LendingTree, Inc.
Q1 2017 Earnings Call Transcript
Published:
- Operator:
- Good day ladies and gentlemen and welcome to the LendingTree Incorporated First Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. If anyone should require operator assistance during today’s conference, please press star then zero on your touchtone telephone. As a reminder this call is being recorded. I would like to introduce your host for today’s conference, Mr. Gabe Dalporto, Chief Financial Officer. Sir, please go ahead.
- Gabe Dalporto:
- Thanks Operator and thanks everyone for joining this morning for Lending Trees’ First Quarter 2017 Earnings Conference Call. On call I will discuss the quarter's financial results as seen in today's press release and turn it over to Doug who would discuss some operational highlights for the quarter as well as our revised guidance. But first, a quick disclaimer - during the call, we may discuss LendingTree’s plans, expectations, outlooks or forecasts for future performance. Forward-looking statements are typically preceded by words such as we expect, we believe, we anticipate, we are looking to, or other similar statements. These forward-looking statements 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 LendingTree’s periodic reports filed with the SEC. On this call, we will discuss a number of non-GAAP measures, and I refer you to today’s press release available on our website at investors.lendingtree.com for the comparable GAAP measures, definitions, and full reconciliations of non-GAAP measures to GAAP. Now close to the results. In the first quarter we continue the trend of consistent growth marking a fantastic start to the New Year. We once again launched record levels of revenue variable marketing margin and adjusted EBITA. The mortgage business exceeded expectations in the face of an industry slowdown and our credit cards’ business continues to impress as we work to optimize that business across both the Lending Tree and. Comparecards brands. We're executing well against the strategic priorities laid out in December and Doug will expand on our progress there after I walk through the numbers. Starting at the top consolidated revenue of $132.5 million represents year-over-year growth of 40% and exceeded the high end of our previous guidance on strength in mortgage, home equity and credit cards. Mortgage revenue of 62.9 million grew 14% year-over-year primarily driven by strength in purchase which was up 38% in the same period. We're seeing a sharp uptake in purchase activity from both lenders and borrowers. And despite mortgage interest rates remaining elevated throughout the quarter and a 10% decline in industry refinance originations our refinance resonation, our refinance revenues also grew year-over-year. Non-mortgage revenue of 69.6 million with up 75% versus the first quarter of last year and comprise 53% of total revenue. The first time non-mortgage revenues have represented more than half of the business as we continue down the path of diversification. The strength of our non-mortgage businesses continue to come from credit cards and home equity in the first quarter. Credit cards’ revenue grew to $33.8 million dollars reflecting 269% year-over-year growth or 37% on a proforma basis. We continue to be delighted with the synergies we're seeing as we integrate to CompareCards business. Finally, home equity revenues grew 118% year-over-year. We added nearly 30 new active lenders to the home equity platform during the quarter as we've partnered with traditionally refinanced focus originators to open up new channels for them. From a profitability standpoint, we grew variable marketing margin dollars to $43.5 million dollars in the quarter up 28% versus prior year. At this point, it's worth reminding everyone how our mortgage and related businesses respond to a rising rate environment and why we are largely hedged against rising rates. When mortgage rates rise fewer consumer stand to benefit from a refinance and industry originations drop. The demand for mortgage prospects materially increases and lenders are willing to expand the profile of the consumers they take from Lending Tree and often increase the price pay per match in order to get more prospects. That translates into more budget and higher revenue for later. Lending Tree then reinvest a substantial majority of that spend into marketing to drive more refinance customers. At the same time our costs per lead tends to increase reflecting the lower number of consumer shopping. The net result is refinanced by itself is somewhat but not fully hedged. The good news is that lender demand for complimentary products like purchasing in home equity soar and we're able to drive substantial incremental volume, revenue and VNM from these products. The net result is that when rates rise we are well hedged against our refinance, purchase and home equity products taken as a whole and we saw this on full display in Q1 at these businesses performed exactly as expected; which is to say our size revenue grew the growth in variable marketing dollars in line with expectations. Shifting gears to the bottom line, we grew adjusted EBITDA to $23.8 million, up 51% over the prior year and exceeded the high end of our previous guidance on variable operating expenses. It’s worth noting that hiring was lower than planned and we had fewer people increased than we had hoped resulting in the expense capability. We expect to catch up to our staffing plan over the next few quarters and the Op Ex lines to continue to increase in line with our plans as we scale the business. In GAAP terms the company reported $7.8 million of net income from continuing operations or $0.58 per diluted share. There are two notable items running through the income statement that are worth discussing. The first of the charge of $8.7 million reflecting in adjustment to the contingent