Good day, and thank you for standing by. Welcome to the LendingTree second quarter 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 one on your telephone keypad. 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 of Investor Relations. Please go ahead.
Thank you, Leeway, and good morning to everyone joining us on the call this morning to discuss LendingTree's second quarter 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 we'll focus on Q&A. Before I hand the call over to Doug to give his remarks, I wanna 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 at investors.lendingtree.com, for the comparable GAAP definitions and full reconciliations of non-GAAP measures to GAAP. With that, Doug, please go ahead.
Thanks, Andrew, and thank you all for joining us today. The current volatility in the economy has obviously caused pressure on consumer demand for loans and lender demand for new borrowers. Our company has operated through difficult stretches like this in the past and consistently emerged as a stronger and more profitable business. We are in a much better position today than ever before to manage our day-to-day business in this cycle and also be able to make strategic investments that we committed to earlier in the year, including to dramatically improve our customer experience, drive higher brand awareness, and draw new customers to our platform at a time when others are scaling back. Our updated guidance acknowledges the financial impact of a slowdown in borrower, lender, and insurance carrier demand.
Despite these headwinds, we are forecasting that segment-level profit ex brand spend will be roughly flat in the third quarter compared to the second quarter, which speaks to the resiliency of our business model. Our leadership team has remained focused on managing expenses, having reduced headcount since the peak of mid-2021 by nearly 15% through a targeted workforce reduction, a restricted hiring plan, and backfilling vacant positions sparingly when they occur. These actions helped limit operating expense growth to 3% over the last year, despite the current inflationary environment. This is a unique period for us as a company when two of our three segments are generating trough-like revenue due to significant macroeconomic headwinds.
However, we are managing the business with a focus on helping our partners when they need it the most, while taking purposeful steps to position ourselves to win on the other side of this cycle. For example, in our Home segment, we are actively working with our largest mortgage partners to roll out home equity loan products that historically have not been a high priority for them. We know homeowners with historically high levels of equity today are looking to efficiently borrow against it. We see that desire in the 62% increase in consumer volume for quotes in the second quarter. By helping our partners pivot during a challenging point in the cycle, we're improving outcomes for both constituencies.
The standout performer again for us during the quarter was the Consumer segment, as personal and small business loans grew revenues 68% and 81% over the prior year, respectively. Our pipeline of new TreeQual partners continues to grow, and we expect to have a few new partners to announce that are going live with us in the third quarter. The Insurance business has been negatively impacted, as carrier partners continue chasing inflationary trends with premium increases. While the business performed relatively flat quarter-over-quarter, based on ongoing discussions with our partners, we are dialing back our expectations for material growth through the end of this year. However, when insurance companies finally believe they've repriced their policies appropriately for the economic environment, we expect to see a super cycle of consumer shopping emerge.
Historically, in such periods, our business tends to generate returns well above normal for a period of time. We, thus, remain very optimistic about the future at QuoteWizard.com. Finally, I'm very excited about our new omni-channel marketing campaign we launched recently. We chose this time to draw attention to the ongoing work of improving the customer experience as we laid out in our Investor Day. Our financial resilience has allowed for this investment, while the steep decline in advertising rates has allowed us to return to brand advertising at a time when it is much more efficient to do so. It is still early, but we're seeing promising signs of engagement driven by the campaign, and we look forward to benefiting from this investment in the months and quarters ahead. Now, operator, please open the line for questions.
Thank you. Your first question comes from the line of Ryan Tomasello from KBW. Please go ahead and ask your question.
Hi, everyone. Thanks for taking the questions. Appreciate the comments to help contextualize the earnings power of the business, and was hoping to put a finer point around that, specifically when you talk about Q4 being trough earnings capacity. Does that comment still hold if the macro backdrop weakens and the implications that would have for the Consumer segment beyond just the current headwinds in Mortgage and Insurance?
I guess, you know, taking a bigger step back, realizing the company has operated through numerous cycles, but the business in its current form with the added diversification is a bit more untested. It would be helpful to get your thoughts around the puts and takes of a recession performance for the business in its current form. Thanks.
I'm gonna let Trent and J.D. start on the first one, and we can all sort of comment on a recession posture, and unfortunately, we've lived through that a few times.
Yeah. Hey, Ryan. You know, I guess what I'd say is, you know, as we thought about guidance three months ago, right, when we obviously revised our initial guide down a little bit, you know, at that point, we retained some optimism with regard to the macro. I think our posture around, you know, the outlook for the remainder of the year has sort of removed any sense of optimism from, you know, from a macro outlook standpoint. You know, we feel like we've got Mortgage and Insurance sort of already operating at near trough levels. Admittedly, consumer, you know, has continued to perform well throughout first half of the year.
I think we've obviously got to be mindful of you know the risks that are present as we think about you know the recessionary outlook for the rest of the year. We've certainly done our best to account for that in our outlook for the remainder of the year. I think as it relates to what we're seeing in the Consumer segment you know in personal loans in particular it's interesting right? What we're seeing is balance sheet lenders in that space continue to be active right and desirous of origination. Some of the lenders in that space that are more reliant on external capital partners are starting to dial back a little bit with regard to their appetite for credit risk.
