Earnings Labs

LendingTree, Inc. (TREE)

Q1 2018 Earnings Call· Thu, Apr 26, 2018

$50.40

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Transcript

Operator

Operator

Good day, ladies and gentlemen, and welcome to the LendingTree Inc. First Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen only mode. [Operator Instructions] As a reminder, this conference is being recorded. I would like to introduce your host for today's conference, Doug Lebda, Chief Executive Officer. You may begin.

Doug Lebda

Analyst

Thanks, operator, and thank you all for to attending the call this morning. I want to use this time to share my thoughts on LendingTree's performance in the first quarter, provide relevant updates on the business and discuss the progress we've made against our strategic initiatives. J.D. will then cover the quarter's financials results and our guidance. Before we jump, let me first provide a quick disclaimer. During today's call, we may discuss LendingTree's plans, expectations, outlooks or forecast for future performance. Forward-looking statements are typically preceded by words such as we expect, we believe, we anticipate or other similar statements. These forward-looking statements are subject to risks and uncertainties and LendingTree's actual results could differ materially from the views expressed today. Many but not all of the risks we face are described in LendingTree's periodic reports filed with the SEC. On today's 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 measure, definitions and full reconciliations of non-GAAP measures to GAAP. Now let's dive in. Overall, I am thrilled with LendingTree's strong first quarter performance, where we continue to outpace the mortgage industry and thanks to our diversification, we've also been able to lean in and invest in and invest in key aspects of our business for the long term. Our mortgage business grew in the face of a tough macro environment, and our non-mortgage businesses are performing extremely well. And we remain highly focused on our mission to help both consumers and lenders. As you know, our mission to be [indiscernible] helping every consumer regardless of his or her credit situation. We want to help consumers improve their financial standing, realize their financial goals and help them save money on…

J. D. Moriarty

Analyst

Great. Thanks Doug, and good morning, everyone. Thank you all for joining us today. With Doug having already provided his take on the business, I'd like to discuss the quarter's financials results in more detail, and provide some color on our guidance for the second quarter and for full year 2018. We are proud to report that in the first quarter, we navigated a challenging macro environment to once again deliver robust top and bottom line growth. Our Q1 consolidated revenue of $181 million, represents year-over-year growth of 37%, exceeding the high end of our prior guidance. It is worth reminder that this is the first quarter where our prior year comparable is fully inclusive of the November 2016 CompareCards acquisition. Looking at the mortgage business, we generated $73.5 million of revenue in the quarter, up 17% from the prior year. What is especially remarkable is that within mortgage, we grew refinance revenue by 18% year-over-year. With interest rates continuing to rise and broader industry refi volumes contracting down 14% according to the Mortgage Bankers Association, our sustained growth is a testament to our ability to provide predictable volume for our lenders when they need it most. And in this type of environment that is exactly what we're aiming to deliver. Fortunately, the diversification of the business over the last several years has put us in a better position to fulfill lender demand in this difficult macro environment, and to continue to invest in the consumer experience. Speaking of diversification, non -mortgage revenue at LendingTree continues to grow nicely, and total a record $107.6 million in the quarter. This represents 55% growth year-over-year, and non-mortgage now represents 59% of total revenue. Within non- mortgage, home equity which tends to be a substitute for first lien refinancing continued to impress, with…

Operator

Operator

[Operator Instructions] And our first question comes from the line of John Campbell with Stephens Inc. Your line is now open.

John Campbell

Analyst

Hey, guys, good morning. Hey, I just want to check on just a couple items. I guess first on HELOC really good growth there for you guys last several quarters. Any kind of expectation for how quick that's going to grow? I know you guys don't simply guide down to the product or segment level, but any kind of thoughts on how that's going to pace this year.

Doug Lebda

Analyst

I think, John, first off good to talk to you, I think the HELOC business while I wouldn't put out specific percentages can continue if maybe not at this pace certainly at a very, very high pace should be one of the fastest if not the fastest growing parts of our business as home values continuing to improve, and the automation continues to come in. We're really thrilled with that and the other great thing about home equity for us is all of our mortgage lenders can offer it as well too. And when the refinancing aren't there, many times a home equity loan is a better option.

J. D. Moriarty

Analyst

John, the only thing I would add is if you just look at the number of active lenders in that space relative to a year ago, that's up about 35%. So it speaks to the health of the network and obviously the health of that space for us.

John Campbell

Analyst

Absolutely. And then on the VMM side, obviously you guys have the exchange marketing side of it, and then you've got other marketing which is broadcast and some other stuff. That was --it looked like that was up maybe double it up year-over-year. How much of that is kind of just general brands spent, TV spent, broadcast spent versus maybe promotional stuff?

