

Yeah, just to add on to that. As it relates to the balance sheet, I mean, our primary focus is on delevering. Obviously all the things Doug just hit on are focused on driving near-term cash flows, and that is obviously an important part of it. We are looking at sort of opportunistic ways to retire some of the debt on the balance sheet.

Cristopher Kennedy (Analyst)

Understood. Thank you.

Operator (participant)

Please stand by for our next question. Our next question comes from Ryan Tomasello with KBW. Your line is open.

Ryan Tomasello (Analyst)

Hi, everyone. Thanks for taking the questions. In the mortgage business, I think investors are trying to understand where trough performance shakes out for the core purchase and refi products. Maybe you could discuss at a high level how you're thinking about the glide path for that business, what type of environment we would need to see for it to stabilize and recover from here.

If that's solely dependent on rates moving lower to spur refi, or if you think the business has a line of sight to thrive in an environment where refi remains structurally depressed. On the home equity side, given how much more significant that business has become, it would be helpful to understand how sustainable you think that performance is and perhaps how much more runway there could be for growth. Thanks.

Doug Lebda (Chairman and CEO)

Well, hey, Ryan, it's J.D. Thanks for the question. It's a good one. You know, obviously, when we think about the year ahead, we wanna be able to manage the business without making a huge projection on where the market will go. The point being, we obviously have been through an awful lot, in terms of rate increases, and our partners are going through a lot.

One of the things that we track is the behavior of our partners, and we watch loan officer counts at each of our partners because there was a ton of capacity, loan officer capacity that was added in 2020 and 2021. In the consumer direct channel, which is the majority of our partners, right, as opposed to retail, they tend to focus on refinance.

In an environment like what we went through in 2022, we continue to go through is really challenging in terms of getting the conversion rates that they need. You know, fundamentally, as you know from all the MBA data, there just aren't that many Americans who would benefit from a refinance right now. Our assumptions are that refinance for, you know, all of 2023 is de minimis

Trent Ziegler (CFO)

That is why we are so focused on driving purchase. How are we gonna drive purchase? One of the things we've observed is that starting around the second 1/4 of 2020, our market share in purchase started to drop off, and it started to drop off largely because of the behavior of our partners, right? They were focused on refinance because it converted, and that was where they could make money.

Critically, we looked at ourselves last year and said, "Okay, we've got to regain share in purchase." That's hard to do because purchase has a longer journey when the consumer comes to our site to when they actually convert. One of the things we're trying to do is get better information as to where that consumer is in their process, right?

If they are late in the funnel, closer to buying a home, closing on a home, we wanna know that and share that information with our partners that will make them convert better. fundamentally, that is our strategy and why we're so focused on purchase, because we're assuming that refi does not come back anytime soon. We have been thrilled with the performance of home equity.

You know, 2 years ago, I don't think anybody in our company thought that the home equity product could reach the scale that it has reached. What we're encouraged by is that many of our lender partners are adding that product. We're getting to real home equity, right?

Historically, we talked about the fact that we had lenders who would buy volume from us of consumers interested in home equity and try and convince them to do a cash out refinance. That still goes on. It's just a lesser percentage than it used to be, right? The health of the home equity product is quite good. We're really happy with the progress that we've made there as a replacement.

We obviously would love to see an environment where we're not so dependent on it. Now one thing, you know, we obviously focus on with home equity is they are smaller loan sizes than typical purchase or refi. Are the unit economics there? That's one of the things we've been watching closely.

The flip side of that is many of our lenders, we're recently having dialogue with lenders who think they can close more quickly on home equity. Automation is helping the growth in that market, which is great. As you think about our guide, we've been very conservative with respect to refi. We do think there's just some pure market share in purchase.

Purchase is always weak in the beginning of the year, and it will start to lift in March and April. We want to be prepared for purchase season. You know, we've assumed that we can hold the performance of home equity, and we're just trying to navigate this home segment right now.

I will say I had a lender say to me in, you know, early to mid-January, they said, "Well, geez, last week was our best week in 7." We were thrilled. Obviously, we've seen rates jump even since then, and we have to kind of navigate this cycle with our partners.

When you see a little bit of a give back in rates, we're encouraged, not because all of a sudden there's some huge pool of refinance, but we know that it does help our lenders with respect to lender health. That's what I think we're gonna be in for that for the remainder of 2023. You know, our guide on home, yeah, we're very conservative there. We think that it's gonna be entirely or mostly home equity throughout the year.

