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

Thanks, operator, and thanks, everyone for joining us today for Tree.com's Second 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'll refer you to yesterday's press release available on our website at investors-relations.tree.com for the comparable GAAP measures, definitions and full reconciliations of non-GAAP measures to GAAP. I have begun the last few earnings calls discussing the mortgage market backdrop against which we have been operating as there have been a common theme of industry originations dropping where our mortgage products revenue had grown. Continuing in that vein, in the second quarter of 2014, industry originations declined by 45% year-over-year while our mortgage products revenue grew by 5% over the same period to a record $34.7 million. Our non-mortgage products revenue continue to demonstrate strong growth year-over-year, up by a 105% in Q2 to a record $7.5 million in the quarter. This rate of year-over-year growth was similar to the first quarter's performance in which non-mortgage revenues grew by 108% year-over-year. I note that non-mortgage revenues now represent a record 18% of total revenues, up from 10% in Q2 of last year. Also of interest relating to our non-mortgage products revenue is that contribution to this growth came from all of our non-mortgage product lending categories, including home…

Thanks, Alex, and thank you, everyone for joining the call today. As Alex pointed out, our financial results in this quarter were terrific. We produced record revenue of over $42 million and comfortably exceeded our bottom line guidance. With that, I'll briefly discuss our results, but more importantly, I'd like to share some thoughts on our new product initiatives. Looking at the top line in Q2, our core mortgage products revenue of $34.7 million grew 5% over the second quarter last year, while the market was down over 40%. The fact that we're able to sustain growth in our mortgage business, despite market headwinds, is truly remarkable. Origination volumes in the broader market are poultry, and lender profitability is on the decline. Our growth is a testament to the relationships we have with our lenders. Relationships that demonstrate were seen not only as a high-quality, cost-effective source of customer acquisition but also as a trusted strategic partner. Perhaps, most importantly, revenue from our non-mortgage products of $7.5 million was up 105% year-over-year and 29% sequentially. This has been and continues to be a huge strategic focus for us, and it's clearly paying dividends. In particular, our personal loans business, which launched with renewed focus in the third quarter last year, has shown tremendous upside and, in the month of July, eclipsed $1 million in revenue. The emergence of new lending platforms and vast sources of capital in the personal loan space are driving tremendous industry growth, and the biggest challenge for lenders in this space is customer acquisition, which is where LendingTree comes in. By partnering with these new breed of lenders and leveraging the LendingTree brand, we feel that we are just scratching the surface of this opportunity. In fact, the team has been hard at work in recent…

[Operator Instructions] Our first question comes from Hamed Khorsand with BWS Financial.

Just a couple of questions. One is can you talk about the new marketing initiative for the personal loans? Are you taking that -- any dollars away from the mortgage business?

No, we're not. The way we operate every one of our loan marketplaces is each one of them has to balance supply and demand inside of that market. So we've got -- so we'll do as much marketing as long -- in each of our verticals as long as it's, a, profitable and b, we're not going to overproduce flow to the lenders. The great thing about the personal loans space and, quite frankly, the small business loan space as well, right now, you've got unlimited capital that is flowing to those lenders, and all they need are customer relationships. We've got over 10 lenders on the personal loan network and more being added all the time. And all of those lenders are asking us and begging us for more volume, increasing the pricing of those leads. And now that we've got the demand for volume, we're going to step on the marketing gas and that -- in July, that marketing -- the marketing that we have done so far, which is all online, has been extremely profitable.

Okay. And do you have any metrics that would be in any way reasonable? I know you guys only launched My LendingTree in June, but do you have any metrics to share?