Doug Lebda

Analyst

Yes, no, it's all in VMM. I think we're just benefiting John from a diversified marketing mix and we're also benefiting greatly from some of the BD deals that we've put in place over the last year that are giving us real reach. And I think you are seeing that. I think you're also seeing the non-mortgage businesses that inherently are better margin businesses that have benefit from the platform expanding.

John Campbell

Analyst

Okay, that's helpful. So you expect that to probably grow that this year relative to last year? Just the other marketing side.

Doug Lebda

Analyst

Yes. We're seeing that benefit for sure. And that's kind of structural margin benefit that we're seeing is that your question?

Operator

Operator

And our next question comes from the line of Mark Mahaney from RBC. Your line is now open.

Mark Mahaney

Analyst

Okay, two questions please. One is just talked about the sustainability of the refi growth through the balance of the year, not too much time on that but just a little. Secondly more time on the digitization of the mortgaging product service. I know you touched on this already, but please go back to because I think that's extremely important part of the story going forwards. Where are you now and just when you think about the upside potential, upside potential impact that you have increasingly digitizing that process? Help us think through how much of an impact that could have one of your biggest businesses? Thank you.

Doug Lebda

Analyst

Sure. Let me take the second one first just talking about the overall digitization. That continues, that is just continuing. So keep in mind here there's digitization throughout the entire funnel and we're making them at all levels. So and - so for example you're bringing people in through different channels and with that new credit analyzer product, we actually have another marketable event. We can actually go market that as well too. That then drives you into a mortgage experience based on quarter, I want to buy a home, I want to pay down debt et cetera then we give you recommendations to do that across all the loan types, which is pretty neat. We still have about 50 lenders who are digitizing the application process that is after a lender would get selected and our internal project to digitize the selection process and make it more easy to comparison shop and not pass PII to the lenders, and eliminate a bunch of phone calls. The performance there's continues to get better and we're going to continually put more lenders on that platform. So and then you have what's going on in the industry and companies like Ellie Mae and [indiscernible] and hundreds of others who just continue to increase their automation and every time they do lenders improve their performance, as they've improved their performance, they pay more with us. And JD you want talk about refi.

J. D. Moriarty

Analyst

Sure, hey, Mark. In terms of refinance environment, obviously there are a couple things going on here. One is while the overall industry is down, keep in mind it's been down for several quarters now. And we've been able to grow double digits in the face of that. That's the efficacy of the product, right. I think in refi in particular when you look at Q1 is we actually did face when you look at that growth rate, we did face a relatively easy comp in refi from a year ago. And if you remember purchase was actually inflecting positively last year. So when you look at, if you look at this quarter and you say refi grew faster that seems counterintuitive. It's partially the comparison to Q1. In terms of sustainability, we're going through a period right now when we've said before we tend to take market share because we demonstrate value to our lenders. That's particularly true in refi as they stretch for predictable volume. And so we think that there's the ability to do that. Now when you look at, I gave the statistic on growth inactive lenders in home equity. I think there's a perception out there that active lenders in refi are declining dramatically. And the reality is that quarter-on-quarter it's low single digits in terms of active lenders on our network. We continue to have a really robust network of active lenders. So the right now what we have to do is help them get through this period. But they've weathered several quarters now of declining refi volume. And our business continues to grow because we're helping them. So we do think it's sustainable. We do see lender spending more in our network.

Mark Mahaney

Analyst

Thanks, Doug, Thanks J.D.

Doug Lebda

Analyst

One other thing I just - the only thing I add on that is a connecting it back to the digitization as lenders get more efficient than they can actually open up more filter segments. And as credit eases a little bit in that business as well too, they can also open up more filter segments which helps us get more customers monetized and also get them offers.

Operator

Operator

Our next question comes from the line of Jed Kelly from Oppenheimer. Your line is now open.

Jed Kelly

Analyst

Great, thanks for taking my question. First one just on the non-marketing OpEx. I think was up 47% percent x the payroll, continues to grow and I realize you start to get some of your expense comps as we get throughout the year, but how should we think of these non-marking OpEx is related to some elevated hiring and how should we think about that growing throughout the year and into 2019?

Doug Lebda

Analyst

Sure. Jed I think we last year went through a strange period in terms of --we were well behind in Q1 and Q2 on headcount, and our revenue per FTE ratio which is obviously something that we track got out of whack favorable because we were just slow to hire and we kind of caught up in the back half of last year. So I think you're just looking at a relatively odd comp there. So we've caught up a little bit as we've scaled as a business. We're still very comfortable with what OpEx as a percent of revenue, and with our revenue per FTE. And relative to our peers, we're still very lean pretty efficient organization relative to headcount, in terms of headcount but I think you're just looking at a comp, at year-over-year comp issue.