Doug Lebda (Chairman and CEO)

The only thing I'd add to what J.D. said, just put a finer point on a couple things. Just think about consumer behavior. You're coming in looking to refinance your entire $400,000 house. You've got a mortgage rate from four years ago. That's where the consumer benefit doesn't make sense to refinance. Your home value's gone up, so a second mortgage makes a lot of sense.

You flip to the lender side. The last time we had home equity growth like this was literally like 2001 to 2009 until the housing market had a major correction, as we all know. And it wasn't until losses from lenders mounted in the second mortgage business until they pulled back. Now what we're seeing is a resurgence of that.

As J.D. said, some of our consumer direct lenders are getting back into that business. It can be highly automated, oftentimes doesn't require complete appraisals. As that gets re-automated, we expect, you know, that to, you know, help us out as refinancing your entire mortgage doesn't make sense.

Ryan Tomasello (Analyst)

Thanks. Appreciate all that color. Second one for me on the expense side. Can you put a finer point around the additional levers you have to pull from here, pending how performance trends throughout 2023? You know, perhaps you could quantify, you know, a range of the additional costs that you think you could theoretically remove from the system. What type of environment we would need to see in order for those plans to start to be more seriously considered. Thanks.

Doug Lebda (Chairman and CEO)

Yeah, I'll start, then I'll let Trent put some details around. I doubt we're gonna give you a range, but I can tell you that we're continually looking at things. As we move to a more project-oriented company with our quarterly cycle, as I talked about, you are investing on a variable basis on a few things that you think are gonna move the needle, and then everything else is quote, unquote, "fixed." We're taking a continuous and very hard look at that. Trent?

Trent Ziegler (CFO)

Yeah. I just sort of continuing what Doug said, right? We've obviously taken some actions throughout the last 12 months in the form of workforce reductions, and otherwise. You know, really when you get past advertising, which obviously we'll continue to look at and optimize, the advertising alignment as well. Beneath that, I mean, the vast majority of our fixed expenses are people and our technology stack, right? Some of those things are easier to move the needle on than others.

As Doug said, we sort of look at the body of work that we have going on and then sort of the bets that we're placing and the discrete initiatives and we have to continue to kind of raise the hurdle rate as to what we fund and what we choose to invest in. You know, relative to the commentary in the shareholder letter, you know, should unit economics in some of our core businesses continue to get tougher, right? We've got to raise that hurdle rate and draw a bit of a harder line as to what we're choosing to invest in. That's the approach that we're taking.

John Campbell (Managing Director)

Michelle, can we get the next question, please?

Operator (participant)

Please stand by for our next question. Our next question comes from John Campbell with Stephens. Your line is now open.

John Campbell (Managing Director)

Hey, guys. Good morning.

Trent Ziegler (CFO)

Hey, John. Hey, John.

John Campbell (Managing Director)

Hey. Hey, within consumer, I mean, if we back out personal loans, credit cards and small business, I think that implied consumer other was up pretty sharply, I think 28% year-over-year. That's now about a fourth of the mix. Curious about what drove the strength there and how you're thinking about that other business within consumer for the rest of the year.

Trent Ziegler (CFO)

Sorry, John. Consumer ex personal loans and what else? I'm sorry.

John Campbell (Managing Director)

Ex personal loans, credit cards, and SMB, just the ones you know, the larger businesses you guys typically call out. I mean, if I look at that kind of implied bucket of other, that's about a 28% growth rate. Really good results there. Just curious.

Trent Ziegler (CFO)

Yeah.

John Campbell (Managing Director)

what drove that strength.

Trent Ziegler (CFO)

Yeah. We've seen kind of under the hood growth in 2 areas. One unsurprisingly would be our deposits business, right? As interest rates continue to rise, there's more interest in shopping around yields on checking savings and CD rates.

That's the relative scale of that is not huge, but that continues to be an area from a macro standpoint that we continue to see opportunity. The other area is in our credit services business, right? We have, you know, both credit repair and debt relief where folks come to us and express interest in a personal loan or in another product, perhaps don't meet the criteria for those loans.

We offer subsequent solutions to them in the form of credit repair or debt relief based on their needs. That's been an area that has grown a little bit throughout the last year.

John Campbell (Managing Director)

Okay, that's helpful. From a strategic standpoint, I guess also from a modeling standpoint, I saw you guys mention you're discontinuing the reverse mortgage business. I guess first, why now? Secondly, how much revenue did that contribute in 2022 and any kind of discussion on segment margin or VMM impact?

