LendingTree, Inc. (TREE) Q2 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to Tree.com Second Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would like to introduce your host for today's conference, Mr. Alex Mandel, Chief Financial Officer; and Mr. Doug Lebda, Chief Executive Officer. I would now like to hand the conference over to Mr. Alex Mandel. Sir, you may begin.

Thanks, operator, and thanks to everyone for joining us today for Tree.com's Second Quarter 2013 Earnings Conference Call. First, a quick disclaimer. During this call, we may discuss Tree.com's plans, expectations, outlook or forecast 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. One note as to terminology. Our results for the quarter are actual figures, as are those for the preceding first quarter. However, figures for the second quarter 2012, which we refer to in making year-over-year comparisons, may reflect to what we have termed adjusted exchanges metrics, which are non-GAAP metrics we used in quarters preceding the sale of our Mortgage business to demonstrate model results as if the company had not operated that business during those periods to facilitate comparability of our results. Thanks for joining us today as we review our second quarter results. We're excited to share with you some details of our continued progress. The quarter's results reflect the second consecutive quarter of new record levels of both revenue and variable marketing margin dollars, a continuation of the turnaround in our Non-Mortgage businesses which we noted last quarter and further progress on our strategy of product expansion and diversification. Starting at the top, our Mortgage revenues grew 31% sequentially to a record $33.5 million in Q2. To put this growth in perspective, MBA's latest estimate shows aggregate industry originations up a mere 2.5% sequentially in the quarter. In fact, this is now the third consecutive quarter in which revenues in our Mortgage business outpaced aggregate industry originations, such that over this time frame, our quarterly Mortgage revenues have increased at a compound growth rate of almost 20% compared with aggregate industry origination compound growth of just 1.6%. The growth in our Mortgage revenues this quarter benefited, in particular, from the launch of our new national ad campaign in May, as well as expansion generally across all of our major performance marketing channels. We note that interest rates rose considerably during the quarter, with the average 30-year fixed rate increasing by 50 basis points compared to the end of Q1 and 72 basis points compared to the beginning of the year according to Freddie Mac data. To put a final point on this, the bulk of this increase took place in the month of June and continued into Q3 in July. While this trend signals a likely reduction in refinance originations ahead, it is consistent with the market expectations we have been anticipating and preparing for. And what we have found so far is that demand for our leads continues to grow as lenders seek the support of our valued customer acquisition services more so in this environment than in the lower-rate environment we appear to be leaving, in which there was a greater flow of organic consumer inquiry. In addition, we believe consumers are likely to be even more focused on comparison shopping for mortgages in this environment and therefore, the competitive advantage of our brand can become even more meaningful. With these factors in mind, the launch of our national ad campaign, which has already received some important accolade noted in our press release, would appear to have been ideally timed relative to anticipating these shifting market conditions. Revenue in our Non-Mortgage businesses demonstrated accelerated growth in Q2, increasing by 27% over Q1, which itself had represented an important turnaround point following several quarters of declining revenues. Included in the quarter, under Corporate, was recognition of the final installment of marketing services revenue following the HLC transaction. As such, we do not anticipate recognizing additional revenue of this nature on the visible horizon. All in, consolidated revenue of $37.4 million in Q2 significantly exceeded our prior guidance and represented a 33% increase over Q1 revenues and a 63% increase year-over-year, compared to Q2 2012's adjusted Exchanges revenue. With that said, our guidance for Q3 reflect appropriate conservatism, given both the interest rate shift I noted earlier and the inherent uncertainties attendant to that, as well as a potential for the pace of media spend on our national ad campaign to moderate somewhat from its initial launch. From a profitability perspective, the company delivered $13.7 million of variable marketing margin, representing another record level. As a percentage of revenue, however, VMM declined to 37%, which is consistent with our prior guidance, given the launch of the ad campaign and the significant upfront production costs recognized in relation to that, as well as initial media investment spend. Adjusted EBITDA of $3.4 million in the quarter decreased relative to Q1, but exceeded our guidance. Included in this result is a small but positive contribution from our Non-Mortgage businesses. To touch very briefly on our discontinued operations, which primarily represent our former Mortgage origination business, the financial impact of this segment was income of $9.1 million in the quarter, primarily reflecting the gain-on-sale accounting of the $10 million deferred contingent consideration from the HLC transaction received during the quarter, offset by approximately $900,000 of various costs, some of which were noncash. From a balance sheet perspective, our working capital position at quarter end was $72.8 million. This increase from Q1 reflects our receipt during the quarter of the final $10 million payment from the HLC transaction. Also during the quarter, we were in the market repurchasing our stock totaling over 44,000 shares for close to $800,000. I commented earlier on our product innovation and diversification efforts, which continued to be a priority as we look to potential growth opportunities ahead. In this regard, I'm pleased to note that of the various launches we have discussed this year-to-date, several are approaching a meaningful contribution level. In particular, our rate table and reverse mortgage offerings. Looking ahead, we noted in our press release the recently enhanced personal loan offering and see that as a market opportunity that is both attractive and very much congruent with the lending Tree brand, core competency set and value proposition. In conclusion, we delivered the third consecutive quarter of record results. Our Mortgage business continues to outpace the market, our Non-Mortgage businesses continued their turnaround and we are actively focused on product innovation and diversification, both to provide new growth opportunities, as well as anticipate the shifting market environment we are seeing. With that, I'd like to turn it over to Doug.