Jed Kelly

Analyst

And then just back to digital mortgages. Can - you give us some insight on some of the close rate you're seeing and then when do you actually think this could inflect and call it over 10% of your overall mortgage revenue?

Doug Lebda

Analyst

Well in terms of lenders that are digitized I think, oh it's definitely over 10% of our revenue because if you think about the big lenders are the quickens in the loan depots, and the guys like that are all extremely, extremely automated. Really what you're doing here with the digitization is you're moving it down to smaller and smaller lenders. If you look at companies like Ellie Mae there as I said before they're helping to do that with tens of thousands of lenders. So it's definitely well over 10% of our business already. And I think that's just an on ongoing trend. By the way, it happens in all the loan types too. And it so - and it happens everywhere so for example I was just got a demo the other day of our new forms platform, which enables you to create any type of user experience on the front end without even writing a line of code, and just being able to move things around. I looked at the credit analyzer rules engine and you can literally sit there and change the rules around all the recommendations on the fly, again without writing code. So we're trying to invest even in technology to help scale the business up over time. And that we can then make those changes easier in the future.

Operator

Operator

Thank you. And our next question comes from the line of Youssef Squali from SunTrust. Your line is now open.

Youssef Squali

Analyst

Hi, thank you very much, a couple questions for me. Can you speak to the cost of customer acquisition within the purchase and refi last quarter and how that has that trended over time? In other words trying to figure out it as you're gaining market share is not coming at the expense of economics to you. And just generally, can you speak to the leverage; you've got to see as the model as the mix of refi versus purchase and non-mortgage versus mortgage change over time over the next couple years. Thank you.

Doug Lebda

Analyst

Sure. Let me just hit those at a high level and then go - and then JD can add in. First off, in terms of the mortgage, non-mortgage mix, remember that all of the loan types and all the marketable events really act as their own, as their own exchange. So personal loans will grow completely independently because they have the same market dynamics. So as lenders can quote same flywheel effect but there are individual flywheels if you can think of it that way within the added overall benefit over top of that. So for example we could have and we don't really look at percentages. We're always just looking at the individual growth of each of those products. So you could have a great mortgage quarter and may be less than fantastic personal loan quarter who knows sometime in the future and that percentage is going to move around but it's just because --it's not because of anything is doing better or worse. In terms of customer acquisition cost that also works in tandem with revenues. So it's tough, I could break out for example because we look at the customer acquisition costs of purchase versus refi. It's much more expensive to get a refi customer, but that's only because the revenue is higher on refinance and therefore the more companies go and market against that. Purchase customer acquisition costs are very, very low and as that scales up as lenders get better and better at converting it and as we build out our rulo project the one that is selection based then that will enable us to scale the purchase business. So I wouldn't look, long story short I wouldn't look much at individual loan type customer acquisition costs. And actually sometimes as you scale them up you increase your customer acquisition cost to go get more volume.

Youssef Squali

Analyst

On the trend though can you comment on whether you're seeing higher or lower just even across either across products or in aggregate?

Doug Lebda

Analyst

Are you talking about volume? Are you talking about marketing costs?

Youssef Squali

Analyst

Marketing cost.

Doug Lebda

Analyst

So marketing I would say we make continuous improvements in marketing cost. And you can't look at it at an individual level. So for example like I can tell you that if lenders one more refinance volume, we will spend more on marketing, but let me give you an example of why I wouldn't look at it the increment. If I said to you, we spent $10 billion in marketing next quarter and we had a $1billion of VMM at a 10% percent VMM margin that would show - that would look like and it would be the individual unit costs have gone up . However, demand has far outstripped it from the lender basis and we would have been that example made a $ 1 billion of variable marketing margin, but we would be talking about higher customer acquisition costs. So it doesn't - you have to look at aggregate VMM dollars not individual costs because you also have channel mix. So for example cost more to get a search engine, customer from a search engine than it does from a lowly banner ad. Some of our lenders love the lowly banner ad stuff and some of our lenders need the higher quality stuff that comes through a different channel. And so the customer acquisition you have to look at it at the individual customer acquisition level, at the individual deal but we manage it at the overall VMM dollar level.

J. D. Moriarty

Analyst

Youssef, it's hard to give you a quarterly trend. We see intra quarter, individual channels spike in cost and then and then go backward, and that's the nice part about having a mix as Doug's pointing.

