LendingTree, Inc. (TREE) Q4 2015 Earnings Report, Transcript and Summary

Good day ladies and gentlemen and welcome to the LendingTree Incorporated Fourth Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session instructions will follow at that time. [Operator instructions] As a reminder, this conference call is being recorded. I’d now like to introduce your host for today’s conference Mr. Gabe Dalporto, Chief Financial Officer. Sir, you may begin.

Thank you operator and thanks everyone for joining today for LendingTree's fourth quarter 2015 earnings conference call. First a quick disclaimer. During this call, we may discuss LendingTree'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 you, or other similar statements. These forward-looking statements are subject to risks and uncertainties and LendingTree actual results could differ materially from these views expressed today. Many but not all of the risk we face are described in LendingTree's periodic reports filed with the SEC. On this call, we will discuss a number of non-GAAP measures, and I refer you to today's press release available on our website at investors.lendingtree.com for the comparable GAAP measures, definitions and full reconciliations of non-GAAP measures to GAAP. The fourth quarter marks yet another period of record revenue, variable marketing margin and adjusted EBITDA and caps off a breakthrough year in which we grew revenue by 52% and adjusted EBITDA by 87%. In the quarter, we generated revenue growth of 78% versus the same period last year and grew adjusted EBITDA by 100% in the same comparable period. The rapid and accelerating growth we've experienced is a testament to the efficacy of our business model and our teams continued execution. Let's first discuss mortgage. Revenue from our mortgage products increased to $46.9 million in the fourth quarter, up a remarkable 41% compared to the fourth quarter last year. Sequential growth in mortgage represents increases in both purchase and refinance and was driven primarily by improved monetization as our sales team expanded lender coverage translating into higher per unit revenue. On our non-mortgage product we performed exceptionally well also experienced accelerated growth in the fourth quarter reporting year-over-year growth in every lending category. Revenue from non-mortgage products increased 193% year-over-year a record $31.4 million and now comprises 40% of total revenue. Just two years ago, our revenue contribution from non-mortgage products within – $4.7 million. Clearly, our strategy to diversify the business has paid dividend and we expect that trend to continue. Inside of non-mortgage we are pleased to see continued success of our personal loans marketplace. Personal loans revenue grew sequentially to $16.2 million despite anticipated seasonal headwinds in Q4 and January delivered strong sequential growth in record revenue. Revenue from our credit card vertical continued its upward trajectory delivering $6.5 million in the fourth quarter increasing almost 2.5 times versus $2.7 million in the third quarter. Our growth in cards continues to stem from strong fundamentals including rapid volume growth driven by marketing. We continue to believe that we represent only a small portion of this very large and growing category and that there is substantial opportunity ahead for us. Also noteworthy in non-mortgage revenue from our home equity and reverse mortgage products grew 214% and 87% respectively versus Q4 2014. Additionally, the small business loans category started to show positive signs of growth eclipsing $1 million in the quarter. All-in we grew consolidated revenue by 12% sequentially in the quarter to a total of $78.3 million slightly ahead of our revised estimates we announced in early January. In terms of profitability we delivered a new record of $28 million in variable marketing margin up 60% over fourth quarter 2014 also exceeding the high end of our revised guidance, 36% of revenue in the quarter our variable marketing margin increased from 35% in the prior quarter even as we expense approximately $600,000 of television commercial production. Adjusted EBITDA of $12 million represents another new record and doubled our fourth quarter 2014 result. While you’ll notice that adjusted EBITDA margins declined slightly in quarter from 16% of revenue in Q3 to 15% in Q4 a portion of the increase in operating expenses can be considered as non-recurring in nature and we expect adjusted EBITDA margins expansion moving forward as reflected in our revised outlook which Doug will discuss in a moment. In terms of GAAP net income we recorded $32.1 million from continuing operations in the quarter. Our GAAP results were impacted by a $23.9 million income tax benefit, which reflects the release of the majority of the Company’s valuation allowance previously held against deferred tax assets, primarily pertaining to net operating losses. To put a final point on this you’ve previously seen very little run through this line on our income statement that’s because as we generated NOLs we were fully reserving for them as we are uncertain about our ability to utilize our NOLs. We have now reached a point where we’ve achieve consistent profitability and expect to be able utilize our NOLs as we generate income in the future. As such we are releasing the valuation allowance in Q4 and going forward you'll see us recognize a tax provision of approximately 40% of pretax income. While we’ll book the tax provision on our income statement on a cash basis we expect to pay an effective tax rate of 10% to 15% in 2016 and approximately 35% in the three years following. The release of the valuation allowance this quarter is very positive as it means that we are now comfortable that we will be able to generate future profitability that would allow us to utilize our NOLs and other deferred tax assets going forward. From a balance sheet perspective, our working capital position increased to a $191.6 million at December 31 up from $95.1 million at September 30. I’m sure most of you know we raised additional equity financing of $91.5 million net of underwriting and offering costs during November at a gross price of $115 per share. After subsequent declines in our share price, we announced on January 14, 2016 that our Board of Directors authorized an additional $15 million of stock repurchase capacity. During the first quarter to date and since that additional authorization, we have repurchased 573,000 shares at a weighted average price per share of $69.74 for aggregate consideration of $40 million. Given our cash position, our current result and our bullish outlook our Board of Directors yesterday approved an additional authorization of $40 million in stock repurchase capacity. In total, we now have $57.3 million remaining share repurchase authorization. We intend to implement this buyback plan at a prudent way to return value to shareholders. In closing, our record-breaking financial results reflect our team's proven ability to execute and grow across all categories and to give us continued confidence heading into 2016. Now I'd like to turn it over to Doug, who will add his comments on the business and discuss our outlook for 2016.