We're starting to see some of that, and I guess what I'd say is we're conscious of that. You know, the possibility for that to get a little bit harder is reflected in our current outlook. What I don't think we're gonna see is what we saw in the heat of the pandemic where, you know, basically the appetite for risk just evaporated overnight. We feel like we've got a little bit better line of sight into sort of how that will trend over the next six months, in terms of folks', you know, appetite for risk.
Yeah. Ryan, I think Trent summarized it well. You know, as we said at the outset, two of three sectors going through a historically bad time. Shouldn't be lost on everybody that this Consumer segment is having a very good year, right? Each of personal loan, credit card, and small business up, you know, second quarter revenue year-over-year, up 40%, up 22%, up 81%. Those businesses are having a good year. As we think about the prospect of a recession in light of the dynamic, the credit tightening dynamic that Trent was just talking about, we have to adjust our forecast for that segment, and that's kind of the only one that doesn't have, you know, that doesn't have quite the headwinds, right? We've tried to adjust our expectations.
To put this in context, if a personal loan lender increases their APRs, as some of them have recently, what's gonna happen there is just our close rates will go down because the consumer pull-through, the borrower pull-through will not be there. As a result, our economic opportunity will shrink a bit. That's what we're adjusting for in that guide. It doesn't mean that the PL business is not a healthy business. We're just adjusting as we look at the back half of the year, and we think that's the right thing to do. As it relates to Home, we're thrilled with progress in something like home equity. It's just really hard when the refinance pool, the eligible refinance pool is as small as it is.
We're trying to push on purchase because that's a good opportunity, but it's hard to make up for the paucity of refinance. In Insurance, Scott can certainly speak to this. We just know that, you know, for the remainder of the year, given the inflation struggles, it's not likely to recover. We're just gonna execute and try to do all the right things to be in a better position when that spend comes back. As you think about each of Home and Insurance, we do spend a lot of time internally trying to compare it to previous periods. You know, the most recent period for Home would be 2018 when our lenders were laying off loan officers. Certainly, the spike in rates was not as significant. It's not a perfect comparison.
You know, Scott can expand on the last time the carriers had difficulty here, but it wasn't necessarily tied as much to inflation as it was to operating performance.
The only thing I'd add on the recession stuff, and Scott, if there's anything that you've been through cycles and recessions and Insurance, love to hear what happens. Typically, what you would see is in the Consumer segment, lenders would be demanding less volume as they tighten up their credit spectrum and are lending less. However, a lot of that has already happened in the market as you look at the digital lenders who have been adjusting underwriting criteria, and you see that reflected. Even though they're doing that, our numbers are obviously doing well. I think that would hold up better than it normally would. Then in Home
In a recessionary environment, you see a huge spike in consumer demand because rates go down, and you get a huge refinance bump. At the same time, our lenders will moderate, you know, their need for us a little bit, but your cost per lead, if you will, if your RPL is staying the same and your cost per lead is going down dramatically and the volume chugging through the system is up dramatically, your Home business typically does very, very well. The thing I'd add that J.D. alluded to in conversion rates, that's why our strategic initiatives are so important.
Just hitting on two there, you know, if TreeQual at scale and our ongoing digital initiatives to interface more with the major personal loan and credit card lenders, if that works, that's gonna have a dramatic improvement in conversion rates. We'll just have dramatic pull-through to the unit economics. Then on Mortgage, the Marketplace 24 project, which we had laid out at the beginning of the year, that now being mostly done and being optimized from here on out, makes our consumer experience in Mortgage much better. I'm actually proud to say, I don't normally say this to folks like you, but go check it out. It's actually really good if you go to our homepage.
A lot of times in the past, we haven't been able to be as proud of our Mortgage experience as we are right now.
Yeah. To hit on Insurance real briefly. You know, the Insurance industry is much more resilient against recession than it would be against inflation. You know, you look at the major product lines, whether it's auto or Home or health, the government and/or lenders require consumers to have Insurance on all those products. So those keep going even in a recessionary environment. Inflation is just where we're at right now, and that's the tough one, where the carriers just do not have a lot of confidence in the rates that they're charging consumers and whether those rates are profitable or not, which they have not been for quite some time. So the current environment is the trough point for Insurance.
Thanks. Appreciate all that detail. On home equity, is there a way to frame how much upside there could be there relative to Q2 levels based on the existing partners that you're mentioning that you're working with to onboard? I guess for purchase, with Mortgage rates trickling down from their near 6% highs in late June, has there been any incremental signs of strength there as home buyers settle into the new environment?
Sure. Ryan, we spend a lot of time internally just talking about home equity. Just to put this in context, the most recent quarter, you know, recent two quarters, they're at levels for us that we've just not seen, historically. We've seen a real spike there. When we look under the hood, we say, okay, how many of our partners are buying home equity? And that's up meaningfully in the last two quarters, which is great to see. Now, as we've talked about in the past, we certainly have some lenders who buy a home equity lead, meaning a consumer who is inquiring about home equity, and they may try to actually talk them into a different product. We recognize that.