consideration liability associated with the earn-out of the CompareCards deal. As discussed in our 10-K, we attributed to the purchase price a fair market value for the earn-out of $23 million whereas a total potential payable of $45 million over the next two years. As the probability increases that most or all of the earn-out will be achieved. We’ll record the adjustments through net income. This is actually a very positive indicator as it is a reflection of the solid performance of the acquired business. The second item is our adoption of ASU 2016-09 which corresponds to the accounting treatment for stock based compensation especially as it pertains to access tax benefit or deficiencies arising from differences in stock-comp expense and the amount deductible for tax purposes. Previous recorded in shareholder’s equity on the balance sheet. These differences are now recognized through earnings. In the quarter we recognize a $3.8 million tax benefit in relation to the standard more than offsetting our standard income tax charge. As a result of these changes we've slightly modified our definition of non-GAAP to EPS to reduce the volatility associated with these items and to provide a more meaningful per share measure. We see the revised definitions and full reconciliation of the trailing five quarters in today's press release. Under the new presentation adjusted earnings per share of $0.85 represents growth 27% compared to prior year. Finally, moving to the balance sheet; in our liquidity position. Our unrestricted cash balance increased to $105 million dollars as of March 31st from 91 million at December 31st primarily driven by cash flow from operations of $17 million. In addition to 105 million in cash on hand, we maintain the untapped $125 million credit facility and we continue to evaluate interesting M&A opportunities. And with that I will turn it over to Doug.
- Douglas Lebda:
- Thank you, Gabe and thanks to all of you for joining the call today. Simply stated our first quarter results were fantastic and these have laid a solid foundation for the remainder of the year. Our strategy to diversify the business mix has been successful which is evident by a sustained growth and record financial performance. As Gabe mentioned I'd like to use my time on this call to discuss our performance in the context of our multi-year strategic plan that we laid out in December and to discuss our outlook for the rest of the year and beyond. Since our Investor Day you've heard us talk about our strategic plan to advance Lending Tree’s leadership position in all categories where we compete. This plan has four primary initiatives. First, to expand into new categories while growing market share in our existing categories. Two, to strengthen the customer relationship between Lending Tree and our consumers. Three, to reimagine the consumer experience particularly in mortgage and four, to fully optimize our conversion on all the way from AD unit to the actual loan funding. Let me first address expanding into new categories; we've successfully launched the partnership this quarter with an answer financial bringing Lending Tree’s comparison shopping experience to home and auto insurance. Early results have been very promising and we actually plan to implement paid marketing for these products already in Q2. Another area of expansion is our focus on helping customers with less than perfect credit to improve their situations by connecting these consumers with debt settlement and credit repair programs, we’re not only able to engage in new segment of customers, we’re also improving their Lending Tree experience in creating a pathway back to Lending Tree through their alerts as credit scores improve. In Q1 we helped over 1200 customers avoid bankruptcy through debt settlement and helped over 2000 customers through credit term. We also launched a small-scale paid marketing campaign in two channels and we expect to increase our paid marketing in this category Q2. Now let me shift gears to our second initiative strengthening Lending Tree’s relationship with customers. In addition to customers who haven't been matched we're also improving our relationship through My LendingTree where we are continuing to see increased enrollments. In the first quarter alone the enrollments in My Lending Tree group grew 42% over the first quarter of last year and 27% over Q4. Revenue contribution grew 25% in the quarter alone. Additionally, we're seeing sequential growth in revenue per user versus Q4 and we continue to enhance the alerts and savings recommendations within My Lending Tree. In the next few weeks we'll be adding three home valuations in addition to what we've got already and this new data source will enable alerts for mortgage in home equity loans. Even if home equity volume is already up 67% year-over-year, we expect that this new feature will help fuel the increased demand we're seeing from lenders, particular on the purchase side. Our third strategic objective is rematching the overall consumer experience particularly in mortgage where Lending Tree's history of a simultaneous web and phone based interaction with our customers. This is loved by some, it relieves others with the one with wanting a fully digital experience and we are in the process of making that possible. We have set out on an initiative with the goal of simultaneously helping customers have a better experience helping lenders improve productivity and thus profitability and helping Lending Tree. Because if we help our lenders improve they simply do more businesses with us and while we grind away on a substantial leap in our business we're still rolling out continuous improvements in our customer experience and these improvements yield better monetarization which creates the ability to drive more volume to our lenders and of course the flywheel continues as you've heard me say many