Thanks, Alex, and thanks to all of you for joining us on the call today. With Alex having walked through the financials, I'll provide some commentary on Q2 performance and our thoughts for the back half of the year. Q2 was a very important quarter for us for a couple of reasons. First, although it's not news anymore, mortgage rates rose approximately 50 basis points and the rise was sudden. As would be expected, mortgage applications plummeted correspondingly, particularly refinance. The good news for us is that we expected this in advance and focused more on purchased mortgages, new revenue streams, our sales team stepped up, lenders wanted more volume and our model performed as expected. We've continued to see our results separate from the market. Mortgage originations were up 2.5% quarter-over-quarter and our mortgage revenue was up 31%. We also launched the brand campaign in Q2, which was very important for us. Throughout May and June, we invested heavily in offline media and advertising in order to fortify the strength of the LendingTree brand. As expected, this investment weighed on our financial performance in the quarter, but the campaign has produced excellent results so far. In fact, our Boxers spot was recently named the third most impactful ad in the country for Q2 according to Ace Metrix. And even with rising rates and a brand investment, we posted yet another period of record revenue growing the top line 33% versus Q1, and 63% versus the same period last year. We also produced record variable marketing margin of $13.7 million. Our revenue growth and consequently, VMM continues to exceed even our own expectations and Q2 allowed us to accelerate investment in product development and still deliver $3.4 million of adjusted EBITDA, well ahead of our previous guidance of $2.5 million to $3 million. The Mortgage business for us continues to lead the way. Mortgage revenue was up 92% versus last year's adjusted Exchanges year-over-year [ph] and up 31% sequentially. And while we don't disclose our mortgage results at a product level, I'd like to point out that we grew both refinanced and purchased this quarter. That highlights the fact that we're gaining market share in refinance while continuing to aggressively pursue our diversification strategy. Lenders continue to open up their wallets and extend filters in both products as we continue to deliver predictable high-quality leads to all [ph]. In marketing, we've been able to continue scaling our digital channels while we invest in offline. The decline in VMM as a percent of revenue is largely attributable to offline spend in the quarter. Despite the additional expense in Q2 related to the brand launch, which we expect to yield positive results later in 2013, we still managed to achieve record variable marketing margin dollars as we ramped the digital channels at positive margins. Our Non-Mortgage verticals also gained some momentum in Q2, growing 27% quarter-over-quarter. Most notably, I'm really excited about the addition of Neil Salvage as the General Manager of our Home Services Business. In addition to leading that group, I'm confident Neil's wealth of experience in local marketing and proven leadership abilities will benefit the entire organization. As I mentioned previously, we continued to develop our product suite at an accelerated pace. During Q2, we successfully launched Mortgage Negotiator, a tool empowering consumers to analyze existing offers based on good safe estimates and make comparisons to offers available through our network. We've also introduced a vastly improved mobile site, and we're continuing to iterate and improve that experience. Finally, we launched a completely revamped personal loan product in early Q3. We've discovered that there is increasing interest in personal loans from both consumers and lenders as the economy continues to recover and interest rates begin to rise. By leveraging the technology platform and lender relationships inherent in our mortgage offering, we believe we can deliver a personal loan shopping experience that's unmatched by the competition. Now I'd like to spend a few minutes discussing our expectations for the rest of 2013. Looking at the second half of the year, after a successful launch of our brand campaign and proven results that we've shown in the first half, we remain increasingly comfortable with our financial position. After posting lower adjusted EBITDA in Q2 as was fully expected, we should now expect to see more favorable bottom line results as the brand campaign continues its momentum and we continue to gain marketing efficiencies and perfect our product offerings. For the full year 2013, we're increasing our revenue projections to a range of 38% to 43% over 2012, compared to our previous guidance of 20% to 25% growth. We're also increasing our VMM projections slightly to a range of $51 million to $56 million, compared to our previous guidance of $49 million to $54 million. And we're maintaining our full year 2013 adjusted EBITDA guidance of $15 million to $17 million. As promised and as we've delivered in our recent quarters, again, I'll assert that we fully intend to reinvest any incremental VMM back into the business, while continuing to deliver our bottom line promises. Looking more specifically at Q3, revenue is expected to be 37% to 50% higher than the third quarter of last year. VMM should be in the range of $13 million to $15 million, and adjusted EBITDA is expected to be $4 million to $5 million. In closing, Q2 was a benchmark quarter for us. We delivered in all of our key metrics while investing in our brand, investing in our products and invested in our technology. I'm really excited about what the rest of the year holds. Interest rates are up, and yet we are still firing on all cylinders. We've established a proven ability of our sales and marketing to manage supply and demand and maximize variable margin dollars. The new products that we recently unveiled plus more that are coming should reap real benefits as we continue throughout 2013. And we've got $73 million of working capital, giving us the flexibility to see strategic opportunities as they arise. With that, I'd like to turn it to the operator for Q&A.