They may try to talk about the merits of cash out refinance, and that is some of what is going on. Makes it a little bit more challenging to identify the size of the market opportunity there. Now, certainly, I think what is going to occur, a little bit different about this cycle is the amount of equity that people have in their homes. We are seeing examples of lenders who are in other product lines who are adding a home equity product, adding a second lien product, things like that. That would be a great development for us because it's a better product for the consumer or might be a better product for the consumer. It's just very hard to identify a size of market for you.
There are a bunch of traditional home equity lenders, credit unions, et cetera, who are not typically our core customer. They don't do quite as well with those customer introductions. I mean, we're already at levels that I don't think, you know, two years ago, we would have thought we would have seen in home equity. Just to give you some sense, we're not forecasting as if it can grow to the sky. We're being somewhat conservative now there. Now, as it relates to purchase, the revenue per lead in purchase is very, very strong, so we're thrilled with that. We need to deliver more on the volume side right now. In previous cycles, we've done a better job of getting to volume in purchase. That is something that we need to work on.
Doug just talked about the improved consumer experience. We think that will be part of it. If you go through that experience, it's intended to be a bit more of an advisory experience. You know, what you should expect in the next stage of this process. We're putting a little bit of friction into the process of filling out your form to make the consumer think about it a little bit more and understand what's coming up next. We think that's a better consumer experience. We think it will lead to a better purchase experience. One of the headwinds that we've had in purchase is declining inventory, right? Recognize that even though the purchase market is strong, if inventory is low, the ultimate conversion rate will be weak for our purchase lenders.
that has been a headwind. As you see signs of inventory loosening up in the housing market, probably net a good thing for us in our purchase business.
The only thing I would add, J.D. made the point about RPL increasing. Lenders will switch from refinance to purchase, as refinance volume goes down, but we're also obviously, you know, making concerted efforts there. As that RPL goes up, then at some point, you'll be able to actually market, come to LendingTree for purchase 'cause it'll be profitable. Today, most of that traffic comes in, you know, largely, sort of drafting off of mostly, just broader Mortgage stuff. Then on home equity, as J.D. alluded to, with these lenders getting back into it, you know, I'm old enough to remember a time when home equity was as big as refinance in our business, and the RPLs were significantly higher.
Now, that was in, you know, 2005-2008 when, obviously, credit was sloshing around a little bit. Importantly, it was more related to automation and the fact that these lenders had sunk a lot of money into automating, which improved conversion rates dramatically, which improved RPL. I would expect it as it comes back, with the automation that's happened in the last 10 years. These lenders, the loanDepot and others, just need to remember how to do that, but they did that highly successfully in the past cycle.
Appreciate all the detail. Thanks, guys.
Sure.
Thank you so much. Your next question comes from the line of Youssef Squali of Truist Securities. Please go ahead.
Couple questions. I guess in the letter, Doug, I think you talked about Consumer segment prospects are increasingly uncertain. That's one of the three businesses that continues to do well for you. I'm just trying to get a sense of, are you seeing anything tangible in your business quarter to date, or is that just based on the macro concerns that we're all aware of? Then, maybe stepping back and looking at the kind of just all the pressures on the Home and Insurance. I was wondering if maybe you can help us delineate between macro pressures and perhaps any kind of competitive pressures that are out there and any kind of sense of whether, you know, how the market share is kind of being moving at least in the last, call it six to nine months. Thank you.
I'm gonna let these other guys handle the market share one. I'll just start with the Consumer segment. I alluded to this a little bit, and we know this. You can see it from the public, you know, personal loan lenders. They have all pulled in their horns, so to speak, by, you know, as they change their underwriting criteria, you know, to make up for past sins. By the way, you see that and that'll happen from time to time. All lenders are not the same, and that's what makes a marketplace.
As they pull their horns in, they raise their APRs, they raise their rates that they're gonna charge, and they increase the FICO score that it requires, for example, and they up the credit quality. All of that then is the negative pressure that you would allude to in that business. If people were running at wide open filters and, you know, giving subprime borrowers 6% loans, we'd. You know, it would be a different story. You just see that at the margins as lenders adjust their underwriting criteria. Once they get certain of things and as their, you know, outlets for loans are there, then they open it up.
They wanna all just originate profitably, and we wanna help them. Basically, as they pull in, it's the increase in price and the decrease in people that they're willing to offer it to. That's the pressure. By the way, like it's. You know, I think you're seeing it now, and I think we've mostly seen it, and that's why I said even in a recession, it wouldn't surprise me that things would come in more. At times in personal loans, you had the entire capital markets air hose shut off, and then obviously, you know, it's a different story. Even then, the business is pretty resilient to weather through that. I don't see anything like that necessarily happening. J.D.?