Doug Lebda

Analyst

One thing too just in terms of customer acquisition cost, a lot of our business development deals that I talked about are on a revenue share basis. And so you could theoretically see lower percentage margins on those, but then they come in with no risk. That's still in the blend of everything. So you really have to look at it in an individual level. And we can get you more color and help you through that after the call too.

Operator

Operator

Thank You. And our next question comes from the line Kerry Rice from Needham. Your line is now pen.

Kerry Rice

Analyst

Thanks a lot, a couple questions if I may. On the new partners and maybe just the process of increasing those partnerships does that require you guys building out more resources, more sales people or business development people? Or is that you feel like you've got that business ramped up enough to really expand that out? That's the first question. Second question is on My LendingTree, I think at least initially a lot of the flow through to the products has been more credit card and personal loan. Can you talk a little bit more about driving product diversification through that? I know some of that Doug you mentioned about the credit analyzer and free credit monitoring, but how - that seems a little bit more again towards maybe credit cards and personal loans. You can talk a little about how mortgage growth fits into My LendingTree there and maybe to the digitization. Then just one final question. When you think about mortgage growth for Lending Tree in 2018, how much consideration do you put forth in interest rate hikes and maybe how many if you do consider that a lot, how many do you it kind of assumed will happen in 2018 based upon your guidance? Thanks.

Doug Lebda

Analyst

All right. I think I'm going to get all of those. Our mortgage assumptions are basically based on the NBA index. You really need to look at overall origination not necessarily interest rate. So while we've got a fantastic economist Tendayi on staff here, we generally look at the NBA numbers and inside of their numbers they've got however many interest rate hikes that they're assuming, but really it comes back to overall origination. And then our percentage share of that origination which obviously is continuing to climb. So I encourage you to look at that. The second thing on the growth, the diversification, let me explain one of the reasons - ways it that happen is really to answer your second question is about My LendingTree. So and the credit analyzer fits in that as well too. The key thing and you've seen our My LendingTree revenue is up significantly. Think of LendingTree as you have a logged in experience. You have an account with LendingTree, and based on your individual credit situation, based on your individual goals, we want you to be able to transact through that process, through that account. So just think of it like your log in your Amazon Prime account. Typically what you see is that the easier, not necessarily easier converting transactions but the ones that are more able to be matched are in the personal loans and credit card categories and in the smaller loan types. That's why you see the growth in those. It's one of the reasons you see the growth in the My LendingTree revenue. The mortgage revenue tends to come later on My LendingTree and I think where it's going to continue to grow there, but that's going to come through the alert process. One of the cool…

Kerry Rice

Analyst

Great, thanks for all that, Doug.

J. D. Moriarty

Analyst

I think kind of that covered all of them right, Kerry.

Kerry Rice

Analyst

Yes. I think that was great, thanks.

Operator

Operator

Thank you. And our next question comes from the line of Eric Wasserstrom from UBS. Your line is now open.

Eric Wasserstrom

Analyst

Thanks very much. And Doug maybe you can just get to a topic that we've been touching around a lot of ways in terms of the discussion of VMM. And just maybe can you just address as the filters expand and contract and lender demands change, how that results in your kind of in the behavior that in the marketing that you do to seek certain kinds of borrowers to fulfill that specific demand. What that does to VMM and to EBITDA margin? And maybe how that's changed over the past few years given let's say technological changes or changes to your marketing efficacy or the influence of things like My LendingTree? Just because historically the relationship has been pretty clear right as lending demand expands, VMM goes up, EBITDA compresses but net income it improves. Can you just touch on the relationship between those three items?

Doug Lebda

Analyst

Yes. Yes. Give me the three items again.

Eric Wasserstrom

Analyst

Change in filters, revenues, VMM trend.

Doug Lebda

Analyst

Got it. So and I'll JD dig into the numbers, let me try to do it conceptually. It effectively, here's how effectively the business works. Within like we start on the lender side. Any change in to lenders has a given set of campaigns that they're running, a given set of borrowers that they want to see. And that is annotated by the different types of consumer experiences, okay, we've got the so called short form, the so called longer form, where you put PII and you've got My LendingTree. You've got some exclusive leads up that you have rate tables. And so you've got all of those elements of demand. Okay, so it's not just mortgage, it's not just mortgage refinance and it's not just certain states, it's also the consumer experience. That demand then translates and it doesn't - you could look at the aggregate level, but that demand which is price and quantity effectively and coverage then translates into an order, if you will, for the marketing team. Now that order thinks about it we just went through like five consumer experiences on the mortgage side. You've got --you don't have that necessarily in personal loans, but then you've got the demand for personal loans, auto loans, credit cards. The credit cards you can break down by different types of cards, or reward cards or balance transfer cards, different credit ratings et cetera, et cetera, et cetera. That demand of both the price that they're willing to pay and the client they want at those set segments translate to an order, and then the marketing team tries to fill that as efficiently as they can. Now keep in mind for example that you might have a certain demand for subprime credit cards that are low balance transfer.…