Thanks Gabe and thanks everyone for joining the call today. Since Gabe has gone through the financial results I’d like to offer some perspective and context on our performance as well as update our guidance for 2016. As evidenced by our results, the fourth quarter topped off a phenomenal year for LendingTree. We exceeded not only our own expectations, but also the expectations of our shareholders and analysts and we still believe that we are in the early innings of an industry transformation where we are extremely well-positioned. In our mortgage business, we once again achieved record results in what is typically a seasonally down quarter. We grew mortgage revenue 6% quarter-over-quarter and 41% year-over-year where the overall mortgage market was down 9% quarter-over-quarter and up only 17% year-over-year continuing our trend of outpacing the industry. This is a direct result of our sales team’s great execution. We signed 34 new lenders to the marketplace in Q4 alone with many more in the pipeline. We are meeting our clients marketing expense goals which they express in a cost per funded loan bogey, working with them to steadily improve their conversion rates and it's paying off in increased budgets coming our way. In the fourth quarter revenue from refinance and purchase experienced growth not only year-over-year, but quarter-over-quarter as well. Considering the typically weak Q4 in mortgage were holidays caused lenders to pullback and consumer demand drops this is very significant. We have the spring home-buying season right around the corner in a low rate environment with deep lender relationships in an industry that continues to shift from offline to online and I believe fervently that our mortgage business can be a significant driver of our Company going forward. Moving into non-mortgage products I couldn't be more pleased with our progress. We’ve been able to leverage the strength of the LendingTree brand to successfully expanded new categories, which are experiencing growth across the board. In personal loans, we continue to see significant growth. Consumer demand is stronger than ever with a 149% growth in personal loan request from January 2015 to January 2016, which on average exceeded 13,000 consumer requests per day. In addition to the 25 active personal loan lenders on our network, we have over 15 new lenders in the pipeline. Lenders are now adjusting rates offered to consumers to better reflect risk and underwriting guidelines in order to provide attractive returns to investors. We are setting up a sustainable path for continued growth in this industry. As a marketplace, as you know, we benefit greatly from having many lenders competing for the consumer each with a different view of credit risk and underwriting guidelines. The disparity in rates offered to consumers which is still averaging over 500 basis points means that LendingTree’s proposition is very beneficial to consumers and our ability to target consumers and leverage our brand and marketing makes the value proposition for lenders stronger than ever. I’ll echo what Gabe said in his remarks. Personal loans are off to a great start in 2016 and without a doubt lenders are seeing LendingTree as a core source of volume to grow their business. Moving on to credit cards, in Q3 we said that we expected continued growth in our credit card business. We achieved that and then some with credit cards growing a 142% quarter-over-quarter. The fact that this business grew from less than $500,000 in revenue only six months ago to $6.5 million in Q4 is a testament of the great work of our marketing and sales teams and most importantly to the power of our brand. Additionally given our increased unit revenue in this category we were able to launch a credit card focused TV spot which is performed exceptionally well and also rolled out significant online marketing that is targeting this vertical. Moving forward we’ll continue to expand our marketing efforts and even partnerships card issuers through opportunities such as volume-based pricing, prequalification integration tools and co-branded marketing efforts. Regarding home equity, we’ve added 14 new home equity lenders in the quarter and have three of the top five largest U.S. home equity lenders on the network and as home values improve and more consumers we’re able to access equity in the homes, we anticipate this growth trajectory to continue. Some of you may recall that home equity was an extremely profitable product for us prior to 2008 and our team is pushing hard to make that happen again. With that context in hand, I'd like to provide our expectations for Q1 and for full-year 2016. For Q1, we anticipate topline revenue to come in between $85 million and $87 million representing year-over-year growth of 67% to 71% and the strong sequential growth is attributable to progress in both mortgage and non-mortgage. With the cost of new TV spots behind us and those spots now in market, we anticipate variable marketing margin to be in the range of $29 million to $30 million and adjusted EBITDA is anticipated to be in the range of $13 million to $13.5 million representing year-over-year growth of 45% to 51%. For full-year 2016, revenue is now anticipated to be in the range of $370million to $380 million or 46% to 49% over full-year 2015. This is a significant increase from our previously provided guidance of $315 million to $320 million. Variable marketing margin for the year is now anticipated to be $129 million to $134 million, or 36% to 41% over 2015 which represents an increase from our prior guidance of $108 million to $112 million. As a percentage of revenue variable marketing margin is expected to be relatively flat to recent quarters at around 35%. Finally, adjusted EBITDA is now expected to be in the range of $62 million to $65 million up 52% to 57% compared to full-year 2015 and increase from our prior guidance of $50 million to $52 million. To sum it all up I am absolutely thrilled with our progress and our results. This Company spun out of IAC in 2008 in the teeth of an unprecedented financial crisis. We said then that we needed to make improvements in our marketing, sales and customer experience. We are now a long way toward that vision and the financial results reflect this and more and we build an incredible team who is focused on building the preeminent marketplace for consumer and small business loans. After nearly 20 years since our founding I can safely and proudly say that this business model of matching consumers and lenders is proven. This Company wasn’t a one-hit wonder with mortgage; we are not a two-hit wonder with personal loans or a three-hit wonder with credit cards. We are Company that is steadfastly helping consumers save money on their loans and helping lender save money on the marketing cost to reach to those consumer. And most importantly consumers are waking up to the notion that they can comparison shop and save substantial money, while lenders whether they are big banks, regional banks, start up companies or non-bank lenders continue to realize that LendingTree is an incredibly efficient way of finding customers that need their unique criteria. We are witnessing a sea change in consumer finance and LendingTree is perfectly positioned to capture. Thank you. And I would like to turn it back to the operator to answer any of your questions.