Yeah. All I would add is, I mean, Yusuf, we look for the signs of it, right? We've seen some tangible signs. As Trent pointed out, there's some behavior differences between type of lender. As Trent pointed out, like, there's a little bit of tightening of credit box with a couple key lenders. They're still active. They're still looking to grow. It just. You know, they're gonna tighten the credit box. They're gonna take up the pricing. And keep in mind, in personal loans, the majority of our compensation is on the back end based off of a close rate. We have to prepare for that close rate to be worse. That's one. In credit card, we watch approval rates.
That's not quite as transparent, but we watch the approval rates, and that's something we'll look at there, you know. That's implied certainly in our guide as well. I guess I should just emphasize, really late in the second quarter, early in the third that we've seen this, and it's the, you know, the beginning of that. It is not at all, as Trent pointed out I think well earlier, like the last time that business went through a difficult period because of capital markets concerns. It is a very rational kinda tightening, which is pretty healthy. We have to prepare for how that rolls through our mix, right? The consumer business has been positively affecting our mix. It is a high-margin business for us for the most part.
We have to prepare for that.
On market share, I'll just. I don't have specific information at my fingertips. Maybe somebody else does, but just a couple anecdotes. Obviously, in Mortgage, as the market shrinks, we're gonna have a rising share of the overall market. However, you know, we don't like to take that to the bank, and pat ourselves on the back too much for it. But what we do like are seeing the signs when, for example, one of our major lenders recently cut off all of our other competitive aggregator/marketplace sources except for LendingTree, which goes to show that, you know, if we can provide enough volume at the right price, and they can actually convert it and make money, you know, they're gonna.
As they shrink their marketing budgets, just like in times we shrink ours, we love to be the place that they shrink to last. That helps our competitive position massively, and I think that's where you'll see the share gains. Now we gotta wait and see how some other companies report, but. In addition to that, when you're driving volume through TV, in a new brand campaign that not only are you driving high quality volume there, but it also has a halo effect on search, which is also high quality, which means it converts for the lenders. You know, that's where our brand enables us to do those things, where some of our competitors, because their unit economics aren't that high, they can't go do that. They're stuck in, you know, affiliate land and a little bit of search.
Doug, I'll hit on Insurance real quick just to comment, 'cause we're very confident that in a world where the marketing dollar pie is shrinking in property and casualty insurance, that our piece of the pie is growing by quite a bit. Our paid search traffic is up 78% year-over-year. Our SEO traffic is up year-over-year. Some of the initiatives I talked about at Investor Day, our agency business is up 140% year-over-year. Our direct-to-click product volume's way up year-over-year. Our inbound calls product volume's way up year-over-year. We are highly confident that we've been gaining a lot of market share in this environment, and that we're set up very well that when the pie starts increasing, which it inevitably will, we'll have a much bigger piece of that pie.
That's great. Thanks a lot. Maybe just one last one, if I may. In terms of capital allocation, can you speak to the buyback and potential and how much of it can you do at this point? Any interest in even having some insider buy-in to kind of send the right signal down here?
I'm gonna let Trent handle that one. We're not thrilled with it because we'd love to be buying back stock, but take it away, Trent.
Yeah, I'd just say we, you know, I think we alluded to this a little bit last quarter. We, you know, obviously struck a new credit agreement last fall that enabled us to, you know, issue the term loan and pay back the convert maturity that we took care of in the second quarter. As part of that credit agreement, there are certain restrictions around things like buybacks and other investments that, you know, we basically have unlimited capacity buying back the stock if and when our net leverage is sub 4x.
You know, as of the end of the quarter, we're a little bit above that threshold, and so we get into sort of a restricted payments bucket that would enable us to be buying back the stock, and we have exhausted that capacity in Q4 of last year and Q1 of this year. Our hands are a little bit tied with regard to the buyback. Now that said, you know, we're happy with the fact that we're sitting here today with, you know, nearly $300 million of cash on the balance sheet. We're actively looking at ways to deploy that cash.
Unfortunately, the buyback option is not really available to us, but we're exploring ways to think about how to deploy that cash, whether it's M&A, whether it's, you know, de-levering a little bit. So stay tuned on that front.
Okay. Thanks, guys.
Thank you so much. Your next question comes from the line of Jed Kelly from Oppenheimer. Please go ahead.
Hey, Jed.
Thanks. Thanks for taking my question. I guess, can you talk about the strategic decision to invest in brand? It kind of, looking at the numbers, it kind of implies you're gonna spend about, you know, $25 million or so, which, you know, I guess, given the net leverage with the EBITDA is a pretty big decision. Can you talk about the strategic, you know, the strategy behind that? Then when should we expect that TV spend to start to benefit the revenue and margin?
I'll take the first part and then let Trent take the second part. I'll hit the second part a little bit. Whenever you spend money on TV, you have an expected return over a period of time. We're tracking that now. It's too early to know. I think we'll keep you posted, but it's typically a 6-month period as it builds. On the strategic reason, I've said in a previous call, and you guys have probably heard me say 100 times in investor meetings, that when we have a customer experience that we're proud of and the economics support it, that we're gonna go tell the world about it.