Eric Wasserstrom

Analyst

Yes, no, it makes sense. So in other words the historical relationship between these three continues to exist as it has over the past several quarters, right. There's no there's no change in dynamic here, is that true?

Doug Lebda

Analyst

Absolutely not. There's no change, no.

Doug Lebda

Analyst

The only change that - the change in dynamic that's good is all of the revenue coming from My LendingTree is coming with effectively zero marketing cost. Now what we do though, however, is let's say we know we think of My LendingTree signup adds an extra $5, I'm making it up of expected value that gets baked into that order into the price that we're willing to pay. So it actually helps you in your marketing because you're picking up extra revenue, just like we do in credit services for example, where when we can get you to a progression or ovations or one of those guys, we pick up some additional increment there. We pick up additional increment with relationship we have with a home advisor and the home services space, and that picks up a little bit more too. So and you pick up more by the cross-pollination of all these products. I guess that's really in the My LendingTree revenue. But that gives you more money to go market, but the relationship stays the same.

Operator

Operator

Thank you. And our next question comes from the line of Michael Tarkan from Compass Point. Your line is now open.

Michael Tarkan

Analyst

Thanks for taking my question. So mine is more big picture and it really relates to sort of the different product categories that you're in, and how to think about them as we move through the very end of this credit cycle. And I know the macro backdrop is healthy now but diversifying into cards and personal loans, well, that's great for the health of the business. I'm just wondering those are more cyclical businesses. Do you have any sort of built-in protections? How do you think about those businesses if and when your lender base starts to tighten underwriting? Thank you.

Doug Lebda

Analyst

So, my previous - it's a great question and you might not be thrilled with the answer because you actually don't, unlike a business that's like let's say manufacturing something, where you say, okay, I manufacture tires of a certain size and now I'm going into a new line of business make tires for tractors that which then consumes some internal capacity, some internal costs. I need to switch things over. Diversification at LendingTree, it was intentional for us to start in new categories, but it's not like we're sitting here trying to diversify on a percentage basis. So we saw an opportunity to go make money in cards and satisfy consumers in cards. At some point something will happen to credit, lenders tighten up, by the way we see it all the time every day because lenders move like a lender tomorrow might say what we're not doing low balance transfer cards, take those off of our thing, or they might cut their bounty back significantly because they're seeing something in their own internal marketing dynamics. So if they tighten then our - like I described Eric our expected values go down on the revenue side. And we can then go pull back on the marketing. However, the thing that a lot of people miss back with that relationship, marketing expense moves in tandem so at the same time when generally speaking lenders shut off the LendingTree platform last except for free, because we provide high quality volume, were consistently delivered to them. And we're a trusted partner. So the first thing that those credit card companies are going to do for example is cut off their own search engine marketing spend because they can't target that like you count on LendingTree. That then makes our marketing costs go…

J. D. Moriarty

Analyst

And Michael I think the personal loans are really good example of that when obviously somebody pulls back. And we're able to respond, but ultimately the trends it's going to be more powerful is just the shift to online. So as you look at card, right, there's obviously an awful lot of spend there. We believe that spend will move to comparison engines. And there's we're going after that. So I think that trend will be far more powerful than any one quarter when they pull back or shift. And so we want to be in all the categories that are going to move online.

Michael Tarkan

Analyst

Make sense. Just as a follow up are you seeing any kind of signs of lenders that are starting to tighten on your platform or they still widening filters for the most part?

Doug Lebda

Analyst

We are not seeing any tightening as I'm sitting here trying to go through things. If anything I'm hearing more things about subprime mortgage, more interest in potentially the personal loan space even in that area. So I generally I think the trend is our friend except for sort of like individual credit card products, which bounced around all the time, but we're not seeing tightening there either.

Operator

Operator

Thank you. And our next question comes from the line of Stephen Sheldon from William Blair. Your line is now open.