Thank you. [Operator Instructions] And our first question comes from the line of Robert Peck from SunTrust. Your line is now open.

Thank you so much. Congratulations on the quarter. Doug, I was wondering if you just give us a little more color around what you're seeing out there in the environment. I appreciate what you've given us so far, but obviously with some of the results of the public lending companies, we're getting a lot questions just on the health and what the implications are to LendingTree? So if we have a little color on that, that'd be great and then I just have one follow-up.

Sure, look what we’ve heard particularly on the personal loan front as I mentioned in my remarks people are - lenders are increasing their rates, particularly in sub-prime to just adjust for loss rates and to make sure that their investors get appropriate yields. We’re hearing a lot of different things from different lenders. I think the statements are somewhat overblown or risks that people perceive in the industry. Everybody has got a different view of underwriting criteria and as I talk to lenders and as our team talks to lenders their business models are solid, they are seeing may potentially increase default rates, but in very narrow areas particularly in sub-prime, but the pricing and underwriting changes are something natural but any - that any lender would do and I don’t want to go into specifics of any one lender because I have a lot more information, but suffice to say particularly in personal loans we think it's just an evolution of the industry and that business continues to be absolutely fine. And for lenders that are either balance sheet lenders or securitization lenders, I talk to one lender who did a securitization the week before last that was pretty big and they're not seeing any issue. So it's – I think it’s - we’re continuing to add lenders, we’re continuing to see increased capacity and we think the health of the industry is actually still pretty solid.

Fantastic. My second question was around, you have a competitor last night that came out and talked about implications of Google and some of the changes that Google has made. Could you just give us a little more color around any implications at all that you're seeing so far or maybe anticipate?

Yes, Google - the Google experiment for us and then moving into the space was clearly a cloud over the Company and when you see what Google had done in shopping, done in local and done in travel there were certainly risks. Now we were a partner with Google on the mortgage front. Some other companies particularly in credit card have seen may be more effect from Google, we quite frankly in our partnership we’re seeing really de minimis revenue from Google. And so we never really thought as the threat now keep in mind we’re not an SEO-based company we do some SEO but as people heard me say many times I think SEO business models have a lot of risk with them, because it's great to have free traffic but the minute Google realizes that they're getting – you are getting a lot of traffic for free. They can change algorithms, they can add more paid search results to push organic down and they can put ad units above even the paid results like they’ve done in credit card. So for us we've never really seen any impact on credit card but we don't do a lot of paid search or organic search. In our other businesses we’re not a big SEO company and that's why we always really like to have a diversified set of marketing that spans everything from radio to TV and we do a bunch of SEM but we don't rely on any given marketing channel because we want to have control over our destiny not outsource it to somebody else.

And just on the SEM side of that there I mean this changes have been tinkering with more recently of four links above the fold and no right hand rail links. Have you seen any impact there or is that just too early to really see?

I can take this is Gabe. We have some data here and there is nothing to indicate that will be a material change.

Okay thanks again and congratulations.

And the only thing I’d add on SEM the good news for us is with a very high brand recognition, we do extremely well on SEM. So I think any changes in SEM will only benefit us.

Thanks again. Congratulations.

Thank you. And our next question comes from the line of Mark Mahaney from RBC Capital Markets.

Hey, good morning guys, thanks for taking my question. This is actually Jim Shaughnessy stepping in for Mark this morning. Quick question, couple questions around MyLendingTree. Obviously saw another great quarter of user additions. I know you're not willing to provide any monetization, but maybe you could provide some qualitative metrics around engagement or maybe talk about the role MyLendingTree plays in the personal loan and credit card growth? I'd be great. Thanks.

Sure, it is providing a material – we won’t give any specifics on this due to competitive intelligence in the fact that everybody can so public company can read now as this and there is lots of companies moving in the space. I can say it's providing a material amount of our overall revenue and it’s not been a triple – double digits type thing but it’s definitely growing. I can tell you the product works great one nuance I would point out that MyLendingTree is different than just free credit reports so MyLendingTree is the entire user experience post submit after you press the submit button and it's where you interact with our lenders read reviews, you can also obviously get your free credit score and so everybody actually has a MyLendingTree account. We have almost 2 million people or whatever the number was signed up for the free credit report product and the alert product. The alerts are getting better, it’s adding significantly to VMD, we’ve added – we have doubled the alerts that we have from three months ago and with our new CMO now on Board who is doing a fantastic job, we’re seeing continued integration between our CRN efforts, which are very important and MyLendingTree team, the data team and we’re expecting great things, but it’s definitely helping, the monetization is absolutely improving and consumers absolutely love it.

Fantastic, that's great color, thank you. And then maybe one question on the mortgage side, are you guys willing to ballpark at least to how purchase mortgage fared versus refinance? Thanks.