One of our major initiatives this year was called Marketplace 24, which was a complete revamp of our Mortgage experience on the marketplace side. We got it done. We tested it. Consumers loved it. Liked it a lot more than what we had. It was a really interesting thing in that it embraced our phone calls and helped consumers negotiate as opposed to trying to eliminate them, which I thought was a really interesting innovation of product design. The product looks great, and so we said, "All right, can we afford it?" We can. Ad rates were, you know, extraordinarily low.
As we all looked around it, we said, "Now's the right time." In addition to that, you know, it hits all of the other strategic levers too, because I already mentioned the high-quality volume for lenders. Then in addition to that, on the consumer side, as rates go up, the notion of comparison shopping is even that much more important. It's highly relevant in a rising rate environment. The media buying, as I said, was favorable. When we tested these ads, they scored as high as anything that we've ever run. Then interestingly, we tested 50 different taglines, and "when banks compete, you win" still came out on top. You'll see that on the ads. They're doing really well.
You know, we think that it's a breakthrough campaign. As monetization improves, we think it's a great basis to do more. Inside of that $20 million, call it half of it, give or take-ish, maybe a little less, is fixed cost that you expense one time. I wouldn't expect that our production costs would be as high in the future. We also have a personal loan spot out of this too, at a time when you know, that business is doing pretty well. It wasn't a huge number, right? We also wanted to do it at a level when you run media, you gotta do it at a level. You can't just trickle it.
We have to do it at a level over a period of time, which we're doing, that you can measure it and see it have an impact. We thought that roughly $10 million in media spend was the right number. If it works, we'll keep doing it, but it'll, you know, as RPLs go up, you know, at some point. Dude, back in the old days, all we did was TV, and it made us money every month. You just got to get your RPLs to a point where it's profitable.
The nice thing is when you look at all the other fintechs doing TV advertising and losing money over it, we only do it more confidently that it's actually gonna hopefully pay back, at least break even and help all of our other channels. We can do that way more profitably than any other fintech.
Just as a follow-up, how much growth are we expecting in 4Q?
Yeah. Jed, we're. As Doug said, right, I mean, the number that's affecting Q3 is about $20 million, nearly half of which is really one time in nature to produce the ads and some of the launch, you know, launch expenses and some of the ancillary media around the launch. You know, the media itself is intended to be very heavy in July and August, where we think we're gonna get the biggest bang for the buck around it, and then we'll back off of it into Q4, right? I mean, very intentional in the period of time in which we're spending the media. Q4, you know, think historically about when we've been on air with campaigns.
It's very light in the fourth quarter because the cost of media tends to go up because you're competing with retail and other things around the holidays. You know, the current guide doesn't contemplate much, if any, media spend at all in the fourth quarter.
Yeah. We currently don't run a lot of TV in Q4 for exactly as Trent said.
Got it. Thank you.
Thank you so much. Your next question comes from the line of John Campbell from Stephens. Please go ahead.
Hey, back to the Mortgage business. You know, I think you guys said you grew purchased maybe 6%. That's obviously implying that refinance is down pretty sharply. I think we can probably back into this, but I'm hoping maybe you could shortcut it. What is the overall mix of purchase versus refinance today, maybe what that looked like last year and what you guys expect that mix to look like going forward?
Do you wanna-
I have it in front of me. I'm just not sure how much we would give away.
It's a little bit challenging, John, because we don't. To give you a sense, did we disclose that number, Trent? The reason I'm pausing is that 6% number.
Yeah. What's the 6%, John? Sorry.
The 6%, that was the purchase Mortgage growth, I think that you guys called out in the shareholder letter.
Yeah. Purchase up 6% year-over-year. That's right.
Yeah, I think. Okay. Sorry. I apologize. There are two different 6%. We were talking about 6% around home equity RPL, but you're right. Purchase revenue grew despite volumes being down from a year ago. That's the home scarcity that we've talked about.
That's right. Yeah. I mean, John, the declines, you know, and the weakness that we're seeing in Mortgage is obviously driven by refinance, right? The purchase business remains reasonably resilient relative to obviously the activity that we're seeing in refinance. We think the opportunity going forward, you know, is in purchase for obvious reasons, right? The rate environment is not gonna do us any favors from a refinance standpoint, and so we've got to lean in on purchase and on home equity. That's what you've heard us talk about so far.
Okay. That makes sense.
Yeah.
I'm sorry we can't be more precise there. If we get a little more precise, you can back into all kinds of fun numbers that we wouldn't want our competitors to.
I mean, I think at one point there was something, I can't remember if it was Analyst Day or maybe in a filing, but it seemed like it was, you know, obviously very refinance heavy, you know, a couple years ago. I guess the question is, do you think you can take purchase over 50% of the mix going forward?
Yeah. Refinance is still roughly, I believe, 3x what purchase is. That is because the RPL is roughly twice as much. The RPL in refinance will come down, as J.D. said, because fewer and fewer borrowers are going to qualify. The RPL in purchase is going up as a combination of both lenders switching over plus it getting better. Plus, we think, you know, then you layer on that, we hope our new Mortgage experience helps it even more. That's for the future. Yeah, you could. I'd want to see that though on growth of purchase as opposed to reduction in refinance.