Trent Ziegler (CFO)

Yeah, John. That business was one that we, you know, stood up several years ago, and the opportunity there has been declining over the last several years. The regulatory environment for there is not particularly supportive.

You know, and to give you some sense, that was a business that was doing sub $5 million in revenue for the last several years. It's really not a needle mover. You know, when you think about strategically sort of where we are as a business, we're really trying to simplify the business in many respects and focus in on the core value drivers. And that's one that, you know, relative to my comment earlier about raising the hurdle rate, it didn't quite meet it, right?

That's just a business where we can streamline focus and resources into bigger priorities.

John Campbell (Managing Director)

Okay.

Trent Ziegler (CFO)

Maybe-

John Campbell (Managing Director)

That's all for me. Go ahead, J.D. Sorry.

Trent Ziegler (CFO)

John, I was just going to say, I think, you know, as Trent said, financially, it's not a needle mover, but what we're doing is looking at all of our businesses and saying, "Okay, what's the natural margin in this business? What's the opportunity in the business relative to the partner set? And then what does it do in terms of burden on our fixed costs or impact on our fixed costs, right?" When we talk about our cost structure, these things are closely aligned, right?

We're trying to make sure that we're in the right segments where we're getting maximum leverage off of our fixed costs. If there is a cost, a hidden cost aspect, right, associated with being in a business that's not delivering a big impact, we wanna redeploy those fixed costs or cut them, right?

it's obviously reverse in and of itself is not a big impact, but it's indicative of the scrutiny that we're putting into the whole business.

John Campbell (Managing Director)

Makes sense. Thanks, guys.

Operator (participant)

Please stand by for our next question. Our next question comes from Robert Wildhack with Autonomous Research. Your line is now open.

Robert Wildhack (US Consumer Finance and Fintech Analyst)

Morning, guys. You called out some competitive factors on the credit card side. Obviously a lot going on in that space, whether it's TreeQual or competing products, different business models. You know, now you even have a competitor paying out consumers who don't get approved. Bigger picture, can you just share how you think about the competitive landscape and positioning there and really the rationality of it all right now?

Trent Ziegler (CFO)

Robert, can you just, could you repeat the last part of that question? I apologize. It tailed off.

Robert Wildhack (US Consumer Finance and Fintech Analyst)

Oh, sorry. Yeah, just kinda curious how you're thinking about the competitive landscape in credit card...

Trent Ziegler (CFO)

Yeah.

Robert Wildhack (US Consumer Finance and Fintech Analyst)

really the rationality of it with all these different offerings that are out there.

Trent Ziegler (CFO)

Sure. At the end of the day, We're coming at credit card where it is a small business relative to our portfolio of businesses, you know, relative to our competitors. The competitor that you're mentioning is obviously Credit Karma. That's, I believe what you're referring to when they talk about the guarantee...

Robert Wildhack (US Consumer Finance and Fintech Analyst)

Right

Trent Ziegler (CFO)

where cards are assured. That's an extension of their Lightbox pre-approval, and they've just changed the verbiage around it to assure somebody the degree of guarantee that they would actually get the card. Why are we doing Prequal? One, for consumers, we think it's a better outcome, right? We don't like a LendingTree consumer coming to our experience, clicking out and having effectively a 80%+ chance of being denied a card.

That's not great for us and, you know, it's fine for our partners 'cause they only pay us on approvals, but it's not great for customer experience. Prequal started from that perspective. Ultimately though, for our partners to want to deal with Credit Karma, NerdWallet, ourselves and others, they need to get volume, right?

There's no point in working with us if they can't get volume from us. We are, we are from a marketplace perspective, embarking on a strategy to increase the volume we can get them at a reasonable price. We just need to diversify the marketing channels to do that. Prequal is gonna rely on our My LendingTree base, right, largely.

Then there are opportunities to use Prequal in our existing experiences that we're actually quite excited about. For instance, a consumer could be coming in and looking for, a given product. Let's say they're looking for a personal loan, but the size of the loan they're looking for doesn't really make sense for a personal loan. We can show them a card that they are pre-approved for.

That we think would be a good experience for the consumer, and it's another opportunity to drive volume. We need to get better there. Now, core to your question is the competition in the card space. Interestingly, we're coming into this where it's a very small part of our overall business, so any incrementality is improvement, right? That is a business.

From a margin perspective for us, it's, you know, it operates in the teens. So if we can take market share and even just hold our current margin profile, which obviously we want to improve over time, we can see great gains in credit card that are meaningful for us, perhaps less meaningful for some of our competitors who started from card. That's our strategy.