[Operator Instructions] And our first question comes from Lauren Slabaugh from Stephens.

My first one is on the increased revenue guide. It looks like EBITDA's still in the range that you guys thought. Is the marketing and advertising spending being turned up even more than originally expected? Or should I read something else into that?

I think the -- we're definitely increasing market -- the way we operate on the marketing expense line is really balancing supply and demand. And if lenders are demanding more leads, we absolutely will ramp up spend to meet that demand. And that's really what we're seeing right now. So what we try to focus on is the variable marketing margin dollars and try to maximize that. And so the spend will move up and down based on lender demand and based on marketing efficiency. But in general, yes, we're trying to spend into increasing demand from all lenders.

Okay, great. And then on that note, thinking about what sort of pricing you're able to get, it sounds like demand is good, and I know we discussed about pricing before and mortgage lender economics. But any other color on that?

Yes, we're definitely seeing increased pricing. The beauty of what we did about 4 or 5 years ago is we moved all of our pricing to variables. So lenders really did up and down pricing based on demand, and we don't have to set pricing and kind of chase the market. So there's one or more leads. They basically increase their caps, which is essentially asking for more volume. And then to get the level of volume that they want, they essentially increase the price that they're willing to pay.

Our next question comes from Shawn Rassouli from Needham & Company.

I was wondering if you could give us an update at lender account. How many lenders you have in the quarter and how that compares to last year? And can you give us a sense for how much revenue in the quarter came from new lenders that you've added or onboarded over the last year versus older lenders? And then I have one more.

