LendingTree, Inc.
Q3 2014 Earnings Call Transcript

Published: 6 Nov 2014

[Operator:]

Good day, ladies and gentlemen, and welcome to the Tree.com Third Quarter Financial Earnings Conference Call for 2014. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today's call, Alex Mandel, Chief Financial Officer. Sir, you may begin.

[Alexander Mandel:]

Thanks, operator, and thanks to everyone for joining us today for Tree.com's Third Quarter 2014 Earnings Conference Call. First, a brief disclaimer. During this call, we may discuss Tree.com's plans, expectations, outlook or forecasts for future performance. These 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 Tree.com's actual results could differ materially from the views expressed today. Many but not all of the risks we face are described in Tree.com'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 investor-relations.tree.com for the comparable GAAP measures, definitions and full reconciliations of non-GAAP measures to GAAP. In mortgage, the operating environment continued to be a tough one with industry originations down 31% year-over-year. Relative to that, our mortgage products revenue in the quarter was down 3% year-over-year to $32 million, implying relative outperformance and continued share gains in a challenging market. In the quarter, we undertook a lead quality initiative with the objective of improving lender conversions from our leads and maximizing our variable marketing margin. We did so by pulling back on certain marketing sources of lower-quality volume. And while we don't typically unpack monthly performance within the quarter, it's worth noting that 2 of the 3 months were flattish on a year-over-year basis. And importantly within the quarter, we saw sequential top line improvements month-over-month, which continued into October. In terms of operating metrics, while our volume of leads was down in Q3 versus Q2 relative to our quality initiative, monetization overall improved in the quarter from the perspective of overall revenue per lead. As we think about our market opportunity in mortgage, while industry headwinds were very real in Q3, we have been actively developing new innovative lead delivery solutions and other product enhancements that are enabling us to extend our offering into segments of the mortgage lender market that we have not previously served in a meaningful way. Over time, we believe this can open up significant growth opportunities for our mortgage business. However, in the more immediate term, we anticipate that our core mortgage business can achieve low- to mid-single-digit top line growth over the next few quarters. Shifting to our non-mortgage products, which emerged as a new growth engine in Q4 of last year. They continue to demonstrate strong growth year-over-year, up by 111% in Q3 to a record $9.3 million in the quarter. This marks the third consecutive quarter of triple-digit year-over-year growth. And our non-mortgage products revenue now comprises a record 23% of total revenue, up from 12% in the year-ago quarter. Inside of that portfolio of revenue streams, we had near unanimous participation, with every one of our non-mortgage lending revenue streams up significantly, and 2 of our 3 vertical-based businesses growing year-over-year. In particular, and Doug will touch upon this further, our personal loans business continued to grow rapidly and achieve notable scale. After surpassing $1 million of revenue for the first time in July, in the month of October, we exceeded $1.9 million in revenue. Moreover, October's result is up approximately tenfold from earlier in this calendar year. We believe this progress validates our strategic focus over the last 12 to 18 months on extending the application of the LendingTree brand across a highly strategic and relevant set of lending categories, and partnering with a high-quality group of leading lenders across the traditional, specialty and alternative lending landscape. Looking ahead, we anticipate strong growth to continue in our non-mortgage revenue. However, we would clearly caution against anticipating that trend to maintain the kinds of growth rates we have experienced recently as the business achieves greater scale. All-in, consolidated revenue of $41.3 million in Q3 was up 11% over Q3 2013, falling squarely within our prior guidance. From a profitability standpoint, the company achieved a record $16.7 million of variable marketing margin, towards the high end of our guidance range. As a percentage of revenue, VMM of 40% in the quarter was consistent with last year's Q3 and an improvement from the first half of this year. Adjusted EBITDA of $5.8 million in the quarter came in towards the high end of our guidance range and represented a margin of 14%. Our adjusted net income from continuing operations, which is reconciled in our earnings release and which excludes certain amounts expensed under GAAP as well as certain onetime items, was $4.9 million or $0.41 per diluted share. This metric reflects the favorable tax profile of our company presently. Relative to NOLs and certain other tax attributes, we do not anticipate the company will pay taxes at normalized rates prior to 2017, although it may be subject to certain state taxes and federal AMT taxes in the interim. From a balance sheet perspective, our unrestricted cash ended the quarter at $83.6 million. And our working capital position, which we calculate as current assets inclusive of unrestricted and restricted cash minus current liabilities, including loan loss reserves, was $63.4 million at September 30, up slightly from $63.1 million at June 30. Our stock buyback program was active in the quarter, under which we repurchased close to 39,000 shares for approximately $1 million. In sum, while our mortgage momentum has dissipated this year, we remain confident in the longer-term outlook for this business. And meantime, new growth engines in our non-mortgage lending businesses, which we have been investing in, are demonstrating real traction and achieving scale. Our results for the quarter were in line with prior guidance. And as Doug will share, we have raised our outlook for the remainder of the year. I'll now turn to Doug for his comments.