times before. Obviously we can't reveal too many products specifics in this area since we seem to be rather quickly quote unquote emulated by some of our competitors, I’m very excited by our progress. Many of the early visions that I have of Lending Tree 20 years ago can now actually be fulfilled with the technology of today. Our fourth and final strategic objective is to fully optimize the Lending Tree conversion fall, all the way beginning from a add unit to a fully funded loan transaction. At each and every step clicking on an ad, completing fields in our forms, viewing offers and many more features there are there are things that we can do to encourage customers to continue their process with Lending Tree. As we’ve talked about many time before, very small changes in our conversion percentage at each step yield many times more in revenue. With stretch goals and a dedicated team fully focused on this initiative we’re already seeing results. Again, while we can’t give out specifics you’re seeing this results and those from our other initiatives in our growth trajectory that far out paces the industry and our competitors. In light of all that we’ve discussed we’re once again increasing our outlook for the rest of the year. For the full year, we’re increasing our revenue guidance to 535 to 545 million, an increase from prior guidance of 500 to 520 million. On variable marketing margin we’re now guiding 100 to 185 million increase in the low end of this range from 175 million and reflecting a modestly lower margin profile as we continue to drive marketing and fulfill our increased lender demand. And as you’ve heard me say many times before as we drive our business lower variable marking margins are actually a very good thing for us. We've also adjusted our EBITA guidance which we're now expected to be in the range of 95 to $99 million dollars up from our prior guidance of 93 to 97 million. Consistent with the full year guidance our second quarter outlook also reflects a sequential growth [inaudible] 133 to 137 seven million reflecting year-over-year growth of 41 to 45%. In variable marketing margin next quarter, we expect to be 43 to 46 million. And adjusted EBITDA we expect to be between 23.5 and $25 million. We are clearly pleased by our continued growth and I suspect you are as well. And with that let's open the call up a questions.
- Operator:
- [Operator Instructions] And our first question comes and. Nash Zander from Bank of America. Your line is now open.
- Nash Zander:
- Doug, is there any – could you give us a little bit more detail on the interplay between volume and price across your markets but in particularly as we look at what happened and -- volumes have been down across the industry; how does that then get affected in price for you guys?
- Douglas Lebda:
- Sure. It's actually a fantastic question. What essentially happened is as volume goes down and a good portion of industry volume is actually Google search queries for refinance related keyword terms of your down I believe 40 or 50% and since a couple quarters ago. Essential what happens as volume goes down not necessarily with Lending Tree but in the industry; lenders obviously need more volume from us. They express volume or they expressed that demand in price as you say but also the increase quantity of matches that they want and also by expanding out their coverage. So all three of those things are important. Increase in bid pricing essentially happens in real time, that's one of the ways lenders get more volume. So inside of what we call your existing filter settings or what Google would call inside of your existing keyword settings if you up your bids you will get more volume. We have some tools in place to help lenders to do that and that basically happens in real time as lenders are toggling their own their own volumes.
- Nash Zander:
- Great. And just one other question on that guidance. Great job on the quarter and raising the guidance both; we see you’re above street in Q2. Looks like about – on EBITDA about 2 million above in the quarter and about two million above in Q2 but you're raising guidance for the year on EBITDA by two million. So with that suggestion you see something that we’ve missed in the back half that you didn't see before or that’s simply conservatism built in?
- Douglas Lebda:
- So it's a little -- I won’t say it’s necessarily conservatism built in. I would say there's certainly some of that. It's certainly nothing that we're seeing in the back out. What I would say is we've got a history of trying to over deliver and then reinvest what's left back into some longer term growth initiatives; not that we don't want to over deliver but for example any time things are turning in the right direction, we can also spend more on marketing to continue to fuel more volume, continue to do some thrusting. So the short answer is we always try to set a mark with our shareholders that is acceptable and then reinvest at least some of that back into business.
- Nash Zander:
- Great. Thank you and I also I didn't want to imply that a beat and raise was somehow a negative. But I am an analyst so I had to search for the absolute you all the way around tertiary way it could be a negative. But thank you.
- Douglas Lebda:
- You know, what we certainly appreciate your diligence in digging in and we can do more at the moment.
- Nash Zander:
- Yes. Thanks.
- Operator:
- And our next question comes from the line of Kunal Madhukar from SunTrust. Your line is now open.
- Kunal Madhukar:
- Hi, thanks for taking the question. Two if I may. One on My Lending Tree; how much of the growth – the revenue contribution from My Lending Tree came from credit cards? And second, given the strength that if you are seeing in lender demand for leads, how much more confident or how does that kind of impact your 2020 outlook that you just gave like four months ago?