Sure. And Alex -- let me answer that in kind of concept and then Alex can answer the specifics. We're definitely seeing very good results in adding new lenders. Typically, when we do add a new lender, they will start small and start testing with us. And then, if they can increase conversion rates and make LendingTree a profitable channel for them, they'll essentially continue to increase their buys with us. And more so, the new lender sales, although that's been great, we are definitely seeing diversification from our top lenders to some of our smaller lenders, but we're also seeing big buy increases from some of our top lenders, too. So I'm encouraged by the mix of lenders and seeing the mix shift to more and more lenders, but I'm also very encouraged by seeing our top lenders really increase their buys, which is a step that we actually put in the release. Alex, do you want to fill in with some specifics there?

Sure, Doug. Historically, we haven't given a lot of disclosure around the specific number of lenders at each quarter. But in our 10-K, we disclosed that we had a network of more than 200 banks, lenders and loan brokers participating in our network. And I would note that in our press release today, there was a comment about the lender base having grown 18% in the quarter, and that 31% of our existing lenders increased their spend with us by more than 20% during the quarter. So I think that addresses the notion of adding new customers, and the existing customer base that we have increasing their buys with us.

Great, that's helpful. And in regards to television campaigns, Doug, can you talk about how that's affecting the visibility or the predictability of lead flow for lenders? Do you have the same sort of control you had when you were relying on this lend [ph] search to bring leads into the system as you do with television?

We definitely do. The -- our TV spend right now is highly, highly variable. We're buying very little in the forward markets, and essentially are buying everything on sort of spot and DR, our direct response, so we can turn it on and off. If anything, the only "issue" we're having right now is we're not getting as much volume -- we're not getting as much of our buys clearing at lower prices. So we're not actually spending as much offline as we theoretically would like to, and that's just because we don't want to take on risk of buying a couple of months in advance. And -- but that said, what we do, we do a lot of media mix modeling, we do a lot of attribute to modeling. And one of the neat things we're seeing, which we expected, but it's, I think, working a little bit better than expected as well, is we're seeing that the offline campaign is making search and display even more efficient than they were in the past. Somebody might see a TV ad and then do a search on a search engine, and through some statistical modeling, we can attribute some of the improvement in search to the offline campaigns, so it's definitely working well.

Okay, that's helpful. And if I could just squeeze one more question. On the rate table product, I was wondering if you could give us a sense where how loan requests are growing or -- and how much room for growth there is, in your opinion, in terms of the number of loan requests, as well as propensity and just growing that product further?

So we have not given sort of specific stats on the number of loan requests. But what I can say is that it's growing month over month, it's growing week over week as we get more and more distribution partners. We're working now with Move and Trulia and several others to syndicate that rate table product. We're working on continuously improving revenue per visit, which is moving up nicely. And as that revenue moves up, then we can afford to outbid or match our competitors on syndication. And we're definitely seeing if there's -- right now, we've got probably more demand for volume there than we've got lead flow as lenders have tested it, it works and they've asked for more volumes. So the next to do there is to just continue to ramp up syndication partners. We're also seeing interestingly that we can put the rate table both on our home page and also as a sort of a bailout mechanism when people start to perform but don't get all the way through it, and then they see the rate table. So it's actually not -- it's actually increasing revenue to even the LendingTree.com site by having that as another option.

Our next question comes from Hamed Khorsand from BWS Financial.

So let's start with the guidance here. It seems that you're raising revenue, but adjusted EBITDA is staying flat. Does that imply that even though the lenders are increasing spending with you, it's not really at a higher price points, or is that...