Yes, this is Gabe. Both purchase and refinance grew in the quarter and purchase as you know has a strong negative seasonal headwind, so that was actually pretty significant accomplishment.

Okay. Thank you.

And our next question comes from the line of Nat Schindler from Bank of America Merrill Lynch. Your line is now open.

Yes, hi guys, great quarter and congratulations, but can you – I mean a little – clearly your strategy of increasing incrementally on your marketing expenses, paying dividends, because it's causing even greater acceleration on the topline and you're dropping more down. Are there particular areas where you have seen better marketing efficiency or where the marketing is particularly working and do you see going forward, staying right around this 65% of revenue range?

Yes, just a couple nuances, number one I would say all of our marketing is working better and we continue to make improvements. You also benefit in our marketing from the fact that we’re not a one product company. So for example if we were only in mortgage, we would run an ad that says, come to LendingTree for a mortgage and that could be radio, TV, prints, search, social et cetera. But when you come you can only get a mortgage. The same thing could be said with credit cards. The fact that we are a multi-product company means that you might see an ad for LendingTree that says come get a credit card and you come - maybe I’ll click around on home-equity or refinance, so that you get a lot of benefit by being in multiple products. The second key thing is you get benefit by being able like our marketable events. We can actually do individual marketing campaigns for mortgage, home-equity, auto, personal business, credit card, reverse, student et cetera and free credit report. We can also do global ads that say come to LendingTree for everything you need. So that helps us because we can target on individual websites or individual search terms around specific things. The important thing to note on our marketing though, we actually don't target a percentage and this is somewhat contrary and some people don’t like to hear this. As we have more lender demand, we actually go out and drive more customers that could mean that on a percentage basis, our variable marketing margin percent goes down because of some lenders says hey I want three times as much volume next week if we can profitably drive it to them and we’re going to go drive it to them. And as I’ve said to investors before if I could spend a $1 billion on marketing in a quarter at 10% margin, while my percentage would decline we’d have a $100 million of VMM that would be incremental and that would be a really good thing. So we really don't look at the percentages, if we can get an incremental dollar, $10 et cetera because we’re seeing lender demand increase, we’ll go do that. So the way we work is very much on the day-to-day like a trading system. Lenders are inputting what they want and what they're willing to pay for it and it works just like you know Google and other bidding platforms out there in the ad side. And then with that demand we go fulfill that and if we can fulfill it profitably, we go do it. So our sales team increases demand, our marketing team increases supply and that's the way it works. So I’d encourage you guys and every shareholder really look at the dollars improving and that's where we want to go.

Great, Doug and one further question and I know this one might be a little difficult because I don't want you to talk too much about competitors, but as you see your space and clearly there's been a divergence with you guys and maybe a private company doing quite well and other people in this space not doing as well. What is it in the execution, if you had to distill it, what is the one thing that really is driving differentiation?

It’s really – honestly it’s a flywheel of the interaction of several factors and the only thing I can liken it to is why we started in our Board with probably 20 search engines and now we have one maybe two and why you started with probably 15 travel sites and you really have two that are dominant. In a marketplace business model as your clients are willing to pay you more because you provide great value for them, you can then in turn, go drive the market through marketing and as you use that money to build a brand your marketing then gets more efficient and that just keeps reinforcing and create to some strategic mode around your Company and that’s basically what we are seeing. We've got awesome execution in marketing, but the fact that our marketers have a LendingTree - the brand LendingTree which will get a 40% to 50% lift in any ad if you show that versus another competitor side-by-side that makes our marketing more efficient which enable us to do TV, enables us to do higher paid marketing which means that we can drive more volume to lenders, which means you don't need to work with 15 different partners, you can work with one or two, which means we can deepen volunteer, which means we can invest in the customer experience, which means we get more money and marketing in the flywheel discontinue. So ultimately in a marketplace business model unlike if you are to selling a good service, you end up with one or two winners and I think we are – the flywheel is spinning and it’s working and it just continues to do it. And I think that's its bad factor, it’s the flywheel factor, it’s not marketing or sales it’s the fact that both feet on each other in a very, very, very positive way and you just keep gaining share and then you get to a point where – when you go to a distribution deal and you are facing another competitor the fact is just like Google [indiscernible] syndication business. They could pay more to syndication partners than being or anybody else could because they had a better marketplace of advertisers. We are seeing the exact same thing when we go to business development partners, we can offered to pay more because our motivation is more, our brand is more likely to get clicked on because that happens we can go gain share there and then we can offered to drive the market because we are still only it keep in mind we are still like 1.5%, 2% penetration for LendingTree of all the loans done in the U.S., but that just keep once the flywheel spends it just keeps going until you screw it up when we don't plan to screwing it up.

Great, thank you.

Thank you.

And our next question comes from the line of Eric Wasserstrom from Guggenheim Securities. Your line is now open.

Great, thanks very much. Doug, just maybe just to follow up on that point a little bit more. Can you just articulate how your marketing plans for this year particularly on national media advertising compare for last year and how we should think about that being reflected in your EBITDA margins for this year?

Yes, let me will Gabe take that in detail I would say our TV plans are bigger this year and keep in mind as you walk from SEO to TV on the span of marketing TV is your most expensive on a unit basis, but you can only – the companies that can actually afford TV I means that TV really works and they’ve got really, really good monetization. So spending more on TV is actually positive indicator that there's a lot of lender demand and the monetization is really good. So we’re absolutely going to increase it. We are changing our approach to do a lot more ads to do them a lot more targeted, we now produce them all internally, write the scripts internally, but with that Gabe give some details with out giving too much.