- Douglas Lebda:
- So first off on credit cards My Lending Tree, we can't give that due to competitive reasons and a number of our competitors who have somewhat similar project or products are nearly a 100% going on credit cards. So we don't like to give that type of information. And on the on the out year outlook, we're going to revise that once a year. So every year at Investor Day we’ll roll out a new three year outlook and we’re just going to keep you well as -- keep you waiting on that one and keep you – hopefully have you as excited as we are.
- Kunal Madhukar:
- Thanks.
- Operator:
- And our next question comes and I now have Mark Mahaney from RBC. Your line is now open
- Mark Mahaney:
- Great, thanks. Got two questions, the first one is I think last quarter you talked about your hope of reaching high single digit growth for mortgages for the full year even in a rising rate environment and in this quarter if your mortgage brokerage revenue growth was 14%. Do you think that -- the visibility is enough to maybe make you want to bump that up to low double digits; your mortgage revenue growth outlook for the year?
- Douglas Lebda:
- We were really pleased with our mortgages this quarter, certainly before well you know we have we've explained kind of how the dynamics ministry were in a rising rate environment, they kind of played out kind of exactly as expected which is to say we had a lot of lender demand, tremendous growth in the purchase business that we’re excited about and if you think about the long term that's super sustainable. We're still less than 2% market share in the industry and I would think we're actually doing pretty well. So we feel pretty positive about the with the mortgage business as a whole now part of the revenue growth as you know is going to spend on our execution department and on what happens with interest rate environment. So I think all that to say was a pretty good about how we're executing. We think we can continue to execute like that but you know if rates drop then you know that can affect; -- where I can affect exactly well that our V.M.M. dollars which is what we really focusing on is more or less fully and that that will continue to kind of grow on our long term growth there, expectations.
- Mark Mahaney:
- So it sounds like keep your options open, high single digits and if things go okay the balance of the year could be higher than that.
- Douglas Lebda:
- It could definitely be higher and I want to you know emphasize that but you know it's partially just depends on the right environment.
- Mark Mahaney:
- Got it. And then in the second question Doug you talked about -- I think it was the first strategic initiative of expanding into new categories. And I think you said that you were specifically focused on maybe putting new marketing dollars behind. I think it was auto loans and student loans and -- a little bit if I got those two categories right. You did talk about putting new marketing dollars behind it. So could you maybe spend a little bit more time on that opportunity? Are those new areas that you haven't put paid marketing dollars into in the past and you’re thought about you know how soon you could figure out; is it six months, a year whether those paid marketing dollars behind those categories are really working for you or not. What's the length of time it will take before you realize whether it's working for you or not?
- Douglas Lebda:
- So that's a really interesting question. So first off there's three areas that in particular, insurance is what we talked about which actually we're very surprised that already we can put paid marketing behind insurance. In the pre-prime space which is also what I mentioned which are customers with tough credit by recommending them the services that can help them out of that problem and demands going alert. So once we help them get better, that’s an area where we’ll also probably can do marketing. And then the biggest and most important is home equity where in the past we’ve been able to, we’ve put, now we’re seeing home prices rise again. The home equity customers both – for cash which we can also do through cash out refinance and there’s paid marketing behind all three of them. The answers in terms of the pay offs time, we know now that paid marketing works various products. We cashed our way into it and once we’re confidence to tell you guys that we’re launching paid marketing that means we’re really confident. That means it’s already working.
- Mark Mahaney:
- Okay. Thanks a lot, Doug. Thanks Gabe.
- Operator:
- And our next question comes from Kerry Rice from Needham. Your line is now open.
- Kerry Rice:
- Thanks a lot, great quarter guys. Maybe just another question on the mortgage business; obviously it’s very strong. As you can think about maybe the upside in that business for Q1 would you say that it was driven both by purchase and every five was refight the increase I was at a little bit more surprising, any kind of context on kind of where it surprised you? And then Gabe as you talk about you know looking forward at mortgages and it...
- Douglas Lebda:
- So we're able more question in the queue but we haven't heard. About this…
- Kerry Rice:
- Hello? Can you hear me? Hello? Can you hear me? I think we might be having a...
- Douglas Lebda:
- Kerry? I think we're having a problem hearing you I'm not sure if it's on our end or it's on Kerry. Kerry maybe we'll – operate, can we hop to the next question and see if there’s technical issues on our end or your end?