They operate somewhat independently, but when you can advertise, you pick them up, you pick up both. It really comes down to is RPLs climb, and that's why we're in our strategic initiatives. Conversion rates go up, and then we can advertise like, you know, then we can drive a lot more volume in.
John-
Wherever it's profitable, we're going to do it.
John, to give you a sense, though, you know, we're happy that purchase RPLs are where they are. They've increased nicely, which is great. To give you a sense, Q1 refinance was approximately 3 x purchase. Okay. Q2 refinance was, you know, call it 2 x purchase overall. Now, the one notable thing is that home equity was actually bigger than refinance. We would love to see purchase, you know, move in that direction and become the contributor that home equity is. That's actually an opportunity. That's, you know, that scarcity of inventory is a headwind that we've been managing through.re
Okay. Makes a lot of sense. I appreciate that. Then on the higher investment spend and obviously a little bit of a reset on EBITDA, I mean, given where the kind of investor sentiment is and given, I think, Doug, what you mentioned about the cost of media, it seems like now is the time to kind of pounce on that. I totally get that. Maybe for Trent, how should we be thinking about the free cash flow from here? I don't know if you maybe, you know, free cash flow conversion off of your adjusted EBITDA. Is there a way to kind of frame that up?
Yeah, I mean, you know, our adjusted EBITDA that we report is actually a really good representation of cash flow. You know, starting adjusted EBITDA back out CapEx, which is a pretty small number, right? Sub $5 million a quarter, and that gives you a pretty good proxy for free cash flow, right? I mean, again, as we look into the back half of the year, you know, based on that math, Q3 might be closer to, you know, to break even. But as we get back into Q4 in the absence of the one-time brand spend, we fully expect to continue to generate positive free cash flow.
Basically a reset in EBITDA, but you're still pretty cash generative.
That's right.
Okay. Thanks, guys.
Thanks, John.
Thank you. Your next question comes from the line of Rob Wildhack from Autonomous Research. Please go ahead. Rob, your line is now open. You can now ask your question.
Hey, can you guys hear me?
Now we can. Yep.
Okay, good. How's it going?
Fantastic. Good. Thank you.
Great.
Morning.
Just to start on credit card, you know, I saw that revenue per approval was up 26%, but revenue itself was only up 22%. That implies approvals were down. Is that an inflection into, you know, a decline in this quarter? How do you think about both the volume and the price side of that business going forward?
Sure. I wouldn't read too much into that. We mentioned earlier, though, that we obviously are watching approvals. We've seen a bit of an approval rate dip with certain of our issuers. Recognize that as we go into the third quarter, we've got some issuers who try to launch new travel-centric cards, and that opportunity is something that's a big trend. You know, that does tend to when there's a launch of a new card or a new orientation for an issuer with a card that has real merit, that will be more contributory than just a straight read-through of, okay, revenue grew 22%, but our RPA was up 26%. I would focus a little bit more on the opportunity to grow with our issuers and our key issuers.
That's more important to us. We did mention there have been a couple instances of approval rates that have been a bit lower, and so that does factor into our guide. You know, that and what we've seen in personal loans that is accounted for here.
Okay, got it.
Did that answer your question? .
Yeah. Bigger picture, you know, I'm hearing that the strategy is one of continued investment to come out better on the other side when, you know, trends are better in Home and Insurance.
Yeah.
You know, in consumer, you kinda did that when you spent through the pandemic, and that business has definitely been growing, but also hasn't really gotten back to 2019 levels. I'm wondering if there's anything that you learned or can take away from the decision and strategy in consumer during the pandemic that you can apply to Home and Insurance, which are maybe having a tougher time right now.
You want me to start?
Sure.
It's interesting we talk about investment, and I think that word gets tossed around not by you or us, hopefully, but by some other people. When we're talking about an investment, it actually means typically that we're going to lose money on something for a period of time, and we expect that to have a return. By the way, like, you could break it down to each of our key strategic initiatives on tech are all, you know, investments that, you know, chew up a large amount of our tech and product spend that you see on our income statement. By the way, at some point, some of that work ends and then, you know, hopefully new ideas come in.
Through the pandemic and in all of our marketplaces, you market to the last profitable dollar that typically gets you to that 30% overall margin. If lenders are asking for borrowers and we can source them profitably from any of our marketing channels, that's what happens. It's not like we went negative in personal loans to you know through that biz because you know through the pandemic you know there might have been times where we would go slightly negative on marketing in some particular area in some particular subsegment, but it's really not our practice. We run the marketplace to get every customer in that we can profitably and deliver the volume to lenders that they can actually close. Does that make sense?
Yeah. I mean, listen, Rob, part of the question, we're happy with the recovery in our Consumer segment. There are a bunch of businesses under the hood there, and you have to, you know, recognize as I go through them, you know, the progress in personal loans and small business and credit services is pretty extraordinary. We're actually really thrilled. If you look at those businesses on a monthly basis, and you look at the size of the network, we're really happy there. Card is the one big business that's having a good year. We're on better footing. When you compare it to 2019, it's just a tough comparison. By the way, that's true of some of our competitors as well, just 'cause of the environment for card.