Yes. So I think Doug really stated and I total agree we will increase spend on offline media specifically TV this year. We've been seeing some pretty good results and we wouldn’t expect to see any kind of material impact to MM margins or EBITDA margins.

All right. So just I'm clear on this point, is it that TV spend is replacing other kinds of spend or is it that the incremental margin that you're generating is offsetting an overall increase in spend?

No, so the thing you need to always understand with our business and it’s similar to what like let’s say an Expedia or Priceline would do. Marketing expense for us is fuel on the fire. So if lenders don't want more volume we would spend less money on marketing. So we’re always trying to – into the way we run the business is to maximize the MM dollars and to maximize adjusted EBITDA or cash flow dollars, dollars not margin. So if lenders want more we will spend more when 2008 happen and lenders wanted less we spent a lot less to still maximize you know the amount of profit to the company. So that’s the way we run the business and the fact that we’re upping spend means that lenders want more. So nothing ever replaces anything they actually run very independently. The search team has a bogie everyday of what they need to produce. We know what lenders want its not just amount of demand it's actually more like keywords in a Google. In Google where there are billions of combinations between credit score and loan types and geography et cetera and certain campaigns will drive certain types of volume and we actually look at it at a very micro-campaign level. And then those ads shut off as that ad becomes unprofitable or that little segment of demand starts to turn to the point that we’ve satiated that demand. Similar to if Expedia sees that they have got 10 hotel rooms in Hong Kong and they’re going to run anymore Hong Kong. Keywords are going to take those down because those rooms have been filled and there is no more inventory there. So we run the exact same thing so sales increases demand in these little segments the advertising kicks on to supply that demand and nothing substitutes for anything else, but the fact that we’re running a lot of TV means that there is a lot of lender demand because you can drive more volume for TV than anything else, but it costs you more to do it, but if we can afford it and it's making us money that is a very, very positive indication for the company.

Yes. And I totally agree with everything Doug said and to put a final point on your question about EBITDA margins I think what you are asking. Our guidance would imply EBITDA margins going from mid-15s in Q1 up to 17s in Q4. So we would expect to have that TV advertising be profitable and grow our margins over the year and as always if we can find more profit we’ll go grab it but that’s kind of how we’re expecting right now.

Great, thanks and if I can, maybe just move to a different topic. I think Doug, did you indicate that you added 34 lenders in the quarter and I think you indicated that four of them were in home equity and reverse mortgage. Can you give us some sense of where lenders are coming on to the network and are these lenders that are completely new to TREE or are these lenders that are participating in other products and trying to expand their reach with TREE?

So home equity we actually added 14 I believe on mortgage we had in the 30s and it's a mix and home equity it's a mix of lenders that have been on before and lenders who are new to the network. And then the ones that have been on before there is a – they’re sort of relearning the home equity business because many of these lenders have been out of it since 2008, but I can tell you that when home equity for example was humming in 2004, 2005, 2006, 2007 then there were lenders doing what a lot of the so called innovations are happening with other lenders today which are instantaneous approvals being able to complete the entire process online et cetera the major banks had wonderful, wonderful processes we had extremely high conversion rates very high customer satisfaction and fantastic monetization. So is that comes back again that I think is going to be a great growth driver of the business going forward. So it’s definitely a mix as long as there is a secondary market they can securitize and sell these things or put them on their balance sheet it's a wonderful consumer business and a wonderful lender business.

And it mostly - and it's coming both from non-banks, but importantly it’s coming from the major banks in the U.S.

Great. And this will be my last question, but I guess that sort of the direction I wanted to understand, to the extent that refi volumes you know is clearly under in cyclical decline, are you seeing any transition from the lenders on the network to demand it more incremental purchase volume or is the purchase volume coming primarily from new participants on the LendingTree network?

So refi is actually up and what I’ve said before between refi and purchase inside of mortgage a big misconception this Company has been over the years that when refi changes, or when refi goes away if rates go up that business goes away and again in a marketplace like you need to understand a mortgage lender can do refinancing and purchase, but if they can – they make more money in refinance they are easier to close and it’s more efficient. So you can shoot fish in a barrel you’d rather shoot fish in a barrel than cast a line out 50 yards and hope to catch a fish. But if you can’t shoot fish in a barrel you are going to cast your line out and go try to catch a fish. So lenders immediately they toggle between refinance and purchase. Some lenders focus more on purchase and we have a phenomenal purchase business. So the volume in purchase is always there, it's really a question the monetization and lenders willingness to focus on it because keep in mind they’re capacity constrained. So they can fill up all their volume in refinance they are going to do it and do purchase when they need to, but as refinance goes down lenders switchover to purchase, the pay us more for, they focus more on, they have better conversion rates, which improves monetization and then the purchase business grows while the refinance go down. But keep in mind until we still have a small percentage share even in refinance. So a lot of this is going to happen, a lot of the growth in mortgage just happens through share gains. So when you go from 1% share or 4%, 5% share you are going to grow your business, 4X or 5X even in a declining – even if the overall market declines because we’re just seeing a secular trend from offline to online and as monetization improves we can drive that trend online through increased marketing.

Great. Thanks so much for taking my questions.

Thank you.

And our next question comes from the line of Kerry Rice from Needham. Your line is now open.