No. What it really means is, and it's just our philosophy of how we're operating. We can tune this business pretty precisely. And we put out our guidance $15 million to $17 million to be in the year. Quite frankly, a lot of people said to me, "Look, you're going to grow earnings over 20% and you're not getting credit for that. Why are you being so aggressive?" And what we decided to do and keep talking about every quarter is that, anytime we're getting good news in the business, we're going to keep managing to that $15 million to $17 million number and keep reinvesting the good news in product and marketing. So what we're able to do is to say, if EBITDA's running ahead of pace, which it would be, we can then say all right, marketing team go invest a little bit more now and maybe cut a new commercial, release a product launch sooner, spend money on that, et cetera, et cetera. So for example, on our mobile site, we accelerated that from when we would've otherwise done it, we're able to outsource that to a company and work with third-party developers and spend money that we wouldn't necessarily have spent to get that done. So what we're really focused on is revenue growth and very solid bottom line growth. If we were managing the company to maximize EBITDA, you could squeeze the lemon, so to speak, and not invest for the longer-term as we are, but we just really felt that the right area for the business, given the tremendous growth prospects we have and significant share that we're getting, is to keep investing back in marketing, to keep growing, get that top line growth very, very solid, and still deliver very acceptable and growing bottom line results. That's kind of the MO of the company for the year.

Okay. And then has there been any increase as far as the rates that lenders are paying for new mortgages?

Absolutely. We're seeing -- and we don't get into the specifics of what lenders are paying on a price per lead just for competitive reasons. But we are absolutely seeing double-digit increases in cost per lead pretty much across the board. Specifically for purchase, we're seeing increase in refinance clearly, but we're not only seeing -- this goes back to supply and demand kind of what we're seeing -- lenders bidding up the price of purchase leads and increasing caps there, so they're asking for more volume, and that's enabling us to grow that. So we're seeing growth in purchase right now far outpacing refinance on both the revenue side and the volume side, and getting very, very good feedback from lenders about conversion rate and quality on that product. And so we really see that as the trend for the future. There's anything I'm hearing from the -- as I talked to lenders, what they're saying is, "Hey, we know we had to do purchase. Now it's time." We're setting up dedicated purchase teams, we're getting more of that volume, we're changing our processes. And so they're not only demanding more and then we're marketing more, but then we're also continually working to improve the purchase products so we can improve conversion rates, making it better for consumers, making it better for lenders. So it's -- we're definitely seeing significant growth in purchase and that's -- we always expected that. We certainly always hope that was going to be the case, and it's definitely proving itself out now.

Okay. My last question is that, just given what's going on as far as the rates rising, is there a change in your strategy for Q4, given that's seasonally a softer quarter for the housing sector?

I don't -- not a change in our strategy. Typically, what will happen in Q4, there's some anomalies every now and then. But typically, what happens in Q4 is that consumers are less and less focused on getting mortgages, given the holidays, et cetera. Less focused on financial planning in getting their finances in order and media rates go up both online and offline as you get holiday shopping and you get a lot of seasonal promotions. And so it's a good aim. And there's, quite frankly, take vacations of loan officers leave for the holidays, et cetera. So we see less demand for leads during that time and it's more expensive to get them, so it's a good time to be a little quieter in the market. Now there have been some quarters when that is not the case. And so what we're able to do in that, again, being in the supply and demand business, we can dial down marketing expense and let pricing sort of go up a little bit, and not try to force yourself in a market that's declining. And so that's the normal Q4 strategy and that's what we'd expect. So Q4 is typically down versus Q3 and Q2, that's obviously reflected in our guidance. But -- and then every now and then, as I said, you'll get something different. You'll get a rate drop or something like that and get a float of volume and you have to adjust. But the beauty of our business now, as I've talked about, is that it's so real-time between supply and demand that we can adjust both sides of that in every day, every hour. In every channel, it can move money from one channel to another. I can't say enough great things about how our marketing team has built what we think is on its way to being an incredible marketing machine, and then the brand really helps that as well. But that's the strategy, and so to speak, we're sticking to it.

[Operator Instructions] Our next question comes from Josh Goldberg from G2 Investment Partners.

Just so I have this correct, when you started the year, you expected to grow the top line, 15% to 20%. After Q1, you described it as a 20% to 25% growth here. And now you're raising expectations again to between 38% to 43%. Is that correct?

That is.

Okay. Is that -- I assume that's mostly led by strength across the board, both in the mortgage revenue and in Non-Mortgage. But just on the Mortgage side, in an environment where originations are down so much, I mean, it's pretty impressive to see this type of top line growth. Can you describe in a little more detail what you're doing right here that you're able to gain somewhat share?