[Douglas R. Lebda:]

Thanks, Alex, and thank you for everyone -- to everyone for joining the call today. With Alex having discussed our financial results for the quarter, I'd like to spend some time sharing my perspective on our Q3 results and how this will translate into Q4 and next year. I'll address mortgage, non-mortgage, some early data from our recent My LendingTree launch and then our guidance. Looking first at mortgage. Industry-wide mortgage originations were down 27% in the same year-over-year period. While our revenue from the quarter was down 3%, it significantly outpaced the overall mortgage market. As we've discussed in the past, we don't focus on top line revenue, we focus on variable marketing margin, which many of you tracking other Internet companies would think of as net revenue or revenue less traffic acquisition costs, or TAC. There are several initiatives we undertook in Q3 that helped us to achieve record VMM, and I'd like to touch on those with you. First, we added 25 new net mortgage lenders to the network. We're continuing to focus on areas where we don't currently have lender coverage and are excited to see more lenders playing in purchase and more lenders taking wider segments of customers. As regulatory fears abate, housing values move up and lenders are able to sell more non-agency loans into the secondary market. Second, given our focus on VMM, we took a hard look at several marketing partners and eliminated lower-intent marketing channels that lenders have trouble converting. While we could keep those marketing partners on board and increase revenue, in the mortgage environment we faced in Q3, it made more sense to ensure our lenders received great volume, which helped them to increase conversion rates and thus higher unit economics on mortgage than we had previously. The result was a revenue increase of $7 per refinanced customer from Q2 to Q3. This higher revenue per customer is not only a proof point that we can still increase the unit economics of our mortgage business, but also, it's continuing in October. And as long as we maintain our focus on lender profitability and conversion rates, this should really help us going forward. Third, we managed the supply and demand of our marketplace better as we take continued strides to improve automation and analytics. As I mentioned with these initiatives now implemented, we're seeing increased revenue per customer, seeing stable or increased lender profitability and increased capacity with new and existing lenders, which helps us in Q4 and beyond. This is the way we manage our business every day and the reason that we can add value to lenders, can add new lenders to the network and maximize our own profitability. Moving into non-mortgage products. I'm even more thrilled with our progress here. We are sitting with the dominant brand in a category moving online rapidly, with a marketplace business model that adds significant value to lenders and consumers. For lenders who are applying significant credit scoring innovation and process automation, LendingTree is a very efficient marketing channel. And as you can see from companies that have filed publicly, borrower acquisition is their most costly exercise. For consumers, loans are a natural product to comparison shop for, and LendingTree is clearly the dominant brand in the industry to help them. While personal loans are getting a lot of very deserved attention right now from Wall Street, the same dynamics hold true for other categories, particularly in small business lending, student loan refinancing and even spreading to new models in mortgage and auto lending. In summary, we're able to create a true marketplace for consumers and lending partners that benefits them and clearly us. Additionally, there is a massive shift from offline to online, and a true marketplace is needed to provide transparency and choice for consumers and the ability to target consumers at scale for lenders, focused on a particular set of underwriting criteria. This shift from offline to online is very early. These lending categories are still dominated by large offline lenders. Now that lenders are online and lending with new technology and acceptable revenue, we can profitably spend marketing dollars to help drive the shift to online. Let me highlight a couple of initiatives in the non-mortgage categories that I think are important to mention. In personal loans, we continue to add new lenders and have a very robust pipeline. These lenders are a mix of both established offline companies rapidly moving online and the pure online companies that have received so much press and focus recently. In small business loans, we've been in a beta launch with 5 lenders and have just now begun the paid marketing to drive this business even more. In auto lending, we've increased revenues and adjusted EBITDA 86% and 53% in Q3, year-over-year, respectively. And just yesterday, we launched a student loan refinance business. It's early, but through a partner, we have 4 lenders participating in this marketplace. This product is an enormous opportunity. There are over $1 trillion of student loans outstanding in the U.S., and we estimate that roughly 30% of them could benefit from refinancing. The next major initiative we launched just 3.5 months ago is My LendingTree. I promised all of you on our last call I'd give you some more data on this on this call. To reiterate our strategy here, we intend to use this personalization platform to be able to send alerts and recommendations across any loan category to consumers whenever they can save money. We think this is a radical improvement to the LendingTree marketplace model for lenders because we can dramatically increase their productivity through conversion rate improvements. And it's also significantly better for consumers because they'll never need to think about whether to apply for a loan, wondering whether or not they can save money. Furthermore, by incorporating credit scores, we can not only make personalized recommendations, but we can, over time, help consumers understand and improve their credit scores, and thus improve their borrowing costs even more so. The early alerts are for homeowners who can refinance or people who can consolidate high interest