Not yet, but I think we will in the next couple of months. But suffice it to say that -- so let me first tell you a little bit about it. Everybody coming through LendingTree, applying for a loan, gets an offer that they can see their free credit score. This is very similar to a company called Credit Karma and a product that they have who is also a partner of ours. You can get your free credit report, not just your score, your entire report, and we also then give you recommendations to improve your credit, and then we monitor it on a monthly basis. The beauty of it is, is that not only do consumers then not have to apply for another loan, but we also start to give them recommendations on ways that they can save money. That's essentially one-click shopping for your next loans. So you might come in for an auto loan, and you know what, you click over and you can see credit card shopping without having to go refill in a whole form. It's basically everybody in America should have a LendingTree account just like most people have an Amazon ID. But we're definitely seeing an uptick in not only a lot of credit scores being displayed, but a lot more repeat businesses than we've ever seen. I think this is -- honestly, this is the original vision of LendingTree, and it's finally coming to fruition 18 years after we started.

Okay. My last question is what kind of pricing trends are you seeing on the mortgage side? And is it really just being volume-driven?

Mortgage is interesting, and it bounces around. I think the long-term trends in mortgage are very good. I would say pricing is stable, but what we did see at end of the quarter, and this is natural, lenders -- if lenders can have their organic volume and rates went down, lenders will pull back a little bit on LendingTree. So it's -- we did well compared to the market, and lenders still love our leads. But just like we have seen pricing go up in prior months, where pricing, I should say, demand increases from lenders as the market got worse, when the market got a little bit better, that went the other way. So blended, it's fine. I would say it's stable, but the beauty of where we are seeing significant pricing leverage is as we change the mortgage product. So for a call center-based mortgage correspondence doing refinancing, you probably -- you have stable pricing. But what we're seeing is in the purchase market and in the local introduction market specifically, where we're getting new lenders at scale, major banks, major mortgage originators, who are branch-based and have local loan officers, we're seeing significant price increases there. And so as that market grows to overshadow refi, that's really the future of the mortgage business.

Our next question comes from John Campbell with Stephens Inc.

This Hayden Blair sitting in for John. Congrats on the $1 million on personal loans in July. What sort of run rate is that going to imply for the rest of 2014? And then can you kind of help us size up market opportunity and penetration for '15 and '16, if you can?

'15 and '16, I don't think I can do yet, but if I just -- I'll give you a couple of reference points on personal loans. Since we redid the product, that $1 million run rate is roughly a high-20s, low-30% month-on-month compound growth rate since we launched it in the third quarter. So it's growing tremendously well, and it's been fast took a while to get it going. In terms of market penetration, I think it's extremely big. I hate to say it's nearly unlimited. Most people are taking out these loans because there are better rates than they're getting on their credit cards. And as people realize the implied interest rates in the credit cards after you get all the fees, people can save a lot of money. Instead of putting money on a card, they can take out a loan from one of our lenders and still have lenders compete. And if you look at some of the others, a lot of chatter in this market, about a couple other private companies, but their numbers are all public, and we're roughly 2.5x the size on a revenue basis of one and roughly the same size on a revenue basis as the other one, and both have raised capital at multi -- over $1 billion valuations. So we just feel great about this business, and I think what you're going to see over time, and we're already seeing, is the value of our leads are going to go up. New entrants are absolutely going to come into this market and probably drive down the pricing for the consumer, which is even better, because that's what we want to do at LendingTree. And then we're going to step on the marketing gas, and I think this has huge run rate. And by the way, the same thing is true in small business, and the same thing is true in student loan, particularly, student loan refinance, which is something we're working on right now. So I feel fantastic about it, and even better, the great thing -- the reason personal loans didn't work as well 18 years ago or 15 years ago or 2 years ago is because these loans were being done mostly by consumer-financed companies, underwritten very slowly and underwritten offline. These new-age lenders are underwriting and approving very much similar to what we saw with home equity 8 or 9 years ago, which is it's entirely automated and the money shows up the next day roughly. And because of that, you get much better conversion rates for the consumer. Consumers are delighted, and we love that.

Got it. And then on the -- just share repurchases going forward, are you guys going to really be looking for more opportunistic or structured buying? I know you just had an extra authorization here in June, I believe it was.