Stephen Sheldon

Analyst

Hey, good morning, thanks for taking my questions. First one is asked about I guess the mortgage business and growth there has obviously been strong and above industry trends. But slowed to decent amount in the quarter and I get that origination volumes or a headwind but it seems like they were pretty kind of when last year too and you're able to really outpace it. So I guess from your standpoint did anything change to make kind of a lower industry volume appear to maybe catch up with you a little bit more this quarter?

Doug Lebda

Analyst

What is the decel that you're talking about?

Stephen Sheldon

Analyst

I guess from 22% that you saw in 4Q to 17% in 1Q, the year-over-year growth.

Doug Lebda

Analyst

Yes. I don't - so I wouldn't read anything. I wouldn't read anything into that as long as we're growing faster than the industry. That's generally what we're looking for. I can tell you all of our lenders, not all of them but most of them are expanding volume, and they really want more volume. So that quantity piece is matters. Q4 you should know and our business is always a weird one because the mortgage business typically decelerates and goes away. So there's probably sort of a year-over-year accomplished. Either I'm guessing but I think I'll take 17% growth in mortgage any day of the week in this market. And as long as we're outpacing the industry that's really what I look, that's really what I look at. By the way, keep in mind you cannot grow as fast as the industry when a refi market peaks. So keep in mind, someday we're going to be explaining that too. And then you have the inverse economics of what I talked about, marketing costs go up, and I am sorry marketing costs come down at the same time lender demand goes down because they have other channels. So I wouldn't --I love our 17% growth/

Stephen Sheldon

Analyst

Got it, appreciate that. And then I just wanted to quickly ask about Doug as trends and the small business of lending business I guess. Do you need to do anything in that business to boost scale beyond a SnapCap and could you potentially partner with some SMB kind of data providers to provide I guess a more integrated solution to lenders?

Doug Lebda

Analyst

We actually in the SnapCap business that actually operates on a more of a concierge model. If you think about any complicated so that actually is more hand-holding, but yes we could work with data providers, give them a more seamless experience. We also could find just like we do with H&R Block, where we found consumers will go get BD deals around, that might center around small business. We can do deals with other sites for example with a lot of small businesses on them to drive volume there, and the growth there has been really good. So I think we don't need to do anything else there except just an integrated inside of LendingTree and then continue to add some additional products there. And then go get some deals and let the marketing reap.

J. D. Moriarty

Analyst

Yes. Stephen its JD, I would just say with SnapCap, it's just about integrating the two businesses keeping our traditional LendingTree approach for certain consumers for certain small businesses going to the concierge model as Doug points out for others. We don't need to do anything different to scale. I will say when we look at our BD pipeline; there are quite a few deals that would be along the lines of what you're thinking about. And there are some great opportunities there that we're excited about. So we're still very excited about that space and the ability to grow it. And with snap cap we actually really grew our lender footprint quite a bit in terms of those that were committed to snap cap in their model.

Operator

Operator

Thank you. And our next question comes from the line of a Hamed Khorsand from BWS Financial. Your line is now open hi.

Hamed Khorsand

Analyst

Good morning. So first off could you talk about the digitization process? Is that causing really a better conversion for lenders as lenders spending more or are they just spending the same but getting better conversion? So if you just talk about that a little bit.

Doug Lebda

Analyst

Sure and digitization definitely helps with conversion. And can't - not going to point just to but now at the same time the use of data also helps with conversion and lenders continuing to get better at their marketing helps conversion. And then that contributes too and as conversion grows up from a lender's perspective their cost per funded loan, they're costing originated a new loan goes down, as their costs go down just like people do inside of Google, they up their bids or widen their filters to take more. And there - and keep in mind to lenders behavior is very similar to LendingTree just like I said we would go market more to get an extra dollar, lenders do the same thing. So lenders if they will - they just want to go make more money and if they've got excess capacity in the mortgage business, they're going to want more customers' inflow. Let me though highlight something else which is a massive wins based on digitization. Every time they get more efficient, so if you look at the mortgage business you could and will actually be an interesting number to have on the next call. If a lender could normally process 25 loans a month per person; if it's a fully digital experience and you can download all your documents and your not facts and stuff back and forth, and pushing paper it makes them more efficient. As they get more efficient that also drops their cost per funded loan, and also opens up capacity because capacity in the mortgage business really matters. So there's a capacity element of it too. The last point of digitization I'm going to make. I know this is long is our new mortgage experience that we're now putting several percentage points of our business through. When you remove five lenders interfacing with a customer at the same time and you move to a model where LendingTree interfaces with that customer, and the only interface with the lender once the consumer has selected that lender. That will open up probably 10x, 5x to 10x more capacity every single one of our lenders, who will then be able to take more volume. And then we'll be able to ramp up that marketing. So as we continue to improve that and by the way it's not just improve it, it's also standardizing it because then the post selection process of lenders is all basically the same, it's processing and closing a loan. And then we're taking over the interface before selection. That's going to have a massive capacity improvement in our business. Is that makes sense?