Then the other business that's materially behind 2019 is student, and that's for reasons that are, you know, candidly related to government intervention in the student debt situation, right? What have we learned from that experience of spending through the pandemic? We've learned that, you know, you've got to weather the period. You gotta be making investments. Don't freeze. You know, assess whether it's a good business. We knew that the personal loan business, the credit card business, and small business in particular were good businesses, and we're thrilled with the investment that we put behind them. That's what we're doing in Home, and that's what we're doing in Insurance. So honestly, if you ask what we learned, it is don't get rattled when the market goes away.
If you think about what happened in the second quarter of 2020, we had every reason to be very concerned about those businesses, and the investment has paid off.
No, I have one other learning as I got to think about it here, which is during the pandemic. This is somewhat boring, but operationally, we got better at managing each individual marketplace of whatever loan type and subsegment it is. Like when we talk to you guys about Home, underneath that is purchase mortgage, refinance mortgage, and home equity. Underneath home equity, underneath purchase, you have found a home and not found a home, and underneath refinance, you've got different subsegments of that. The ability for us in choppy waters in any one of those things, whether it's a credit card. So let's take credit card, which J.D. was just talking about. The marketplace there is literally down to the card.
As J.D. said, somebody wants to put more travel rewards cards out, then, you know, then we make a market for those cards. Managing that on a minute-by-minute, day-by-day basis, not entirely automated, but much of it is with a great analytics group and a lot of communication and process. That's what's helping us. Insurance, by the way, Scott could talk to it, does that extraordinarily well. I think that marketing and marketplace discipline between the two sides, I think has enabled us to do better than others in this environment and maximize our earnings. By the way, that's how marketplaces work, right? You just gotta keep finding you gotta manage each of those areas so that you can grow the whole pie. Scott, anything to add on that?
Yeah. I would just say the focus in downturns like this.
What did you learn?
You just really want to control as many high-intent consumers as possible in that are searching for the products that our clients are buying. That's what we're really focused on doing. I think an advantage of being part of LendingTree compared to other competitors that may be, you know, single lane products.
As you can make these decisions like, I'm going as my monetization has gone down, I'm going to make some sacrifices on gross margins to make sure I'm continuing to control more and more high-intent traffic. Thus I am positioned extremely well with the clients because that's what they wanna spend their money on. Then investing in and building the products and improving the products that the clients want to spend money on over the long run. I think that's what we're very good at focusing on. Yeah.
Thank you, guys. That was really helpful.
Thank you so much.
Thanks, Rob.
Your next question comes from the line of Christopher Kennedy of William Blair. Please go ahead and ask your question.
Morning, this is Mark on for Chris. Just wanted a little more clarity with TreeQual. During the Analyst Day, it was kind of alluded to that by year's end this year, early 2023, TreeQual was gonna be the main form of interaction between LendingTree and lenders. I just wanted to see what's the current progress, if that remains on track, and if not, what's preventing that and what would put the company on track to accomplish it?
Yeah. A couple things. We still have three issuers on board. You know, we have three issuers on board. I'm hopeful that by Labor Day, we should have three more, two of whom are in personal loan. I emphasize hopeful. It tends to be lumpy. We have to work through contracts with issuers and ways of working with issuers. I think the most notable thing is that suddenly we will unlock capacity there in the personal loan space, not just in credit card. Now, we've also talked about TreeQual as mining our base of My LendingTree consumers, but it needs to be more than that. It needs to actually affect cross-sell. For instance, we're testing some things right now where it won't be entirely dependent on My LendingTree.
There could be a consumer who comes in for personal loan, they are either under-matched or the match that they get with a personal loan lender is not as attractive as they would like, and we might be able to just say, "You know what? A credit card available to you through TreeQual is a better alternative." That's the promise of it. The current solution with TreeQual, where we work with both the issuer and a third party is one solution. I think as we go through 2023, you're gonna see other methods to better authenticate who that consumer is for the issuer. We have many issuers in the pipeline, some of whom have said to us, "You know, we'd rather work this way, direct with you." And that's fine.
That's the way the product is going to evolve. I think it is on track with respect to our internal roadmap. It is slightly behind with regard to issuer count, but I think going into the year, we knew that the lumpiness was one of the biggest challenges with it. That's fine. It is a multi-year strategy to better identify who the consumer is. There's a theme here, right? Which is, as Scott just referred to, high-intent traffic. With TreeQual, what are we doing? We're increasing that intent by saying to a consumer, "You are pre-approved for this. This is available to you. Don't just come shop. We've already shopped for you." If you think on a multi-year basis, this is part of improving that intent and improving what we deliver for our partners.
We have no shortage of partners who want higher intent traffic. It's just the method of working with them that is what we're working through.
Great. Thank you for that. One follow-up. With the new experience regarding Insurance and the Insurance checkup, I just wanted to see how that's driving Insurance volumes for the business overall.
Scott, why don't you take that?