credit card debt with student loans. Over time, our alerts and recommendations will get smarter and smarter. Moving from the My LendingTree strategy, we're thrilled with the early results -- moving on to the My LendingTree strategy, we're thrilled with the early results of My LendingTree. While we're not giving extremely detailed data due to competitive concerns, I'll give you some metrics of our early days as well as some initiatives we've accomplished and we're currently working on. For the first 50 days following our launch, we generated volume for My LendingTree through opt-ins on our core lending products, and it's been outstanding. We're seeing solid and increasing opt-ins. Let's face it, asking a consumer if you want to get a free credit score and then alerts to save you money isn't a very tough sell. We've generated over 200,000 new accounts since its launch, and the number of accounts per day is continuing to rise. We've just begun paid online marketing, targeting free credit scores specifically 2 weeks ago. The results are very promising. Consumers are saying yes, and we're improving the customer acquisition economics almost daily, which we expect to continue. I won't give specific numbers on acquisition costs but it's beating our expectations and we're now going to continue to scale. We're about halfway through the development of new TV spots to support My LendingTree. The scripts are terrific, and given the current great performance we're seeing, we are going to accelerate those -- the production of those spots into Q4. On monetization, we're seeing very solid engagement with this product, both site logins and responses to alerts. Even at these early days, we see revenue per user moving up over time as the member's enrolled and getting more alerts. We believe that as the opt-in by consumer increases, our offers and alerts improve, we have alerts for more product and we rapidly learn the marketing of this product. Our monetization is so strong that we think we can pay back the marketing spend in a couple of months. And the loans that we facilitate for any given consumer for the rest of his or her life are almost pure profit. In summary, we feel even more certain that My LendingTree is going to deliver the first personalized marketplace for loans to consumers that will solve the age-old problem of overcoming marketing costs in a category where consumer transactions are infrequent. This was the original vision of LendingTree 18 years ago. And while it took a long time, it's coming to fruition. With that context in hand, I'd like to provide our expectations for the rest of the year and provide some color on 2015. For top line revenue, we are increasing our full year 2014 outlook to $164 million to $166 million from our previous guidance of $160.1 million to $164.3 million, which represents year-over-year growth of 18% to 19%. We anticipate variable marketing margin for 2014 to be $63 million to $65 million. And we are increasing our guidance for full year adjusted EBITDA to $20.5 million to $21.5 million, up from $20 million to $21 million. Like previous quarters, when we've got "good news" we balance, increasing our earnings and also accelerating product development and marketing initiatives for future growth. For 2015, we're breaking with tradition this year and not giving detailed full year 2015 guidance on our Q3 call. We'd like to see the current trends and our initiatives play out for a couple more months and give a more specific picture near the end of the year or early 2015. But what I can tell you is this. First, we expect that we'll continue to see double-digit revenue and EBITDA growth. We think that's very easy for us to achieve. More importantly, there will be no change in our operating posture. We will deliver very solid top and bottom line growth and still invest in product and marketing where it financially makes sense, and we've got solid insight into the returns of those expenditures. We frankly think it's very important to show investors that we can deliver profits now and accurately forecast them going forward. We have always operated by balancing short- and long-term results and also revenues and profits. Any company can goose the top line at the expense of the bottom line, and any company can squeeze cost to hit the bottom line at the expense of growth and improving their user experience. But great companies can do both, and we want to be a great company. In summary, we're executing across the board. We've got fantastic liquidity and dry powder to do sensible acquisitions and attractive organic investments; a world-class marketing machine that can leverage our brand to more efficiently acquire customers through pay channels than any of our competitors; better monetization in most categories to -- due to our brand and high-intent customers we drive; and a diversified product mix in new categories that are growing and transitioning online. And we've got what I think is a world-class team of people executing every day around a model where we push ourselves to simultaneously have great returns to shareholders through increased profits, compared to any of our competitors, and still sensibly invest in the future; continuously improve the customer experience, which increases volume to our company without the continued need of paid marketing; and a relentless focus on the profitability of our lender partners. As a company, we take our role of stewards of your trust in us by investing in our company very, very seriously. Your board of directors and your CEO are substantial shareholders and have a history of running businesses in this manner. And our entire team believes that the challenge of capturing significant share and growth, while simultaneously pushing ourselves to be increasingly profitable and having a great experience for consumers and lenders, is an interesting and sustainable exercise. It's much more interesting than having profits at the expense of revenues or revenue at the expense of profits. Given the macro trends of the offline to online shift, the return to normalcy in the consumer credit markets, our brand and our execution over 18 years, we're both incredibly energized and incredibly optimistic. With that, we'd love to take your questions.