I think we -- I think as bullish as we feel about the business, I would say we expect to continue to be in the market, repurchasing stock, and we still are. In the quarter or in the start of the third quarter, we relook at our program and our parameters every time our trading window opens, and we set those parameters in place. But I see no reason why we wouldn't continue to buy back stock at these levels, considering the revolution that, quite frankly, is going on in consumer finance right now, and our very unique position with millions of customers flowing through our system.

Our next question comes from James Fowler with Harvest Capital.

I wanted to ask you just a detailed question. To start, 2 quarters ago, you had made mention that you were going to start a marketing campaign and that we should think about total expenditure of about $1 million, with $700,000 in the first quarter and $300,000 in the second quarter. Can you update as to how much of those have been expended? And then when you're talking about marketing for the new products, is that incremental? And if it is, could you give some more context around how you think you might be spending and the periodicity in which we might see it in the financials?

Sure. So we -- and we're going to test TV before we just rock and roll. I think what you're referring to was the production costs, and those were expensed in -- mostly in Q1 and a little bit in Q2. Those were for a couple of commercials that are running now that while they talk about the other products, they're mostly mortgage-focused. And I got to thank you because I think you actually planted the seed of really starting to advertise personal loans, and we actually accelerated the -- we put the personal loan ad ahead of the -- doing the broader LendingTree message. So we're going very specific and very direct with a personal loan ad. It's finalized. It's actually out there on YouTube already, and we expect to be about on air. The production costs of that were very small, so they haven't been expensed yet, but it was a rounding error. And we're working right now with our agency on a slate of new ads that will be much more focused on not only -- it will essentially be the all new LendingTree. It will talk about money center. It will talk about taking control over your financial life, and we'll feature all of our products. So expect us to see that what you're going to be running more and more of is a very targeted, direct message on personal loans and more of a branded -- and more of a relaunch of the LendingTree brand to the United States as we are here for mortgage, home equity, auto, personal, credit card, small business, student, and I probably missed a few.

And then just -- and so the $1 million largely spent on personal loan, not much expenditure but we could expect some incremental to -- for marketing for the entire product set at some point here?

Yes, there'll be some small production on that, but we're being very smart on production cost even on that one and on those. And I do want to emphasize, that is production cost. We spend significant amount of money in television. Wherever we have -- listen, here's the great thing about TV from a marketing standpoint. TV, first off, I'll touch on the brand. To spend money on TV profitably, you need to have a great brand, and we do. The reason a lot of -- when most Internet companies start, they do as much as SCO as they can, then they go to SCM until that caps out. Then they -- or until it's too competitive and not profitable. Then maybe, they can get their way over to Display channel. And then social came along, and then there's advertising there. You don't see companies doing a lot on TV who are predominantly online, unless they have a way to monetize it. And in personal loans and in non-mortgage, too, but we have significant monetization capability, and it's huge. So -- and the market is huge. The nice thing about TV, you can get very broad reach. It's just very expensive to make it profitable, and LendingTree is very, very lucky that with our brand, we started in TV. We were not good online marketers until our marketing machine -- until Gabe Dalporto came on and rebuilt our marketing machine a couple of years ago and that was critical to do. But we're one of the -- I believe, we're the only company in this category that can do TV at scale and profitably, and we plan to -- Credit Karma is doing some of that, and we plan to scale the brand significantly. So it's -- but I just want to clarify that $1 million-ish was production cost and not media spend.

Now I perfectly understood. And then one last question, if I might. I fully appreciate the comment on year-over-year change in market, in the mortgage market. But I'm wondering if you look at the focus in the production expenditure in the first quarter for the second quarter. And if I think about the mortgage market sequentially in the first quarter, second quarter, a big increase, 30% increase in volumes in the second quarter versus the first, but the mortgage product revenue was flat sequentially. Anything you need to say there in terms of why the sequential improvement in the mortgage market wasn't necessarily seen in the mortgage revenue, mortgage product revenue?