I think some of it is the market, and some of it is what we're doing right. But if you think about it at a very basic level, the LendingTree brand is incredibly well-known. So if you have the LendingTree ad sitting next to an ad of a competitor you have not heard of, by definition, if we're able to do the science and math of marketing, we're going to get increased click-throughs and therefore, a lower cost to get every lead in. We're also going to get more customers willing to give us a Social Security Number that you might on another site that you've never heard of. And if you give us Social Security Number, that indicates higher intents, all of which translates into higher revenue per lead. Higher revenue per lead means I can afford to do -- we can afford to do marketing in channels that competitors can't do, which also signifies higher intent, so we can go and get people from significant search, significant search volume or offline. And we don't need to go to do a lot of the affiliate marketing or sort of the lower-quality marketing online. We also get more repeat business given that we've got better customers. So once the flywheel starts spinning, it really starts to go, and you can get higher revenue per lead, better marketing. And then lenders want higher quality leads because they have better conversions. Talked about this before, but you need to think of a lender as not having unlimited capacity, they have a certain amount of staff and they can handle a certain number of leads and a certain number of closed loans. So if you can deliver them higher-quality, more higher-converting customers, they're going to want more of those because it makes them shop more efficiently. And I think what we're just seeing is continued shift coming our way. And that's encouraging. I think some of it is the market, a lot of it is the brand and the legacy there. But certainly, a lot of the work that we've done over the past 4 years, we've changed a lot of people and process in marketing, also changed a lot of people and process in sales, which are really the 2 sides of the equation and made the product better, and it's all hitting now. So I think now we're hopefully able to prove out that the model can do well as rates rise, and that we can continue to get share. You also did highlight the Non-Mortgage businesses, and I can't stress enough the success that we're seeing there. The reverse mortgage product that we talked about last quarter is really, really doing great, personal loans is doing great, credit cards is doing great and then some of the new even mortgage tools. One of the things I'm -- we're thinking about doing in future quarters is actually not even breaking out Mortgage and Non-Mortgage but potentially doing something around refinance and non-refinance, just to really highlight also the success of purchased mortgage. So it's all working.

Doug, on that note, I mean, on the Non-Mortgage revenue side, obviously, it's been a little bit of a headwind this year. At what rate per quarter is it profitable? I think something is [ph] causing you to lose some money. And when do you expect it to sort of show in top line growth?

So in total -- we have significant top line growth this quarter. In total, we are profitable. Inside the verticals, we're not profitable in all of them. So reverse credit card, anything that is finance-related and related to LendingTree auto loans, reverse mortgage, credit cards, et cetera, is all profitable. Education and Home Services are both, call it, close to breakeven, but not losing enough money for me to lose any sleep over. I wish they were making more money. I'm very encouraged with the results that Neil Salvage coming in as head of Home Services. He'd been here about 3 weeks and he's already doing a lot better. And I think that hire really just shows go -- just like we have in some other verticals, go get people who know that business cold. And I've been talking to Neil for -- I mean, I've known Neil for a long time, going back to IC [ph] days and we're just thrilled to have him there. So I think -- and even -- one of the real bright spots, believe it or not, in Home Services is actually still a legacy business. It actually is selling real estate leads to realtors. So you thought of purchase mortgage request on LendingTree and we introduce you to a realtor and get paid on this, too. So the real estate business at LendingTree continues to be pretty strong, too. So I'd like to see individual verticals get to profitability hopefully by late this year. But until then, we're going to keep investing and keep giving them a shot. It wouldn't surprise me to see us do a couple few small tuck-in acquisitions in some of these verticals to try to get them to scale. They're both -- Home Services and Education are difficult businesses at scale. But we're definitely seeing our difficult business until you're at scale. We're definitely seeing a lot of success in total in the Non-Mortgage side.

Can you also just break out how much was spent on the advertising -- TV advertising campaign this quarter, and what you expect it to be next quarter?