Hamed Khorsand

Analyst

Okay. Yes, it does. And then lastly could you talk about the economics here of My LendingTree with this TransUnion relationship? It sounds like you're adding services to it? Does that also cause the cost to increase? And how is that helping with revenue conversion coming from the My LendingTree subscribers? Is it - are they the sticky ones, where they're coming back and ordering more products or are you depending on the membership growth to drive the actual revenue from My LendingTree?

Doug Lebda

Analyst

Both great questions. So the TransUnion credit monitoring based on - we have such wide and broad and big relationships with the credit bureaus because we do soft pulls on a lot of our customers, and obviously we're driving a lot of that business with our lenders too. We've got very, very good rates on the credit monitoring product. And it makes us money because not only can we then engage you right. So now we're saying, hey, somebody just pulled your credit. Then we can actually see the results of that so now we know we have a new credit score. And so we're engaging you're going to come back and now we've got great data. So if your credit score has changed, now it's another reason to alert you. So it's really an engagement tool. And before we do anything, we test it so is it going to improve economics, is it going to improve engagement. If it improves the economics we do it. Home values I believe are in there as well too. So with changing your home value, we want to say send you an alert and let you know. That enables us to then also engage you. So expect to see more and more of those also expect to see the alerts get smarter and smarter. Sometimes, we're pushing credit cards when you already have a credit card, and so it might not be that great of an alert but we continue to get those, that feedback and make those smarter and smarter. So we're going to get it from both growths in the user base and growth of monetization.

J. D. Moriarty

Analyst

And Hamid I would just say, remember at the Investor Day we talked about success in My LendingTree is not, we're not defining success as just growing a user base in total. We're defining success as are they engaged. And so what you're seeing us do is add things of value for the consumer over time. And so whether it's credit monitoring or the credit and debt analyzer that Doug talked about. What we're trying to do is make sure that those consumers are engaged with us. What's interesting is that when we do these BD deals, we're actually getting a close look into a different type of consumer periodically. And so that's a great opportunity for us as we partner with folks like H&R Block to expand our consumer set. And to be more tied to them through these products. That's the strategy and that's the platform strategy and one that we think is going to be effective.

Operator

Operator

Thank you. And our next question comes from the line of Rob Wildhack from Autonomous Research. Your line is now open.

Rob Wildhack

Analyst

Hi guys. JD, I think you mentioned that you're comfortable with OpEx as a percentage of revenue, but if I look at the full-year guidance relative to first quarter results and second quarter guidance, I think there's an implied step up in EBITDA margins in the back half. Can you talk about what might be driving that?

J. D. Moriarty

Analyst

Yes, sure. Well, one, we're getting benefit from --with some of the structural margin benefit that we've talked about. Two, in the back half of the year we won't be seeing the payroll tax implications that you're seeing today. And then three, we've been through some hiring in the back half of the year. When you look at the OpEx, we try to measure that throughout the year and pace it obviously. But I think the biggest impact is just as the non-mortgage businesses grow you'll see that. The payroll tax, we've talked about throughout the year, but that's mainly going to be born here in the in the first and second quarter as we've talked about with that guide, and that's part of our adjusted EBITDA. And then OpEx away from that I'm not really sure which would lever you're looking in the back half, right. There's clearly some leveraging in our margin profile.

Rob Wildhack

Analyst

Got it. And then doesn't sound like you repurchased any shares since the fourth-quarter call in February. So can you just talk about where you are on capital allocation now the stock is a fair amount lower than when you asked bought back? Thank you.

J. D. Moriarty

Analyst

No, we've been repurchasing shares consistently. And we're basically deploying about half of our free cash as a strategy and we're much more consistent quarter-to-quarter. So in the quarter it was 30,000 shares and average price of $3.62, which I said and we continue to repurchase shares here.

Operator

Operator

Thank you. And our next question comes from the line of James Friedman from Susquehanna. Your line is now open.

James Friedman

Analyst

Hi, good morning. It's Jamie. I was wondering --excuse my morning voice - have the - are the home equity customers typically coming from the installed base in mortgage? Or if that's too specific if you could speak generally about repeat user behavior? Maybe you share that on December 13th I don't remember but any data in that regard would be helpful. Thank you.