[Operator:]

[Operator Instructions] Our first question comes from Kerry Rice with Needham & Company.

[Kerry K. Rice:]

A couple of questions around maybe the newer products. So starting with My LendingTree. You mentioned you had 200,000 consumers over the first, I think, 50 days. Is there any trend you could point out there, what products you find that they're looking at? And maybe, are they coming back multiple times even within those 50 days? And then the second question is the personal loans, I think we know that's a great opportunity. You mentioned some of the new opportunities, small businesses, autos, student loan, refi. Would you characterize any one of those as maybe kind of the next big grower for the company? Or are they all too small to kind of start to differentiate right there?

[Douglas R. Lebda:]

Sure, Kerry. Thanks for your questions. First on the My LendingTree trends, we've added over 200,000 people in 50 days. We're adding thousands a day, as I said. They're coming in through the traditional products of LendingTree, mortgage, auto, home equity, et cetera, and then getting the option to opt into this, and we're growing the opt-ins. The neat thing that we're seeing is that -- as I said, the marketing -- what we expect the marketing cost to be is paying back over about 3 months, which is great. The products though are highly personalized, it really is everything. If you have somebody come in with a lousy credit score, with a bunch of high-interest credit cards, we're recommending that they consolidate those into a personal loan and they can save money and increase their credit score. At the same time, if somebody came in for an auto loan and they told us they're a homeowner and they can refinance at a lower rate, we're recommending a refinance to them. And the early results -- so it's really -- it really is across the board and it's exactly what we wanted, which is exactly personalized and customer -- and customized for each individual. And yes, we're seeing them come back multiple times. Obviously, there's a range, so the numbers I'm talking about are averages. But -- so some people opt in and don't come back, and some people are there all the time. The product itself is great, I'm on it myself and we're enjoying it, and it's going to continue to improve. We're just thrilled with it. Outside of personal, on the new things, what I would say, it will completely depend on 2 things. To really understand our business, you have to understand that if lenders want to lend money and consumers want to borrow it and you can get an effective online experience that can make the economics work for the lender, that's going to be the next growth engine. Personal loans became a growth engine, even though it's been on our site forever, because we had a very focused effort across product, across sales and even across finance -- Alex himself went on a number of sales calls and did a lot of introductions, to capitalize on the fact that new lenders were coming into the space. And we made the product experience better, et cetera. And if they haven't -- if they can pay us enough to generate customers, which they can, and bid up the value of our customer introductions, then we can afford to go drive the marketing. And now with My LendingTree, we obviously don't need to drive the marketing. So it's going to depend on where the lenders are. I think in small business, it's a challenge, but it's not an insurmountable challenge. There are certain -- in small business lending, there's everything from unsecured notes to secured loans to cash advances. And some of those products are more routine and some of those products are more specialized. But I think there's -- there are companies succeeding there, and then I think we can, too. I'm particularly intrigued with the student loan refinance business. I -- as I said, we're seeing that 30% of the people in My LendingTree actually have student loans. It's hitting a younger demographic than I probably would have seen. And I think there's real opportunity there, and those are really easy to refinance. And in small business, the thing about -- I'll go back to small business, we've already got all the -- most of the high-profile sort of new online lenders on the marketplace and we've already closed loans. So it's definitely working, albeit early days. But I think those 2 are great opportunities. I also think there's opportunity in auto. It -- the direct auto business has been a very tough nut to crack since we started LendingTree because most people finance at dealers, but there's some innovative models coming out with new companies. And we think there's -- there could be good opportunity there, too.

[Kerry K. Rice:]

Maybe just one follow-up, if I may. Although early and you're just starting some of the paid marketing, how do you think about the margin profile of maybe the My LendingTree and some of these new businesses, or maybe the ultimate impact on margins for the overall company from these new businesses?