Alex, you want to take that? I don’t think we go into specifics. It's single-digit millions per month is I think about what we should say. But Alex, do you want to give more color there?

Thanks, Doug. I don't think that we've given detail on the specific dollar amounts of the media spend for that campaign.

Okay. But even at that level...

Like as a direct marketer, I mean, if I can spend -- we'll spend as much as we can profitability. So if there's a way to ramp it up, as lenders want more volume, if we can find it and we're testing across more than 20 different channels right now, so we're constantly testing and tweaking. We also just recently added another ad into the mix, so we think of offline now very much the same way as we think of online, which is keep running ads, keep testing them and it's a combination of the channel you're running, the ad your running, the time you're running it and then reading out all those metrics and just continuing to get better at it. But we'll spend, as I've said before, marketing expense for us is gas. It's not an expense.

So our ability to [indiscernible] expenses this quarter for the production of the commercials in the June quarter?

Yes, that were...

There were one-time [indiscernible]?

[indiscernible] Q2, yes, we have a couple of million dollars at production expense in Q2. And the way advertising accounting works is when you run the commercial the first time, you actually expense the full cost of that production. But -- so we do have a couple of million bucks of production expense that I believe was like late Q1 and Q2. Is that right, Alex?

Yes, that's about right. It's more notably in Q2, Doug.

Right. So your VMM should get back up to the 40s, that's why it's implied in the third quarter as well? Based on the guidance?

Yes.

Okay. And then just in terms of the cash flow that you're going to generate, the $10 million from Home Loan, and I noticed that you bought back shares this quarter. Anything else planned in terms of either tender offer, dividend or something like that in terms of volume of cash you have on your balance sheet?

I think tender offer, probably not. We've -- many people have heard me talk about this. We get this sort of dual issue between you have no float to buy stock. I know somehow, you managed to find it everyday. And so we get -- you don't have enough float, we really should have more float but also put your cash to work. So I'm probably not thinking -- I don't think we're thinking tender offer. I think we're going to continue opportunistic buybacks. And even past Q2, we bought even more substantially, post-June, which we'll obviously report next quarter. We're looking at acquisitions hard, I'm a little cheap and Alex is, too, so we always like to do those smart way and want them to be accretive. Dividends, I would absolutely not rule out. We obviously did a special last year. I think once -- if we got through a couple of quarters and showed solid increase, it wouldn't be crazy to have -- for us to have a dividend policy. And when I think that through as a growth company and think that through from a shareholder base, but that got a lot of positive reception. I'd like to not have dividends. If we do, that would be a one-time special event, but be something that people can, within some realm of reasonability, count on every quarter. So I wouldn't rule that out, but I want to see first what we can find on the M&A front.

[Operator Instructions] And I'm showing no one in queue at this time. I'd like to hand the conference over to Mr. Doug Lebda for any closing remarks.

Very good. Well, thank you all for your support, thank you for your questions. As I've said before, what we try to do is throw out markers that we believe we can hit, get aggressive goals and hopefully meet and exceed them and be as transparent as we can. The only thing -- other thing I'd add this quarter is, I think there's lots of buzz around some of our competitors in the space, particularly in the real estate side. And if you look at the market cap of LendingTree versus some of those other competitors and where things are valued, I think we've got growth rates and profitability that's pretty darn close to some of those other companies, and obviously, very different valuations today. So we think over the long-term, those things all return to some amount of normalcy. But we're very, very encouraged. I think it's the second quarter in a row where we're continuing to bifurcate ourselves from the market. As I've said, a lot of that's the market and a lot of that's the brand, but a lot of that is also really the great work of what I think is the best team on the planet for an Internet company in our space. And just I'm thrilled with all of the support of the team, the great efforts and all of your support. So we'll be -- you'll see us at conferences in the future. Obviously, feel free to reach out to us at any time. And thank you for your support, and we'll talk to you all in a couple of more months.

Ladies and gentlemen, thank you for participating in today's conference. This concludes our program. You may all disconnect, and have a wonderful day.