When we talk about the competition, we probably talk about that competition more than others because we feel it more than others because we're so dependent on search. As we diversify our marketing mix for the card business, it won't be quite as profound, right? That's where we are today, and we've been very candid about that. We need to improve that.

There are a number of aspects to it. There's a tech aspect, that's the Lightspeed migration. There's a marketing aspect, that's developing the other channels. There's a new product aspect, and that is Prequal. That's the strategy.

Doug Lebda (Chairman and CEO)

The only thing I'd add to that, if you... First off, we relate to the credit card business, and the reason was because we didn't like the approval rate dynamics that J.D. just talked about. However, we did enter it with an acquisition. We're in it now, and now we're just continuing to make it better. When I think of the competitive environment, we've got one competitor that's better than us in c-card SEO and another one that's better than us on approval rates because of Lightbox, because of Credit Karma's.

Trent Ziegler (CFO)

Lightbox.

Doug Lebda (Chairman and CEO)

Lightbox. Our response to that is Prequal, the Win Card, the Lightspeed, tech work that J.D. talked about, and SEO on LendingTree. The nice thing is, with, you know, our competitors being public, we get to, you know, see the target of where we wanna head and we're very focused on it.

Robert Wildhack (US Consumer Finance and Fintech Analyst)

Thanks. That's really helpful. Just a quick one. You know, I think we have some, at least qualitative commentary on insurance and home as it relates to 2023. Can you just close the loop and share where you're thinking on growth in consumer and margin or growth in consumer and the margin there for 2023? Thanks.

Trent Ziegler (CFO)

Yeah, I mean, our baseline expectation as we kind of outlined in the letter, from a revenue standpoint, again, sort of mid-single digits, from a revenue growth standpoint, and then we assume pretty consistent margin relative to what we saw last year.

Operator (participant)

Please stand by for our next question. Our next question comes from Melissa Wedel with JPMorgan. Your line is now open.

Melissa Wedel (Analyst)

Good morning. Thanks for taking my questions today. A lot of them have already been asked, but I thought it would be worth touching on or following up on the consumer margin. Definitely saw that nice pop in four Q. Your shareholder letter also referenced some organic growth from My LendingTree there. As we think about margin into 2023, should we be thinking sort of mid-40s or as sort of a normalized run rate? Are you looking at four Q, given the current mix across products as something that's a more sustainable run rate?

Trent Ziegler (CFO)

Yeah, I'd say, Melissa, sort of Mid-To-High 40s%. If you unpack the moving pieces within that, right? You've got the personal loans business is a business that's incredibly high margin for us. The current environment with everything going on in the macros, with rates moving higher and the health of the lenders in that space, they are just the orientation of the lenders in that space such that they are, sort of, you know, protecting their current portfolios as opposed to, you know, interested in massive origination growth.

The unit economics and personal loans are they're harder, right? So we have to be conscious of the impact of that on the margin profile. Obviously that's a big driver of the segment.

That said, you know, there are other areas where we're seeing really good, you know, really good margins. All the work that we just talked about around the credit card business are clearly intended to improve the margins of that business because the margins there are not great today. We're doing a lot of work that we think improves them.

You know, small business is the other big driver within consumer. That's an incredibly high margin business for us. We think that is an increasing contributor to the segment as we progress throughout this year. To sum it all up, you know, sort of I think we did 44% margins in consumer on the full year last year. We did 48% margins in the fourth 1/4.

Somewhere between those 2 is our going AM expectation for 2023.

Melissa Wedel (Analyst)

Okay. That's really helpful. Thanks, Trent. I guess as a follow-up on TreeQual, are you able to share with us just sort of on an aggregate partner basis, what % of partners are now participating in the TreeQual platform, and what portion do you have left to convert?

Trent Ziegler (CFO)

Sure. Melissa, it's de minimis on is the % of partners. It's in the Single-Digit area right now, but it's actually not really how we're looking at it. We're looking at it as partners who can offer us broader coverage, right, in terms of the cards that they represent, depending on whether that card is intended for, you know, super prime, mid prime, or subprime.

We want to be able to match up with partners who have an array of cards. That's why we're excited about getting Upgrade onto the network, as we mentioned in the letter, because they're bringing 5 cards to us. Obviously, over time, we want to have all of our partners working on some form of TreeQual.

What we were excited about in the 1/3 and fourth 1/4 of last year is the momentum in terms of just pipeline of dialogue with partners. We're getting more visibility as to how partners want to work with us. You know, right now there's a path for TreeQual that is working with a 1/3 party, trusted 1/3 party that many of the card issuers work with today.