[Douglas R. Lebda:]

So I won't make it easy on you and give you specific numbers, but I can tell you broadly how we think about it. First, we focus on variable margin dollars, not variable margin percentage and that's an important thing. So we might have a given marketing deal or a given marketing partner that operates at a 10% margin and one that operates at an 80% margin. And if we got another 10% margin one that was incremental but put dollars to the bottom line, we'd do it all day long. So we don't focus on margin percentages. I can say that these new businesses are higher even margin percentages than some of the other ones, which will likely come down over time as they mature. But that doesn't scare us, because, again, we're focused on the dollars. And the beauty of our marketing machine that we created, which was sort of step 2 in our transformation, is the fact that leveraging the brand and then applying the science of really smart people and great online marketers, that we can flood the zone or market more competitively than our competitors can. I was thrilled, for example, if you go to Yahoo! Homes today, you'll see a rate table there that used to be powered by a competitor that's now powered by LendingTree. That happened because our monetization increased in mortgage in that instance and we were able to go get a deal, and that syndication strategy is going to play out across the rest of them. So today, I'd say they're higher margin percentages, but I'd like to see it go down over time, quite frankly, as the dollars increase. The beauty of My LendingTree and the beauty of our business in general, is you can start to add -- you can start to get a real flywheel effect. So for example, if you have somebody coming in for a, let's say, a personal loan and we can acquire them at a certain cost, but then we can add an additional amount of expected value by expectations of future business, that enables us to sort of raise our marketing bogey, still maintain the same margin percentages, but spend more and invest more in marketing. So I joke with our product team all the time that their goal is to put paid marketing out of business at LendingTree, but at the same time, you know what, if paid marketing's profitable, we'll continue to do it.

[Operator:]

Our next question comes from John Campbell with Stephens Inc.

[John Campbell:]

First, just housekeeping. Alex, what are the 4Q '13 basis for mortgage and non-mortgage rev? I think it shifted a bit year-over-year.

[Alexander Mandel:]

I'm sorry. Can you please repeat the question the 4Q, did you say basis?

[John Campbell:]

Yes, the base for rev for 4Q '13.

[Alexander Mandel:]

I think we were at $36.4 million in Q4 of '13. That was $31.7 million of mortgage products and $4.7 million of non-mortgage.

[John Campbell:]

Got it. Got it. Okay. And then on the non-mortgage side of the business, is there any seasonality there that might cause rev to decline on a sequential basis? Or should we expect just kind of natural step-up there?

[Alexander Mandel:]

I think this will be part of our learning experience in these newer products this year. I think that there are theoretical arguments that cut both ways, but in particular, with some of the newer alternative lenders and the growth trajectories they've been experiencing and how that's benefited some of the traditional and specialty lenders, it could well be that market -- financial market factors outweigh seasonal factors. So I think it will be part of our learning curve, and that's in part why Doug indicated that we'd like to wait until a little bit later this year or early next year to give forward-looking guidance for 2015.

[Douglas R. Lebda:]

And to just add on to that. Typically, what you saw when we were concentrated in mortgage is, in Q4, consumers are generally not borrowing and lenders generally are going on vacation. And ad rates go up with the advent of retail and holiday shopping, which causes some -- which makes it sensible to pull -- all of which makes it sensible for us to pull back on marketing. However, this year, I think the advent of both lenders that are really looking to add volume and paying us for it, plus the fact that we're getting this, I think, secular shift from offline to online, and importantly, the fact that now My LendingTree is starting to generate real inquiries for new loans, which, for the first time in LendingTree's history, it's incredible. We're not sitting here going, "All right. What's the revenue of a mortgage customer? And what's the cost to get them?" And just trying to increase one and decrease other, but we're actually seeing lifetime value and a great customer experience, and people coming back again and again. So I think that's going to help as well to buffer what would normally be a seasonal business in Q4.

[John Campbell:]

Got it, that's helpful. And then -- so you guys came in pretty far ahead of us on the adjusted EBITDA margin. So could you talk a little bit about some of the -- just a little bit more about the cost initiatives going on in mortgage? I know you guys don't break this out specifically, but can you talk about the margin uplift in mortgage for 3Q? And then just generally speaking, how that reduced traffic going forward is going to kind of impact margin profile?

[Douglas R. Lebda:]

Let me talk about it globally, and then Alex can maybe hit some specifics things. The important thing is that what we do every quarter is we try to -- well, every day, is maximize VMM dollars. And sometimes, if there's huge demand for volume from lenders and it's really easy to underwrite them and -- for the consumers, and sort of anybody can get a loan, the right answer, broadly speaking, in that environment is to step on the gas, drive massive quantities of lender -- or of consumers and do that. The flip side is, there are some times when rates are variable or when lenders are kind of paring back or et cetera, et cetera, the environment changes all the time, when you're better off sending quality. And this was clearly an experiment, I would call it, in quality to say, "If we improved conversion rates, could we get increased revenue per user?" And the answer was yes. What that informs is something though, and we did that on the marketing side. The most important thing for our company going forward is we are going to have massive focus on innovation, even in mortgage, around conversion rate improvements. And I can even say that with our personal loan lenders. They started off at conversion rates that were roughly 1/4 of where they are today. And we were able to work with them on the technology, the interface between them, the messaging to the consumer, even the rates that they offer on the site. And through that, we helped lenders increase conversion rates. I liken it to the, now I realize, the early days of Google Search. When Google would show up at our doorsteps seemingly regularly, and buy our marketing people lunch, and introduce us to other technology partners and help us increase our conversion rates of Google -- on Google with our marketing, because what did we do? We took those increased returns and we pumped them right back into Google so we could grow our business on search, and that's effectively what we're doing across all categories in the lending side. Alex, do you want to add anything there?