- Operator:
- Okay. Perfectly fine. Our next question comes from the line of John Campbell from Stephens. Your line is now open.
- John Campbell:
- Hey guys, can you hear me?
- Douglas Lebda:
- We can hear you, great. Thank you.
- John Campbell:
- Alright, great. So kudos on the quarter, very strong mortgage results. Just back in the commentary around expanding in those new categories. It seems like you guys obviously faced two choices either you build that out organically with marketing or you get a you know a big head start with an acquisition like you did with CompareCards. So you guys I mean obviously continue to generate solid free cash flow. You're building your word chess; you've got an untapped revolver. So seems like a pretty good opportunity in the M&A market. So Doug anything you can provide around the pipeline, you know whether be kind of acquiring something into those new channels or just generally curious about your appetite for deals over the next year or two.
- Douglas Lebda:
- Absolutely. So first off on the extension new categories, The interesting thing is you actually -- So first off we can we launch every new category pretty much organically unless we don't have an offering. So the credit card we actually launched on our own and then made an acquisition. They’re really around increase monetization and marketing capability that those folks add and they've done obviously a great job of executing. So in most new verticals but merely by putting it up there and working on the conversion problems, the monetization gets high enough that we drive them we drive the business through marketing and it's important obviously further remember and they you know that marketing is not an expense but it’s really gasped to drive the business and what was your what was what was your other question?
- John Campbell:
- Just curious about the general pipeline for…
- Douglas Lebda:
- The M&A pipeline; so I would say it remains robust. We’re actually viewing that with our Board; the interesting thing was the ratio of the number of deals we turned down. The ones that we've done we've obviously got pretty good success; track record so far, at least we’re two for two. And although early there's a lot of things there. We've obviously hired a new Head of Corporate Development which we’re really looking forward to him starting and stay tuned.
- John Campbell:
- That’s helpful and then I know for competitor reasons you want to get to get into the underlying drivers in the mortgage business but you know I think about – I guess purchase and retry; Can you talk about just general trends around the match rates? I know that's kind of a gauge when appetite and you know whether you kind of opening that credit box. But just kind of curious about that what you're seeing there you know this far.
- Douglas Lebda:
- So the reason we can grow despite interest rate, despite the interest rate environment and again it really just comes back to share we're definitely seeing transmit rates up as lenders are opening up into new categories or also seeing transmits per OP obviously that all happens to carry and purchase as lenders move from refinance over to purchase. In the mortgage business although we don't really give too much -- I don't mind talking from a competitive standpoint there because we're the clear leader we're digging into... We keep digging into wallet share and quite frankly we feel great about mortgage. I think now odds are never felt better in mortgage business in twenty years. It seems stable from the standpoint. We've got liquid secondary markets; lenders are profitable but hungry some of them as we've seen in the industry of course are going to have problems in this environment but the great thing about Lending Tree we’re hearing is that lenders are obviously making money from our business but they continue to stand with us. They are continuing to shut down other channels and expand with Lending Tree and not just -- that's why we continue to take share
- John Campbell:
- Okay. Thanks guys and congrats on continued strong results.
- Douglas Lebda:
- Thank you.
- Operator:
- Next question comes from the line of Mike Grondahl from Northland Securities. Your line is now open.
- Mike Grondahl:
- Yes, thanks guys and congratulations on the quarter could you go into a little bit more detail on home equity? Clearly that business is picking up traction and kind of getting back to where it was several years ago. Just demand-pricing, kind of some granular trends.
- Douglas Lebda:
- Yes, we won't go out to granular. I'll give you the highlight of the overview and then have Gabe filling on some numbers. The home equity business is approaching kind of where it used to be but honestly I think we're going way beyond wherever we're been for in home equity. I believe this is a perfect product for the Internet. It's easy to get very close to closing online but frankly it's more like a personal loan in many instances and it is like a mortgage. And the other great thing about home equity as I mentioned before is that people who are looking for a home equity requests can also be filled by cash out refinance offers too. So our lenders really like to do that we're seeing our lenders respond very-very positively and we're seeing home equity growth across the board both with big banks and also with the so-called with our corresponding clients who are shifting that business. Gabe, some numbers?