Thanks a lot. Great quarter guys. Couple of questions on mortgage and then one on just overall. The 34 lenders added to the platform in the mortgage business, could you talk a little bit maybe about the mix not between refi and purchase, but are these kind of the mid-tier where you've typically added lenders to or are they bigger. Can you talk a little bit about that? And then maybe what's drawing them? Is it again just kind of the core value proposition that you always have had or are they being attracted to the platform for some of the new products that you've rolled out and then the overall question is, you highlighted home equity, you highlighted SMB, how do we think about that growth maybe in 2016. Obviously, credit card seems like it's on a very similar trajectory as the personal loan business was. So can you give us some context maybe around SMB and home equity growth there? Thanks.

Sure. And I think – so first off on mortgage, honestly it’s across the Board. We’re definitely seeing increased interest from major banks and that's not only adding new ones, but it’s also then increasing cap and increasing our buys because it’s working. But we've also seen a major shift in the market not just our market, but you can see it with published figures from banks to non-bank entities and non-bank entities a very large ones, the quick ones and loan depots, the guaranteed rates and many others and I don’t want to leave anybody out in here both big and small are gaining share. And they are gaining share because they are ahead of the curve on technology, they’re ahead of the curve on customer service and there's liquid secondary market. So we’re definitely seeing increased buying from them, but we’re also seeing the big banks get in the game and that's working. And then you see it down on smaller companies because you can work on LendingTree to a niche very similar to the why you can work on Google and long-tail keywords in a given category and we have a lot of lenders that focus on one local market or they focus on maybe jumbo mortgages, they focus on just purchase, they focus on just refinance like that's the beauty of LendingTree, you can pick the areas where they’re going to win and we’re going to help you do that. In terms of specific numbers for let’s say a small business or home-equity, we aren’t going to break those things out in detail except to give general anecdotal guidance when it make not guidance, but general anecdotal results when it makes sense, so and that's really just a competitive situation. I can tell you they’re all growing, but they're all independent entity, so it's the same way that Google might grow in one keyword category versus another one that’s the same thing as LendingTree and Google talks got overall revenue and overall EBITDA doesn’t talk about let’s say growth in their pharma category, are there keywords in a certain business and that's really the way we are and our filter settings are really just like keywords, we have one that everybody wants to focus on, call those like head terms and we have a long tail and a lot of stuff and even in personal loans we have 50% that goes unfulfilled like literally no matches and we've an experience for those people to. So I can tell you small business is just getting ramming speed. These are all going to happen just like personal loans and just like credit cards. So in any category to take the small business as the lenders are getting more automated and better at converting loans than they can afford to pay us more so they increase their bids because they want more volume, as they increase their bids and this is the flywheel I talked about we can then offered to go spend money on marketing. So five years ago, we might have an interest in a small business lender, we couldn’t afford to go and spend money on marketing because the conversion rates are up, same thing happen in personal. Now that the small business lenders are getting automated, we can drive the volume in marketing, leveraging our brand in our marketing techniques and that helps the business grow and starts a small business flywheel. Same thing happens in home equity, lenders make it work that means the monetization improves, that means we can afford to go do marketing. So they all grow independently up and until lenders don't want to grow or they don't demand those loans. If lenders – LendingTree is great as long as lenders want to lend money and consumers want to borrow money. And to extend those things are happening in general in the world we will be able to grow and make it work. We have a natural brand advantages on the consumer side and we have a natural monetization advantage on the lender side with relationships we built up for years. So it’s really that search engine affect happening in our industry and each of them is going to grow independently it wouldn’t surprise I mean if we exit the year that at or over 50% in non-mortgage. That said mortgage has a phenomenal opportunity and each one of them grows independently based on the supply and demand of that individual market.

Okay. Thank you.

Thank you. Our next question comes from the line of Hamed Khorsand from [BWC Financial]. Your line is now open.

Hi good morning. I missed those – one housekeeping question, how many numbers do you have on MyLendingTree?

$2.7 million.

Yes, got it. And then as far as the mortgage goes and you have a strong, strong Q4, what are you thinking as far as how that segment plays out in 2016 given that you saw the really sharp increase in a very weak quarter?

It’s going to continue to grow and how much we don’t give guidance specifically, but as I said to Eric and the last one mortgage is just like everything else, it grows, get some help effect of everything, but it grows independently. So as lenders get better at converting mortgages and by the way all the technology you've seen around lenders having fully online experiences et cetera that a nurse completely do our benefit because the lenders are better at converting loans, converting a customer in particular loan, we got higher conversions, lenders want more of it because they are more efficient. Things like our call center product where we can actually can make calls and we have lenders that makes lenders incredibly efficient, we have seen some lenders increased their buy with 5X because we are actually making their shop more efficient. So mortgage will continue to grow because our share is small and mortgages are moving online and we are sitting perfectly positioned to capture and it’s going to grow both in refinance and it’s going to grow in purchase to.

Okay. The sequential basis…

By the way mortgage, just a put a final point on mortgage growth is actually accelerating in Q1.

Okay. That helps. On the personal loan side, the sequential growth was very minimal in Q4. Is that going to be the going trend for that segment or was there some sort of anomaly there as far as the traffic trends in lenders?