[Alexander Mandel:]

No, I think what you spoke to about the quality initiative as well, in that you can drive more volume and improve your top line. All that comes in at a much lower margin and so can blend your overall margin down, and we took the opposite approach.

[Douglas R. Lebda:]

And financially, I think, the key thing to take away from that question I think is

[John Campbell:]

Okay, that makes sense, Doug. And then the last question for me, you guys did about $1 million or so worth of stock in the quarter, obviously it looks like a good sign to us. But can you give us an idea what part of the quarter that occurred? I mean, the stock was -- saw some declines in early July, but was up pretty sharply the rest of the quarter.

[Douglas R. Lebda:]

Yes, we don't give out that kind of information. What we do every quarter is put a plan in place and then hand it off to somebody and put it on autopilot. And we did that. We're pleased with the results and we're going to maintain that posture going forward. We think there's a lot of long-term opportunity here. And we're going to maintain that posture going forward.

[Operator:]

Our next question comes from Howard Rosencrans with VA.

[Howard Rosencrans:]

In terms of -- and I apologize, I may have missed -- I missed part of the call. In terms of the My LendingTree, is that -- that's feeding into both sides of the equation, if I understand it, the mortgage side and the non-mortgage side?

[Douglas R. Lebda:]

Yes. Just to reiterate, My LendingTree is essentially an alert mechanism where a consumer gives -- both wants to see their free credit report or credit score and because of that, we have the permission to access their credit data. And we can then, with that data and other data that they provide or we can get from third parties, we can send them alerts. So as I said on the call, you might come in for an auto loan, but we see that you've got $20,000 of high-interest credit card debt and we can recommend a great deal on a personal loan. Or you might come in for a new credit card and we see that you're a homeowner and can save a couple of hundred dollars a month on your mortgage and we're going to let you know. It's a great user experience, it's really -- what we always focus on is surprising and delighting customers. And when somebody gets an email that says, "Hey, you want to save $100 in your mortgage," and it's not a random spam, but it's actually no, this is the lender and here's how we're going to do it, it's a great deal. Plus, you don't need to -- I mean, it's free, but you also don't need to go fill out the form again. We've got information from your credit report. We've got -- we're using now for the first time, and waited too long, the information that we already have that you've given us previously and can make the form fill-out experience much easier. And we've already checked the pricing against the data we have, so we can be very firm in what we're actually offering you. We're actually saying, "Hey, this loan's available. You're going to save money. Do you want it or not?" And you make the decision.

[Howard Rosencrans:]

Is it -- as a follow-on, an unrelated question or somewhat related question, the monster driver on the non-mortgage on the consumer loans are Prosper and -- I'm blanking on the even bigger player who's about to become public in that business. If you could give us some more color as to what the -- how big you see the opportunity with these guys, how hard they're pressing you to find people to -- who want to take out loans. And then my final question is, with all your success in this My LendingTree, how easy do you think it will be for competitors to knock you off?

[Douglas R. Lebda:]

Yes. So you mentioned a couple of names, and I can tell you, there are a lot of others. And that's what's really interesting about it. Because while we love the innovation of the Internet companies, of the Internet lenders that are in this business, we see a lot of innovation and success by traditional guys. And while I can't really talk about names or I'm not exactly sure who I can talk about based on which contract, et cetera, the largest players in the space are on here. We have 11 lenders, and they range from very big "traditional," in some instances branch-based companies, to Internet upstarts that are literally starting up. And similar to what Google saw when startups would do SEM through Google, they're effectively doing SEM through us. They're not -- so it's both the traditional guys, specialty lenders, and then what I would call the alternative lenders or the Internet guys. And the nice thing is there's more and more of them starting up every day. The technology to underwrite and service and things like that are fantastic and they're coming along and lenders can do it. But you'd be surprised at who some of our biggest guys are. One, for example, AvantCredit in Chicago, which not a lot of people know about, but has a fantastic process to service consumers. And they're in there competing with the guys that you mentioned and many others, and doing a fantastic job. And we see it as an opportunity not just for an individual lender, but also to grow the category. I mean, consumers want to comparison shop. And the neat thing that we have said, and we put some press release out about this, they actually save money by doing this because different lenders have a different take on the market. But at the same time, we're a more efficient marketing channel for these guys to originate volume than what they can do through direct mail or go try to -- go on search or do display advertising, or all the great things that we've cut our teeth on, marketing on the Internet for the last 18 years.