- Gabe Dalporto:
- Yes. As we mentioned the revenue’s up on 118%. Volume was up 60-70%. So the great news here is that number one consumers are very interested in home equity; organic consumer demand for home equity we’re seeing and we're starting to tap into that marketing channel that I think we can drive you know a lot more marketing channels. So we're only scratching the surface on the marketing side of the consumer debt, demand generation side. As Doug mentioned from the lender side you know we added I think 30 already home equity orders. They're just tremendous lender demand which is fantastic and it's a pretty good consumer experience. Who we the product you know very much all around it if you think it is something we can market across all of us a different channel. And frankly it's a great substitute for – equity in our home you know they got the pay off their credit card debt. They got to send their kids to their college and you know often times instead of refinancing after 2.5% mortgage into 4% mortgage makes a lot more sense to go home equity line. And the last thing I'd add on home equity, it's going to while since most consumers have had a home equity, or equities in their homes and so we expect there are enough to keep pushing this one but it's an easy one to avoid consumers just got very very high conversion rates for lenders which means it's very profitable for us as well.
- Mike Grondahl:
- Yes, it's good to hear, good update. Anything new with personal loans?
- Douglas Lebda:
- Just continued steady growth. I’m sure Gabe will have some other things to add; new lenders. We're seeing new lenders coming on the very very successful I'll leave some names out but you know it's wonderful on a prediction comes true. And that's and just an example of one where it's not just the production of quite frankly the great execution of our team has made it come true. Lenders are coming on board the secondary markets are liquid, we’re seeing said new lenders and we're also seeing some of many of the lenders are but on a while do very well also.
- Gabe Dalporto:
- Yes, and I think the important thing a couple of great notes for you. Number one we have pretty good points of growth and personal loans. We're near all-time highs in revenue, adjustment of staff. And also we're seeing revenue per lead come up for the first time and frankly and over a year and that’s the thing. I'm personally kind of excited about a lot of that in the prime space. So there's really robust demand the process we're also seeing – started to some harnesses and pharma for the products of them and some of those letters operationally execute a little better. So you know it was a rocky year in personal loan last year and we're you know we're definitely seeing some positive trends there. And hopefully that business goes into not just sequential growth which you are saying our year-over-year growth as well as you can tell we're going to back up your...
- Mike Grondahl:
- Great, thank you.
- Operator:
- Our next question comes from Hamed Khorsand from BWS Financial. Your line is now open.
- Hamed Khorsand:
- Hi. Good morning. Hey could you just try to explain what your guidance is for Q2 given what you're saying? So you're guiding for V.M.M. to essentially be flat to up slightly but you're also spending a little bit more for your new opportunities so it sounds like you're not expecting that to be profitable or generating kind of revenue?
- Douglas Lebda:
- I’m not sure I would read that. I think the way to think about Q2 is you know sequential improvement, kind of across all fronts and in the sense that we’re exceeding and we can you know continue to either seize new opportunities or frankly you know I think you have to understand the mortgage industry we're pretty we're hedged. Not all of our lenders are and so you know that is coming upon us to drive them the volume they need to be successful and so we're spending pretty aggressively in the mortgage business to make sure we can fulfill their demand. So they can – just as we’re investing in the business you know excess profit and making sure we can satisfy our lenders and finance them at their business.
- Gabe Dalporto:
- And Hamed the only thing I would add is you know as well enough to know that except person testing everything we do is profitable. So we keep the discipline and they can try market is profitable and so we don't so. We don't then we have across all fronts and I think Q2 is are going to be good.
- Hamed Khorsand:
- And then still a different point is on my Lending Tree, could you give the subscriber number and also could you provide some details as to what you're seeing when you said you're seeing more revenue per user. Is that coming because you have a credit cards or is that just part of the formula and there's other products that people are buying?
- Douglas Lebda:
- So first off on in roman numbers I don't I'm in front but will be happy – but I think it’s about 4.9 million and we’ve added substantially in the quarter which I talked about. And revenue per user is really up, it is up. New products certainly help but actually are going optimization is a is a bigger deal as alerts continue to come online and get better -- about as much as I want to say.
- Hamed Khorsand:
- Okay. Thank you.
- Operator:
- And our next question comes from the line of Jed Kelly of Oppenheimer. Your line is now open.
- Jed Kelly:
- Great, thanks for taking my question. On credit card revenue can you give us a breakdown between the revenue from CompareCards and legacy Lending Tree and then with credit cards becomes a larger part of your business; how should we think about the seasonality in that segment?
- Douglas Lebda:
- I'll take the second one on credit card. The important thing -- there so you can't really tease out -- CompareCards and Lending Tree markets, it’s quite frankly CompareCard-Lending Tree are running effectively the same business with two brands and so there so those two are a blend right now. So many of the deals for example we had a on the Lending Tree; you know we're now running with CompareCard products and vice versa and so that business is really one business.