Absolutely not going to be the continued trend, we had actually told people investor presentation is going to be flat or potentially down just due to seasonality, if you think about in Q4 would typically happens for our Company and we have been very successful over the last few years of actually bucking this trend. In Q4, consumers typically focused on spending not borrowing so and in addition to that the media rates go up because you’ve got all the holiday shopping going on and so media is more scares. So you have consumers less interested in borrowing money and you have lenders and you have us, we have lenders taking time off and you have us not being able to find media that as affordable as it is another times. And so therefore typically Q4 is our seasonally weakest quarter. And that's particularly true in personal loans. And then typically out of the gates, when you just think of a normal customer you get your credit card bills from your holiday shopping and you go oh my God, I got to do something with us and that’s the time to go come out of the shoot in Q1 and get your financial life in order the same way you get your gym memberships and everything else spike up in the first quarter. So that’s typical on personal finance and the fact that we grew even 6% was absolutely phenomenal and unexpected for us.

Last topic I want to discuss was advertising in 2016 we have the elections and the Olympics this year. How does that work in your budget as the year progresses and supply of ad space gets tight and prices go up?

Yes, I mean that's a great question and we honestly so in past cycles, Olympics cycles or election cycles maybe there's some small impact we haven’t seen major impact. And if you can think about master advertising in elections it’s all focused on eight or ten states like is not broad-based national TV advertising. I think the Obama campaigns made zero dollars on national ads. So it’s certainly there will be some localized tightness but I wouldn't see that having a major impact.

Okay. Thank you.

Thank you.

And our next question comes from the line of John Campbell from Stevens Incorporated. Your line is now open.

Hey guys, this is Hayden, sitting in for John. Most of my questions have actually been answered. But I was wondering if you could actually just give us real quick that the breakdown in that exchange marketing expense between the other online and broadcast spend?

I don't think we typically do that let me see if we can do it. It will definitely be in the 10-K when we release that I believe later this week or next week. So it'll be in there I don't have the number at my fingertips.

That’s fine. And then just trying to get a sense of how aggressive you guys tend to be with this share repurchase, do you guys have kind of a target level of cash that you're looking to keep and then I guess above and beyond that plus some allocated for that share repo with any additional test there or do you have any focus on product development or anything on the M&A front that you’d like to highlight?

Yes, so overall the way we think about this is every quarter that we’re in the market doing a buyback, which expect us to be more active. We have our own internal view of what we - where we believe we should be buying and how aggressively we put a grid together we feed that to a firm on Wall Street and that moves around. And then they go execute that throughout the quarter and we obviously don't tell where that is suffice to say at lower prices we buy a heck of a lot more and in higher prices we buy heck of a lot less, so I would characterize it is mostly opportunistic but at the same time I would - I expect us given our growth outlook of where we are just like we were I don't know that we would be aggressive as we are last quarter depends on the stock performance, but I would expect this to be more focused on doing buybacks and probably more regularly in general. We believe right now are quite frankly our stock on multiple basis cheaper than it was two years ago, which is perfectly insane when the competitive landscape has changed significantly and we were banging on the table at a $115 a share when Gabe and I were flying around the country, saying that LendingTree is a good buy. So it was we certainly believe in abundant and so obviously we believe even more at these kind of levels and given the outlook we are going to we hope people make the right decision because we are going to continue we think to grow in this industry. So that above we can say on buybacks I think if you want to have any further follow-ups but suffice to say expect us to be in the market because right now we believe that our stock provides a really excellent return for our shareholders and it’s best use of cash. On M&A the one thing I would say there we absolutely have an M&A pipeline but at the same time as I said before we are choosy and we’re not going to buy somebody’s payout steam. So we’re not out there feeding, seeing, we’re seeing private company multiples and private company valuations quite frankly in general at the insane level, but the good news is they're getting less insane. So I think investors are waking up that they don't need to invest it 92 times 2020 revenue and then lose money for the next five years and therefore as those valuations come down, we think there's going to be a lot of opportunities in M&A with roughly $200 million in cash and another $100 million of debt capacity. We've got plenty of dry powder to make some moves.

Great. Thanks for those question Doug. Congrats on the quarter again.

Thank you.

The next question comes from the line of Blake Harper from Topeka Capital Markets. Your line is now open.

Yes, thanks. Hey, Doug I wanted to see if you could provide some commentary about your mobile traffic just given the number of units that you had and how they convert and monetize and also ads that relates to the MyLending as well?

Sure. Mobile overall is about 53% of total traffic as I think every company experiences mobile monetizes slightly less. And the reason quite frankly is it as simple as customer experience, if you see a TV ad you have to get up off your very comfortable couch, walk to your computer, type in a URL that is showing more borrower intent than swiping some things on your phone. Now that’s said, it’s a wonderful mobile experience we have and the monetization still expected. It still makes a ton of money, we still run a lot of ad to mobile, it’s both app and mobile web, mostly mobile web. We think that’s – we see that’s just where customers are, but we want to find them wherever they are. Same thing is true in MyLendingTree, most people access it over a mobile device, but that's also because you are typically getting your e-mail on your mobile device, if you get an alert, you are going to click on the alert and it’s going to take you into that mobile experience.

Great, and then the second question I had is, you obviously raised the 2016 guidance a lot. I think that you probably could have made a statement to investors in the Street that your business is healthy if you hadn't even raised it as much but I just wanted to understand your confidence level, but you that – is it an aggressive target that you made or do you see that as being somewhat more on the conservative side and potentially if things play out the way that you think with your flywheel and the marketing that there is room for you to increase that further if things do work out the way you plan? Thanks. ks.