[Howard Rosencrans:]

And the ability of others to knock off what you guys are doing?

[Douglas R. Lebda:]

Look, you can always create a marketplace, right, and there are others and there have been others. Look, in over the years in mortgage, I was talking to somebody the other day, we've had Microsoft compete against us. We've had Google compete against us. We've had Yahoo! compete against us. We've had many public companies compete against us. And we've had many fade away. And as long as we focus on making sure that we're adding value to the consumer and adding real value to the lender, our brand then carries us in both of those areas. So the -- and we've talked about this many times, the fact that we've got a better brand means that we're more likely on the consumer side to have people click on ads, trust us, give us information that makes us able to market more effectively. And the fact that we've got a brand in the lender community where they can count on us that we're not going to pull a bunch of games, which some competitors have done, and we're going to deliver consistent volume at profitable levels for them, and we're going to work in partnership to improve them, that starts to reinforce each other and then that increased monetization from lenders helps us go and deal with consumers. And then helps us go syndicate. I mean, our -- anybody can sell books online, but Amazon really does it incredibly well. And like lots of people build a search engine, but Google really focused on making it better for the consumer and better for the advertiser. And that creates a marketplace that reinforces itself, and that's what we're aiming to do in the category of consumer lending, which is a pretty darn big category.

[Operator:]

Our next question comes from Josh Goldberg with G2 Investment Partners.

[Josh Goldberg:]

Just wanted to ask a couple of questions. I guess, first, obviously with companies like Credit Karma and others at $1 billion or more valuations and Lending Club becoming public at what they think may be a $5 billion valuation, your company, at $500 million, you're only halfway to being the next $1 billion Internet company.

[Douglas R. Lebda:]

Is that a -- where's the question in there? That's a good [indiscernible] I agree with. But...

[Josh Goldberg:]

My question is, what are we going to do to get the company from where we are today to that next level?

[Douglas R. Lebda:]

So I think I comment on this and I think you guys have known me a long time. We want to be built to last and here for a long time as we have been. And our -- and over time, the market is going to judge what the market's going to judge. We're obviously very bullish about what we're doing. And we're just going to keep getting the word out and let the results speak for themselves. So we think with increased marketing, albeit very profitable marketing, unlike what some other people do, we think that will certainly help. And we think we're just continue to add lenders to the marketplace and we're going to continue to innovate on the product. And what I've seen over the last few years is our stock has admittedly done well from valuations that were probably even more insanely low than they are today. We've done that by consistent execution and by telling people what we're going to do and then delivering on it. And quite frankly, based on some of the results I've seen from people, it seems like investors are starting to value that, to get growth but also have profitability. And as I said before, it would be easy for me to sit here and say, "Oh, we're just going to ditch earnings and go for growth." That's, I think, irresponsible and it's not in our DNA, and we'd never want to do that. But we're going to do it by innovating for the consumer, making the product better, increasing conversion rates for lenders and building on our brand to continue to market better. And I think in that, also, My LendingTree really matters. And I'm not one to comment on the valuations of others, obviously that's for the market to decide. We think, as we used to get comped against some of the real estate highfliers, look, we're going to put up revenue growth rates and earnings growth rates that are at the top tier of our category. And we're going to let the -- and then we're going to let guys like you figure out what that's worth.

[Josh Goldberg:]

Doug and Alex, if you can just talk a little bit about the fourth quarter? Obviously, not seeing the seasonal downturn that you usually see. What's driving the near-term strength?

[Douglas R. Lebda:]

So I think it's several things. It's clearly the seasonality in -- is way more pronounced in mortgage than other categories. If you can go online and if you're Christmas shopping, and your credit cards are maxed out, and you want to consolidate your debt, and with a few mouse clicks in 24 hours, you've got $10,000 on average in your account and it's saving you money every month, that's an easy thing to do. And it's a big difference than saying, "Hey, maybe I'll refinance my mortgage and spend the next 30 days filling out forms and getting -- while I'm trying to do my holiday shopping and do that. Why don't I put that off until January?" So I think it's all -- the same thing is true in auto refinance, which is true. And I think it'll be true in student loan refinancing. These are -- the beauty of what's happening right now is that the advent of technology is finally making it easy for people to actually get a loan at a good rate and with LendingTree to comparison shop. And we are -- and we're making that happen. So I think it's not a mortgage. But even in mortgage, that's getting a little easier, too, and rates are obviously pretty good. So it's really that, plus it's My LendingTree. I can't tell you today what the specific numbers are, but we are seeing real repeat business that is materially impacting the product lines of auto loans and personal loans. And we expect it'll do the same thing with student loans, and it's impacting mortgage, too. So the fact that I can get -- we can get volume for free because the consumer has said, "Hey, yes, if you can save me money, save me money." That means we don't need to go out there and buy advertising up against Target on TV or AOL.