They work with them on direct mail. That is kind of the easiest path, and that was why we went down that path. Not all of our partners, however, want to work with us that way. Some of us want to do embedded integrations with us without a 1/3 party involved. That takes more time to work on from a technology perspective on both sides with us and the partner.

It's obviously a good outcome when we, when we get there. I'd say that the dialogue has increased. We're happy about Upgrade, and we're happy with the existing partners and the results that they're experiencing.

You know, let's put it this way, the financial impact of TreeQual will manifest itself in credit card potentially down the road in personal loans. It is not in our 2023 guide in any material way. We look at this as a year of onboarding partners, and we know that we will have a healthier credit card business on the back of it, but our guide is not dependent on incremental revenue from TreeQual.

Melissa Wedel (Analyst)

Got it. Thank you.

Operator (participant)

Please stand by for our next question. Our next question comes from Mike Grondahl with Northland Capital Markets. Your line is now open.

Mike Grondahl (Senior Research Analyst)

Hey, thanks, guys. I wanted to dig into the strategy a little bit. I think the Tree-branded Win Card is the first time you've put your name on a product, and you mentioned more products to come. Are you trying to put one of these Tree-Branded products in each vertical, or how should we think about kind of the rollout and some of the new products you said will be coming over the course of the year?

Doug Lebda (Chairman and CEO)

I'll start and then I think J.D. will follow up as well. Think of My LendingTree, I've talked about this before, as bringing the best customer experience to the consumer. That's why we launched a branded card there as opposed to having our My LendingTree members be clicking out to search for cards and not getting approved.

We think it's a great product. We think it's best in class. It's innovative. I've always wanted to do this, but we hadn't found a set of offerings that we thought would be different in the industry, and now we think we have it.

The Win Card can be another gateway to bring in My LendingTree members, and it's also a way for our My LendingTree members to put a card in their wallet that we think is fantastic and that you can get approved at a very high rate for it.

In My LendingTree, you could expect us not necessarily to always do a single product offering, but I would say that whatever we do on My LendingTree, we want it to be the best-in-class product so that consumers come back to us again and again, without us having to be as dependent on paid marketing to continually drive people back into the marketplace. J.D., anything to add?

Trent Ziegler (CFO)

The only thing I would add, Mike, is, you know, we spent a lot of time last year doing consumer research on what specific financial jobs consumers would trust us with. You know, we've got... As Doug mentioned, it's kind of a multiyear approach. We've got 8 or so products that we would expect to launch over a multiyear period.

Don't expect 8 this year. Effectively, the Win Card is the first one, and the theme is really the adjacency to why somebody came to LendingTree in the first place and what somebody, what problem they're trying to address. I don't think it's specifically gonna be a product for every vertical area that we have. We will roll these out, really relative to what we think is the most adjacent thing.

We don't want it to become a feature factory. We want it to be things that genuinely add value for the consumer and drive engagement. I was thinking about it earlier. You know, you think about historically, we talked about pushing our consumers in My LendingTree to connect their accounts. You know, you could come in and use Plaid to connect your accounts.

There was obviously potential benefit for us in terms of the information that we were gathering, but there wasn't really anything on the other side for the consumer, right? If you think about what we're doing with the Win Card, we're saying, "Here are these financial behaviors where we know you will be better off on the other side.

If you come and log in and show engagement with us, you'll get your cash back, and we know that we're gonna improve your credit score and your access to other financial products over time. Our research showed that that would resonate with our consumer base and with the consumers who we want to be in My LendingTree.

The Win Card is indicative of how we're trying to position ourselves with consumers, which is access to more products over time because of good, sound financial behavior. You can envision that we're gonna be helping consumers over time address their debt stack, you know, address which debt they should pay off first, that sort of thing, and really be an advocate for the consumer. That's where we wanna be.

We talk often internally about being a digital ally for the consumer, and the Win Card is the start of that.

Mike Grondahl (Senior Research Analyst)

Got it. Got it. Thanks. I'm trying to understand, is it kind of a pivot or the beginning of a big new direction for you guys? You know, legacy was sort of when banks compete, you win. Now it's more of a, "Hey, you might have a financial need, and we got a product to meet that need." I'm just trying to understand that evolution.

Doug Lebda (Chairman and CEO)

Yeah. Yeah. Again, think of the marketplace and My LendingTree as, you know, connected but also separate. When you come to LendingTree, when banks compete, you win, you expect to see choice and comparison shopping. When you upgrade to My LendingTree, you expect to, you know, get instantly approved because we have all of your credit data.