- Gabe Dalporto:
- Great. And what’s the second question is about – is that right?
- Jed Kelly:
- Yes. The seasonality in credit cards
- Gabe Dalporto:
- Yes, so you know January this a huge month for balance transfers and I think Q4 is seasonally weak... credit card quarter and then you Q1 becomes January and then Q2 and Q3 are you know they're okay. So the most seasonality that we can figure out you know working with looking at Google Trends data looking at our historical data looking at compare across its Or for the weakest quarter and the others are kind of blended you know Q1 I think is generally the strongest. But that you know the drop off Q4.
- Douglas Lebda:
- And the thing that I'm just thrilled with is you know from being able to enter from almost of standing start working group to CompareCard team and the LendingTree team the fact that we're now probably the number three credit card marketplace you know we're thrilled with and I'm thrilled with the growth and we see nothing but full steam ahead
- Jed Kelly:
- And then one more; I guess we're starting to see some of the online lenders offer mortgages which is at less than 20% down and no P.M.I. are you seeing any type of benefit from some of my lenders loosening credit standards.
- Douglas Lebda:
- I mean it's all in the it's all baked into the cake so to speak. Definitely I would say we're losing credit standards, it's really back towards some standard of normalcy but Yes, as lenders it's not only lenders reducing the down payment amounts but it's also you know really increased services while it's definitely out there.
- Jed Kelly:
- Thank you.
- Operator:
- Our next question comes from Blake Harper from Loop Capital. Your line is now open.
- Blake Harper:
- Thanks. I want to ask a bit about the credit cards, One, does he CompareCards and given your discussions with some of the credit card issuers from them reporting earnings. On recently what you think about the overall size of the market opportunity and also kind of near term some of the shift to on there and some more digital marketing and some of the more the near term trend that are going on with credit cards.
- Douglas Lebda:
- Sure. So in terms of issuers doing their own marketing obviously we would welcome that Lending Tree. Has somewhat of a of an advantage over a single lender in marketing which is why lenders can sometimes do business with us which is that any individual under only once in a contraction of the overall consumer population and they can toggle up and down. So lenders will do what makes a profit and gets more volume and we certainly welcome that in terms of that and the market size it's only just begun. We're not only going to be stealing share this is a $1 billion comparison shop and marketing credit cards alone. And so we're going to go; we're stealing shares and. Grow share but clearly we think that particularly for credit cards the online channel works for a big thing about the credit card history really is a direct marketing industry and that sets itself perfectly for online origination.
- Blake Harper:
- Alright. And one follow-up on credit cards Doug when you talked when you had CompareCards that they had a pretty impressive level monetization in pricing with those issuers. Were you able to translate that to the rest of the business now or do you still see some potential left in pricing for the for your organic credit card business.
- Gabe Dalporto:
- Yes. I mean there’s certainly, this is Gabe. There’s certainly a difference the issue we’re saying of east domain as you know kind of a unique business. I think the beautiful thing about the CompareCards business and our business and the fact that they’re mining is CompareCard team has tremendous relationships with issuers. The issuers starting to see that and I think overtime you know as we deliver great quality from both demand the pricing will converge. The issue that I think in general going back to your previous question you know everything we're seeing in the market is there are still pretty bullish on our growth of the industry and our investment in our digital channels. You know we you know we thought going to bring a pretty good place and our position there is only getting stronger with that with our relationship the issuers. I got to say, the CompareCards’ team does a lot of really custom work for issuers, may appreciate relationships there are.
- Blake Harper:
- Great. Thanks.
- Operator:
- Our next question comes in line a Rob Lodhak from Autonomous Research. Your line is now open.
- Rob Lodhak:
- You talked about M&A earlier but going back to broader capital allocation, no share repurchase in the quarter. Is there anything we should read into that?
- Douglas Lebda:
- No I won't read anything into it we put a sort of a 10B51 like share repurchase plan in place in every quarter and obviously the stock was that was higher than where we were. I would expect -- we're getting in terms of overall capital allocation so definitely do not read anything. We remain incredibly bullish and now if we look at multiples really the growth rates. So we leave to you guys' expertise but it feels pretty good and I think you should take from that but there's the there's a pretty decent pipeline out there where we can on grow very-very a creatively. We just want to take our time and be really diligent.
- Rob Lodhak:
- Great, thanks.
- Operator:
- And our next question comes from line of Kerry Rice from Needham. Your line is now open.
- Kerry Rice:
- I’ll try this again. Can you hear me okay?
- Douglas Lebda:
- Yes, we can hear you. Thank you.