Yes. So when we think of guidance is somewhat traditional, but also I think credible and I’ll just be happy to tell. We believe that we should issue guidance because we want to tell people what we actually believe we can do. And it is what we believe we can do, so every week around here we have a new forecast of what's happening, Trent Ziegler comes in and tells us this and then I use that as my roadmap for the week to go talk to people in different areas and that's the way and so we have a new forecast updated. With our guidance I would say we do like to beat it and we have knock on wood, a pretty good record of beating it. So typically I wouldn't say its conservative, I’d say it’s middle-of-the-road, but it's something that we would expect that we can at least meet if not beat Now it doesn’t mean everybody should get ahead of us because there is a very important caveat in here which is we want to show to investors very, very solid revenue and very, very solid adjusted EBITDA growth and we wanted to be extremely profitable. Just because I view myself as a shareholder and that’s what I want as a shareholder, so for better for worse you get it the way I want it and hopefully shareholders agreed to. But if we have opportunities then invest back in product or invest back in marketing as Gabe highlighted Q4 was going great. So we accelerated about $600,000 of production expense in TV and probably spend more on advertising in TV that really benefits Q1. We did that in Q4 because we could still meet our commitment to you all and to me and everybody in this room is a shareholder and still invest. So we always run a balanced view between profits and investment we never going to be a Company its going to tell you that we’re going to lose money and “invest” and just lose money. Any dope can do that. What you really need to be able to do is both focus on the short-term and the long-term, so at times that we have opportunities we will invest and that will be some times and people say what your percentage margins decreased unlike yes my percentage margin decreased and my dollar profit increased because we invested in ABCD&E and still more than met our commitment to you all our shareholders. So that’s our philosophy on how we do this and that's what we are going to continue to do, so I would caution people about getting too far ahead of us because if we have opportunities we want to give you a solid commitment that we believe are going to hit, but if there are opportunities to pull forward investments are to invest in marketing and/or product. We are always going to do that, but always call it out. So that you can know what the number could have been. I mean suffice to say if we didn't want to spend as much money on product and taken focus on the long-term I mean we could have the numbers blown the doors off this even more that’s not our philosophy. So we want to be balanced between growth and hitting our commitments and also still able to invest for the long-term.

That’s great. Appreciate the color Doug.

Thank you.

Thank you. And our next question comes from the line of Mike Grondahl from Northland Securities. Your line is now open.

Yes, thanks for taking my question guys. Maybe the first one quick for you Doug, if you think about each of your verticals mortgage, personal loans, credit card, home-equity, small business where you in terms of penetration today to where you think you can be in three to five years and maybe it be helpful to use a baseball analogy like mortgagor here in the fourth inning and sixth inning. Just curious how you think about each vertical like that?

So interestingly there all - I would say mortgage which is the most “mature” is still massively in the first inning and if you look in our IR presentation online we are happy to send you one, if you look at the total addressable market in mortgage and how huge that number is the Company spend on mortgage marketing to get customers and where that is online, where that is with comparison-shopping we are tiny. I think we are still at about one and a quarter maybe 1.5% of the total mortgages in the U.S. So mortgage is in the first inning, but growing really fast and that's considered “mature”. I think we are on average if I have runs some charts or like 10 years behind travel and I think we are today were travel was maybe six months after September 11 when the flywheel in France starting to go, but I believe that over the next 10 years you are going to have half or more of all loans done online because it’s a commodity and it’s the easiest want to comparison try and let’s get the most benefits for consumer to comparison shop and it helps dramatically lower lender costs. So I believe we’re seeing not only a secular shift from offline to online, but we are seeing a replacement from traditional mortgage brokers and loan brokers to essentially online comparison-shopping sites like LendingTree. So we are in the first inning across the Board and for things like small business and personal loans we are like still in batting practice.

Got it. That’s helpful. And then maybe a quick one for Dale. Dale on the tax rate I think you’re basically saying for GAAP purposes use 40% for all the 26?

Yes. So that is correct. On a GAAP basis you’ll see approximately 40% across the federal state taxes and on a cash basis materially less this year and in about 35% in the next three years.

And by the way from former accounting, this is Doug. The GAAP accounting rules require you to accrue what your taxes would be even if your cash taxes are not going to be at that level. So that’s why you have to accrue and showing your GAAP income statements an effective tax rate even if you are not actually going to be paying that because using NOL and then obviously you are accruing an asset which you expect to bleed off over the coming years.

Got it. Okay, thanks guys and congratulations on the quarter.

Thank you very much. End of Q&A

And I am showing no further questions in the queue at this time.

Wonderful. So I just want to thank you all for your attention. I want to thank you all for your support. And as we said this business is just continues to do well and I get continually surprised every quarter by just the level of execution and that our team shows here. This is an industry that’s poised for significant growth online and I think we are poised significantly to capture the very large majority of it just like we saw in general search and just like we saw in travel. We are seeing market share gains across the Board. The flywheel is working between marketing and sales. And I think it is very telling when you see the bifurcation of our results to where competitors are. And I still remember as I said the days when there were 15 search engines and that doesn't exist anymore and I remember the days when there were 20 travel sites and now you really have two or three that are broken away. I think we are 10 years behind travel. We’re probably 13 years behind search, but we believe that LendingTree is poised to be a very large Company, doing great things for consumers and doing great things for lenders. And we look forward to reporting Q1 results in just a couple months. We are happy to answer any of your questions, feel free to reach out anytime. And again, thank you for your support and your attention.

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