Sure, and I alluded to this somewhat before. Let me just try to be a little more specific. What you see in the mortgage market right now is, I would say, a bifurcation between call center-based, mostly refinanced shops where -- that are very capacity-constrained. And so as you said, origination, it's the opposite effect among those customers that you saw before, which is when their volumes drop, they buy more in LendingTree, they pump up, they widen their filters and they increase the price. But when the volumes go up and they have got free volume, they will buy proportionately less, particularly in refinance, and slow down their spend with us. But at the same time, on the other side of the mortgage market, where I am thrilled, is the growth area of the business. And for us, that is purchase, which we're seeing a lot more purchase activity, and that continues to grow substantially in both price and increasing buys. And that's happening because we've changed the product to be able to plug in, to have big banks and big mortgage originators that have never been able to operate on LendingTree before, but now they can. And we're doing that with call transfers, so we get -- we create inbound calls directly to their call center, and it's done with what we call local lender where we're putting leads in the hands of local loan officers, and both are tremendous. And so we've got that up and running with 2 lenders now. And we've got a long sales pipeline. And the beauty of that is -- and the reason they were not as effective on LendingTree years ago is because they didn't have these high-volume call centers with highly trained salespeople, where they get the guy on the phone in 5 seconds. But now that we're creating inbound calls, we are getting into them faster, and we're doing that some through Loan Explorer and some through -- just through the good old LendingTree. And the second thing we're doing is this local introduction, where we've worked with these lenders to actually get in the hands of those lenders, and they have phenomenal conversions. And so we're seeing pricing in the future of the -- be just fine. And as we roll out more lenders there, that'll become even more evident.

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

Just a couple of quick questions. I guess, first on the personal loan side. Obviously, $1 million a month is a nice start. I'm just curious, I assume it's roughly negligible this quarter last year or so, up, what, about 1,000% year-over-year?

It's give or take. Year-over-year, it's a growth rate of about 18%, and from the time we relaunched it, which was late last year, the growth rate has been, month-on-month, over 30%.

Okay. And when you look at that number, I mean, obviously, a company like Lending Club has around a $5 billion valuation. How can we get comfortable that how important you are to a company, like Lending Club or Prosper, in terms of the leads you generate versus direct mail or TV ads and stuff that they have?

So I won't -- for confidentiality reasons, I won't talk about the specifics. But what I -- suffice it to say that both of those companies and a lot of others are asking us -- right before this call, I was on the phone with a major company in the space who is on the network, and we're talking about how they want to scale up. When it's falling very similar to mortgage, which is, of course, you're always going to want to do your own originations, you're going to have your own websites, but you're obviously going to go do other marketing through companies like us. I mean, we're a media company. We just happen to price on a per-lead basis, so we are significant, but at the same time, they're obviously significantly growing on their own. We -- the key for them is consistent -- for them to get growth, their key constraint is customer acquisition. So they're going to go get all the customers they can, as long as they can do it profitably, and they can with us because personal loan is just like everything else, high-quality, filtered to your credit bands, at prices that -- and a real strategic partner. So they need -- their key is customer acquisition, and I -- we are significant already, but I expect we're going to become more significant as this -- as we generate even more volume because we haven't really begun marketing it yet. We had to build the network out first, and now the marketing begins in earnest. And so I think I would suspect we'll become more significant. And I also love the fact that not only are they very significant partners of ours and they're great companies, but there's more of them coming, and…

Okay, great. A question on the Money Center. Obviously, Credit Karma recently did around at $2 billion or holding on to the $2 billion with Google. And I'm just curious, are you going to be able to provide over time -- number of members, number of people that actually use Money Center and kind of the velocity of how often they come back? Is there something you'll start providing for investors?