- Kerry Rice:
- Great, thanks. Great quarter. Maybe going back to mortgages again briefly. Was there anything that surprised you in mortgages. It was stronger than I think we expected. Was it re five that kind of accelerated as interest rates kind of debt after the Fed raised rates; was that surprising or was it you know just as you expected and maybe just a little stronger on both. And then maybe the second part of that question is when we think about a future or 2017, what's your assumption around Fed rate increases? Is it three, is it four? As we think about those rates continuingly come up and your guidance an additional context on what you kind of are building in there? And then one follow up question.
- Douglas Lebda:
- Sure Kerry. I’ve been at this now 20 years and in addition never known a raging do. I can also tell you, -- also play going on smart of no the Fed's going to do but I can also tell you the trend that last several years is quite frankly I don't care what they do as long as we have a with good secondary market at least for our business I care broader more broadly and about our country. But any events, for our business we're growing right through any interest rate, cycle and the only thing I think you'll see from us in terms of margin differences the story of last year and when you had a retired boom was you had higher variable marketing margin percentages and -- and you had lower top line revenue growth because it didn't make sense for us to market into our demand and now obviously you're seeing faster revenue growth still very good EBIDTA growth, you're going to see obviously percentages BMM margins go down even as dollar VNM goes up which is obviously why we've been encouraging people to focus on that and what you need to read from that is that it’s a tale of two markets but the as Gabe says we’re hedged, what he means by that is that regardless of the interest rate environment the reason we put in the real plan getting which we copied right from the search business or are we emulated from search business with we obviously feel we’re searching for money. We’re essentially seeing that adjust in real time regardless of what the marketplace.
- Kerry Rice:
- Okay. And then maybe my follow up question is and you mentioned margins on the mortgage side. You know can you talk a little bit about maybe margin, product margins in the non-mortgage side; credit card versus personal loan, maybe home equity? Whatever context you can provide; a hierarchy? Maybe which is higher, which is lower any other details there?
- Douglas Lebda:
- Yes, I don't want to give product margin. Maybe Gable will be a little more. enticing. Really, it just doesn't make sense to focus on percentages and does it really doesn't matter we every single day we're marketing the last profitable dollar in every single product and quite frankly if we could do now an incremental deal at a couple points of margin is pretty consistent across the travel industry and things like that where you run you know your search business the online marketing business and knows as fast as you can as hard as you can and it's a percentage margins; honestly, I can’t tell you what they are because I don't look at them because I really don't care much. Gabe, do you anything to add??
- Gabe Dalporto:
- No. I think there's a real competitive nature to margins by product that we really don't want to be sharing. You know with a hey X product is fifty percent larger than everybody their brothers are go up and about segments. So frankly I think we like to keep it a little higher level.
- Douglas Lebda:
- To keep in mind Kerry, if we’re running a home equity ad out there on techno website and we say hey we're running our home equity X.Y.Z. margin and people know what lenders pay for that you can back into what we're paying for the advertising because, you get back into what the red share is on a publisher deal and you know we just don't get into that kind of thing. We don't think other end of that company started that level and we just – like I said, everybody's shooting at us because we're the leader and the one gaining share and so we just have to be careful of what we put out there other than what shareholder hopefully need to know which is we're going to keep putting up great and increasing and growing earnings and cash flow.
- Kerry Rice:
- Okay. Thank you so much.
- Operator:
- And this concludes our Q&A session and now I would like to turn the call back to Mr. Doug Lebda for further remarks.
- Douglas Lebda:
- Thank you all very much and just to wrap up; first off obviously want to thank our shareholders for your continuing support and we plan on paying that back with significant shareholder returns. Were extremely proud of the fact that we're I want to top three performers in the last five years on Nasdaq. While you can't be in the top three forever we certainly plan to keep outsized growth and hopefully overtime to be one of the core Internet holdings in on many of your portfolios. I also want to thank our employees. They are just a relentless execution machine. It's just a joy to work with every one of them every day and last but not least in an environment like this I really want to thank our lenders; their partnership, their willingness to stick with us, their willingness to share information and it is a true partnership. We don't make money unless they make money and they don’t make money unless we can work together and drive a business where we're committed to their success for twenty years. They’ve helped us obviously succeed in an environment where things are choppy and certainly changing. Their ability to change in this industry is ability to change and adapt is wonderful and I thank them all very much. We will talk to you again next quarter. Hope to put up some continued great grow and thanks again for your time today.
- Operator:
- Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program and you may now disconnect. Everyone have a great day.
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