Yeah, I get that. Yeah, we're in the process of implementing and other things. I would say it's just very early innings in that. We're proactively engaged in it in driving the insurance checkups, and it is driving volume into our both our call centers that we're distributing out both to our internal agency and to our external client call centers, carrier call centers as well. It's been a pretty smooth implementation, but it's very early in the snowball rolling phase.
Yeah. J.D. alluded to cross-sell earlier, and this was one where, you know, for better or for worse, I think I had this idea, but it was built on something that we had done years ago in the Mortgage space. Basically, when we were thinking about our new experience and thinking about how we can integrate Insurance, like, why wouldn't you just say to somebody going through the homeowners or auto flow, "Would you like a free insurance checkup by the LendingTree insurance agency?" And even if somebody doesn't end up closing a transaction with us, at least they might get an insurance policy from our agency. We move that direction instead of down the, you know, integration of rates and that stuff, which will happen as well.
We thought this was a really great flow. It's honestly so early days, I have nothing to report yet.
Great. Thank you.
It should be cool.
All right.
Next question.
Your next question comes from the line of Melissa Wedel from JPMorgan. Please go ahead.
Hi, Melissa. How are you?
Thank you for my questions today. A lot of them have already been asked, but was hoping to circle back on Insurance. Given some of the optimistic comments that you've made about sort of a rebound in that cycle, I'm curious. I guess the question would be for Scott. It would seem that this cycle is a bit different, particularly impacted by persistent inflation and some of the supply chain issues that could take a couple of years to shake out. I'm curious, you know, how you think the cycle compares to previous cycles, and does this impact sort of the level of confidence that you could have and the timeline of, you know, a significant rebound in this division? Thanks so much.
Yeah. Thanks, Melissa. Yeah, I'll start just comparing to previous cycles. You know, the last big cycle was 2016, you know, big downturn in the Insurance industry. I would say, yeah, this is officially way worse than 2016 was, and it's mainly just due to inflation. 2016, there was specific catastrophic events around some major weather events that persisted 12-18 months. They were able to work through those losses, and it took, you know, pulled back short term on marketing, and then it was right back to normality. Where the inflation has just been a real shock to the industry, I would say. They've just...
Late last year when the driving behavior returned back to normal much quicker than the industry was expecting, you know, and they needed to increase the rates back to pre-pandemic levels. They went through that, and then they just weren't prepared for the inflationary metrics that have now hit in the first half of this year. You know, you look at some of the key metrics like cost of used cars, cost of car parts, you know, labor costs of repair shops, time to repair cars, all of those things have just increased very heavily. Now, is it gonna take two years for that to normalize? It's more of the carriers being comfortable that they're increasing the rates at a similar level to the cost of repairs increasing.
It's more of being comfortable with that they're staying in line with things rather than inflation has to stop for it to get back to normal. It's bad right now. For most of it, most of what our carriers are telling us is it's one of two levels. You know, certain carriers are just being very cautious through the end of the year and saying it's probably gonna be 2023 before they start increasing budgets again. We've got another category of carriers that are more. They're looking at the weather. You know, this is storm season right now, whether you're looking at hurricanes or forest fires and stuff. There's a lot of what the inflation combined with, you know. Hopefully, no catastrophic events happen this summer.
They're taking a really cautious approach and hoping that we don't have any major catastrophic events this summer. They would come back maybe even a little bit earlier, maybe even the fourth quarter if major weather events didn't happen. I don't think we're looking at a 2-year recovery here. I do think it's going to take some time, 6+ months before carriers are comfortable that their premiums are consistently running at profitable levels for the consumers they're bringing on. Did that answer your question, Melissa?
It does. Thank you, Scott.
All right. That's all the questions we have. I would now like to turn the conference back to Doug Lebda for closing remarks.
Thank you very much for your time today. Just to close, I just wanna say that we really pride ourselves at LendingTree as a company that can both walk and chew gum. Operationally, we are navigating in one heck of a storm. It is not often that you see demand from our partners down across almost all of our products. However, the stuff that we've done operationally and our marketing and brand advantage that helps us win in digital and offline channels enables us to keep making money even as some of our competitors might get more challenged.
In addition to that, at the beginning of the year, we were able to lay out a strategy that had several key initiatives that we committed to as a team and committed to our shareholders. You heard about Marketplace 24 in the last couple weeks, and that's a big win for our company. The process was at times cantankerous, but it got done, and we're gonna continue to improve that process as we move into our other major projects. TreeQual, you've heard a lot about today, is moving, and J.D.'s hosting a 3-hour meeting after this to go even deeper on it. You heard a little bit about the Insurance agency from Scott. That is, the unit economics are solid. It makes sense.
Now it's a matter of scaling, which obviously takes time, and making sure that the volume is there. My LendingTree and a couple others you're gonna hear about, shortly, as we committed to. There's a lot more to come for us. We thank you for your support of LendingTree. Please know that you've got a team of 1,000 people here who are grinding and working hard every single day to operate this business as efficiently as we can and commit to with our promises to you. We look forward to talking to you in the next quarter.
Thank you, presenters, and thank you, participants, for joining us today. This concludes today's conference call. You may now disconnect.