[Josh Goldberg:]

Last one for me and really great results. If I look at your preliminary numbers for next year, I assume that your non-mortgage business will grow faster, as you said your mortgage business will be roughly 3 -- mid-single-digit growth. It would seem like you should grow your EBITDA roughly in line or faster than your revenue with that kind of mix shift going in your direction.

[Douglas R. Lebda:]

Yes, I'd have to go -- I don't want to get into 2015 guidance here. I definitely agree with you that non-mortgage will grow faster than mortgage, the margins are very good there. I want to see the My LendingTree stuff play out. But as I -- look, I say it almost every quarter that this is the most optimistic I've ever been, and I keep thinking I maxed out on my optimism. But I keep getting more and more optimistic and more and more energized. So it's great to see when you're both executing and you're getting the secular shift from offline to online. And like that's happened in travel and retail and everything else, I think financial services was always going to be the last big one to come online. Lending and financial service is the most difficult to execute technologically, but now that it's happening -- and it's a major category offline and you can -- lenders can be a lot more efficient online. And a marketplace is exactly the right model where lenders can target the customers they want. I mean, quite frankly, I feel like when I talk to lenders now, I'm having conversations that I thought I was going to have, naïvely, 18 years ago when I started the company. Where I thought I'd be able to walk into a lender and say, "Hey, if I send you customer information, can you send me back instantaneous offers that a consumer can click on and accept and actually close?" And I thought that was going to actually be possible. And it turned out it was pretty much impossible until now. But now, it's actually starting to happen. And we're sitting in the right spot.

[Operator:]

[Operator Instructions] Our next question comes from Jim Fowler with Harvest Capital.

[James J. Fowler:]

Just 2 quick questions. A little tickdown in the interest rates in the third quarter, great mortgage numbers relative to the industry. But I'm wondering, any sense that the parties to whom you are working on -- excuse me for calling them leads, but leads are gaining their confidence in the purchase market? Or is that largely reflective of a little burst of refinancing activity in the third quarter? And then I have one other question.

[Douglas R. Lebda:]

No, we are -- the answer is it's not -- no, it is not due to refinance uptick, and yes, our purchase business is continuing to grow. We caught the purchase wave early. We have quite frankly been saying to our lenders every year since probably 2002 that, "Hey, purchase is going to be right around the corner. You better get ready for it." This time, it actually happened. We were ahead of it with some product innovation, in particular, the local lender introduction, which I have talked about before. And the beautiful thing -- and many others. And we've got another big purchase innovation that is on the docket that we're going to continue to work on. So increasing purchase conversion rates for lenders is important. We've also introduced product innovation to work with non-, call it, call center-based lenders where we can put inbound phone calls directly to loan officers who are in the field, which we think is great, so it's getting us into the local space. So it's absolutely great on purchase. Quite frankly, as we've shown in prior quarters, if refi ticks up a little bit, a lot of times lenders get flooded with volume and then it doesn't hurt us, but it sort of balances out. So no, the purchase business is just great and it's going to keep getting better because the key thing that's going on now is lenders are increasing guidelines. There were some regulatory changes governing Fannie Mae and Freddie Mac, which are reducing loan buyback risk, at the same time the key-lem [ph] rules, which I won't geek out too much on mortgage, got finalized, and home prices are increasing. So purchases is a tailwind.

[James J. Fowler:]

Great. And then last question. Any sense of what the median or average FICO score is for the credit reports that you're delivering to the My LendingTree folks?

[Douglas R. Lebda:]

No, and I'll get back to you guys on that. I don't think it's -- what I would say is I think it actually breaks down like America, which, I would guess -- I'll bet you a steak dinner that whatever the median is for America is the median for us, because we're basically opting in people who are, today, coming through LendingTree in addition to some organic volume. But the beauty of this is it works great for people with high credit scores, because we're going to save them money; and it works great for people with low credit scores, because we're going to both save them money and improve their credit scores and then save them more money.

[Operator:]

I'm showing no further questions at this time. I would now like to turn the call back to Doug Lebda for closing remarks.

[Douglas R. Lebda:]

Fantastic. Thank you, all, very much. We appreciate the interest in the company. We appreciate your intelligent and insightful questions and your focus with us. And like we -- I say every quarter, we're going to go back to work now and try to make it even better for next quarter. So thank you very much, and we're always happy to engage with anyone who's interested.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a great day.