We've been, you know, giving you a free credit score probably for multiple months. A lender integrated with us can do really interesting stuff on the underwriting side that you can't do in a click out model until TreeQual's fully there. My LendingTree is just giving you the best answer, and we've got a lot of really exciting things coming.

We think the Win Card is broad enough to cover really most of the credit spectrum. The approval rate aspect, improve the unit economics and the features of it are targeted to exactly what My LendingTree is, which is a financial journey, an ally to help you improve your financial standing and get you the best offers at the lowest price.

Trent Ziegler (CFO)

Mike, just from a marketplace strategy perspective, one of the things we talk about internally is degree of authentication, right? If you look at our personal loan vertical, our partners, we're delivering a highly authenticated consumer. That is true in mortgage as well. That is only true to an extent in insurance. That is not true in credit card.

That is not true in deposits, okay? Those are click out businesses where we're not really delivering a lot of information on the consumer. We are authenticating in small business. We spend a lot of time talking about how much value are we delivering to our partners in terms of the type of information on that consumer where they can make informed lending decisions. That's the strategy within Marketplace or Marketplace businesses, I should say.

If you think about the strategy that Doug is articulating for My LendingTree, it's very consumer-centric, right? Historically, we have been guilty of really thinking about My LendingTree as more of a marketing channel. Part of your question is this a pivot? I would say that this is a meaningful change in terms of how we think about My LendingTree.

What you're seeing is the beginning of the work that's been going on for the last year in terms of where we wanna play on the My LendingTree side, how we wanna help consumers. While Marketplace may have a slightly different strategy that is very oriented towards partners and what they wanna see, you can understand how the 2 interact, right? At the end of the day, TreeQual is all about authentication in the marketplace.

The Win Card, it's also on the consumer side, about giving you an assured outcome as opposed to a potential denial. The Win Card is about that as well, right? I actually think the 2 strategies work hand in hand quite well, and that's actually the best approach that we could take.

Doug Lebda (Chairman and CEO)

Got it. Hey, that explanation was really helpful. Thanks, guys.

Trent Ziegler (CFO)

Thanks.

Operator (participant)

Please stand by for our next question. Our next question comes from Jamie Friedman with Susquehanna International Group. Your line is now open.

Jamie Friedman (Analyst)

Hi. Good results in a difficult environment. I just wanted to ask if you could possibly trend double-click on the assumptions on page eight in the shareholder letter, especially or specifically, if you could, with regard to the 1/4ly cadence. I realize we have the first 1/4, we've got the year, but some of these segments have what look like increasingly easy comps. Since we have to 1/4ize our models for this year, any call-outs you could make on the segments by 1/4? Thank you.

Trent Ziegler (CFO)

Jamie, to totally fair question. Obviously the, you know, the Q1 guide relative to the full year guide implies some improvement throughout the year. A couple things going on there. I guess in consumer, many of those businesses have a seasonal curve to them, where things generally improve from Q1 to Q2 to Q3, and then slow down a little bit in the fourth 1/4.

We see that in credit card generally. We see that in personal loans for sure. So that's driving some of the sequential improvement that's implied as we progress throughout the year. The other big one is obviously within home and within mortgage in particular, given our increased reliance on purchase within that business.

You know, that's a business that clearly we expect to be better in the spring and summer home buying season than in the first couple months of the year.

Operator (participant)

Okay. I show no further questions at this time. I would now like to turn the conference back to Doug for closing remarks.

Doug Lebda (Chairman and CEO)

Great. I'll make this brief. This company right now, as I characterize 2023, is really the year of discipline and execution. I want to also let everybody know that we're confident in our position. We've been through this twice before as financial markets have corrected.

This is a longer one. The diversification that we have put in place over the last few years has certainly helped bulwark the company in what's a very, very tough environment. What I can tell you is this entire company doesn't like to lose. We love winning. We're very focused. The teams are all working hard. We're getting stuff done at the lowest cost as fast as possible with new ways of working together. The team, the entire company is highly energized.

We're getting people back to the office, post-COVID. We feel very confident that we can win in a highly competitive market. Our brand is strong. Our marketing is working well. We've got teams working on the key levers of the business with dedicated projects against them, as we talked about. We look forward to working with you throughout the year. Thank you for your support so far. We're gonna go get back to work and do the best we can. Thank you all very, very much.

Operator (participant)

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