Yes, and while I would suspect our Money Center numbers aren't Credit Karma's yet, we are seeing very, very significant -- there's 2 things that we have. There are several things, I think, we have going for us. And Credit Karma, again, great company, very well-managed. We've got several advantages in that space, too. Number one, we have people flowing through our system all day. We don't just say to you, "Come, get a free credit report," which, by the way, you can go just get a free credit report. But we've got people streaming through our system every day, who are already applying for loans, and it's a very natural thing to say, "Would you like a free credit report?" So we will say, "Come, get a free credit report." And now that we're starting to -- as we -- to get the revenue economics, we will start marketing free credit reports, just like we market all of our other products online. And then at some point, as we know it, we'll then move to offline. So -- but we've got the brand, so we're going to pull great in advertising for just that product. We've also got, as I said, people flowing through to -- already to come for other products. And then the most important thing we've got is we've already built the lender networks ourselves. So other companies in this space, and there's one like, Credit Sesame, they don't have their own networks of mortgage companies. And they do have credit card products -- we've partnered with Credit Karma on credit card -- but they haven't built the networks of lenders in some of these other products. So our monetization is going to be better. And I think all of those things we've got -- it…

And just last one. Obviously, your purchase business, it says in your results, was up 70% year-over-year, your purchase mortgage business. So obviously, your mortgage business was highly refi-ed last year. As you transition away from refi into more purchase, which was strong for you in June, it just seems to me like you shouldn't be much lower than here. Or I mean, granted 4.5%, 5% growth isn't great, but to me, it would seem like as interest rates rise, you shouldn't see a degradation from here in terms of your mortgage business and then your non-mortgage business can provide a substantial growth opportunity. I just want to make sure I'm looking at that correctly.

And you absolutely are right, and I think I was a little -- and you said it better than I did. If you think about what's going on, more refinanced leads sell for multiples of what purchase leads sell for. So as our refinance business has lowered, we've had to replace it with leads that monetize at 1/3 of the rate. So underlying whatever 5% growth in mortgage, and I alluded to this before, is the fact that we're transitioning into a business that today has much lower price point than what refi had. So refinance is going down. If we've sold a refi lead, now you've got to sell 3 purchase leads just to keep it flat, roughly, round numbers. But the purchase pricing is starting to go up as we bring on more purchase lenders, and we do local introductions, et cetera. So I think you'll start to see -- I think we can -- question is how fast refi goes away before we can bring some of these new lenders on. So I -- but I agree with your premise, but the signs in mortgage that are very, very encouraging are these new lenders coming on, having great success, big brands, people that we've never been able to land business before. And now they're all calling us, and they all want to start doing business with us because our product is right for them, and they really need to grow their purchase business.

I'm not showing any further questions at this time.

I'll just wrap up and say thank you, all, again. Something I said to our company yesterday at our -- one of our most enthusiastic all-company meetings. I really feel that LendingTree is in the right place, at precisely the right time, with precisely the right team. If you can go back years that we've got we have got -- we now are sitting in a situation where in mortgage, lenders need us. We're sitting in a situation where consumer credit is changing, where there are new platforms coming out who really need volume. We're seeing lenders who are in multiple categories, and we've now got all the loan types, and we've got Money Center. And as consumer credit continues to flow, we've got the best brand in the space. Our marketing machine is working. Our sales machine is working, and now the product is right. And that was basically how we achieved this turnaround, and now I think it's off to the races. The -- we fixed sales and we fixed pricing 6 years ago. We fixed marketing, call it, 2.5, 3 years ago. We got out of the origination -- mortgage origination business as a direct originator, and now we've got the product right and the right leadership and team killing it on the product. And so we're going to be operating, I believe, on all 3 cylinders, and it's happening at a time that we're going to start catching tailwinds in consumer credit. And the market, I think, is actually going to recognize it. So thank you, all, very much, and we'll talk you next quarter and expect to see some other announcements coming out in the coming days and weeks about some of these other things we just talked about.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.