J. D. Moriarty

Analyst

Sure. On the home equity one, we do have some-- if you come into the refinance pipeline and you want cash out refinance, some of those customers are better suited for equity products, however, that's not the major part of the business's own separate funnel. And as you see growth in home equity, it's - you know this is home equity is fairly early on in this in sort of its new penetration cycle. So that's - and so you're getting right now more lenders, more demand opening filters which is translated into money, expected value and therefore we're able to market more. It's that effect way more than coming over from refund.

James Friedman

Analyst

Thank you and have you shared any data about repeat customer behavior?

Doug Lebda

Analyst

The best way I would look at repeat - we typically have not; we could get you some potentially. The way I would look at it now is through My LendingTree because effectively every one of those customers is a every person who transaction on that is almost by definition a repeat well, you are repeat customer because there's really no reason because you would either be coming in to My LendingTree through one of the other loan types and when you then transact your repeating. So I would look at it through the growth in My LendingTree but we can - we'll look at sharing some numbers around repeat usage and engagement quite frankly in the future. That becomes a bigger and bigger piece of our business. You guys should be looking at that like you look at the growth and other engagement and lifetime value type businesses. We need to get you guys some better data about lifetime value as well too. Some of that stuff we like to keeps close to the vest because of things but we'll see we could do.

J. D. Moriarty

Analyst

Yes. Jamie, internally we're obviously tracking it and we track for instance in My LendingTree how quickly somebody comes back and reengages and how predictive that is of them engaging in the second product for instance. And that's certainly the strategy; however, we're still in the early days of My LendingTree and building out that user base. So any data that we could share on that could be very easily misleading and then obviously there's a competitive reasons why we wouldn't share that as well. So as that matures, we will look at more disclosure around My LendingTree, but right now we're trying to keep it relatively broad for some pretty obvious reasons.

Operator

Operator

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

Mike Grondahl

Analyst

Hi, yes, thanks guys. Just a little bit of maybe more detail or clarification. You talked about the 50 lenders kind of digitizing the application process and throughout the Q&A in one or two points you mentioned sort of eliminating the bunch of calls or the five calls from the lenders to one consumer, mortgage consumer. Where exactly are you in that process of rolling out? Is it still being tested? Are there a couple mortgage lenders doing it? Just kind of help us with that aspect of it.

Doug Lebda

Analyst

Sure. A great question and I'll try to be as clear as I can without drawing pictures. I want you to think about first off the trend that the funnel of a LendingTree customer from its very first seeing an ad, all the way to closing a transaction with our lender, okay. Today, we hand off a customer after they've completed a form and they match with lenders, we say congratulations, here are the five lenders that we send the information to those lenders, those lenders follow up with independent CRM and independent phone call campaigns to you. What we're talking about doing in our mortgage process is moving that from sending that data to five lenders to saying, think of it is more like a travel experience. Congratulations, here are your five lenders. You don't yet get any follow-up from a lender. You would get an email from LendingTree that says, hey, Neal, you haven't been back in a couple days. Or hey, Neal, rates have changed or you might get a phone call from depending on who you are from a call center rep it says, hey, Neal, this is Joe Doug from LendingTree. Can I help you make a selection here? Once - and that is internally we call rulo and so we'll keep that term for now for simplicity. Right now we are putting an increasing percentage of our traffic through that. I want to say we've got about 10 lenders on it. A lot more that are interested but it's not really about adding lenders, it's about getting the process right. Once the monetization gets to that experience, gets to the monetization of sending you to five different lenders and having five different lenders bury you in marketing, then we will flip the mortgage business…

Mike Grondahl

Analyst

Yes, no, that' very helpful. Good to get just a process update on the rulo, aspect of it and then real quickly any high-level comments on growth of the lender network or sort of match rate or pricing trends?

Doug Lebda

Analyst

I do not have it at my fingertips yet but we can definitely get it afterwards. You're absolutely - except in credit card where there are only a few major issuers. The growth in lenders continues unabated and then you're also getting growth and transmit rates et cetera and then we're also able to monetize our non-transits. We don't give a lot of that information out. It shows up. I don't like though looking at total lender counts particularly because a lot of times more lenders just sitting in the same space, doesn't really help in the same way as if Google we're adding more people in the same keyword space of the same bids, it wouldn't necessarily help them. So you try to fill up a so called long tail.

J. D. Moriarty

Analyst

Yes. I mean sometimes I guess I would just say in terms of lender count, we obviously don't need to - our growth is not going to be a function of growing the number of active lenders. It's going to be growing their commitment to our network. So as we provide more value as they convert better, we will just get more share of their wallet, and that's how we think about growth not necessarily adding lenders.

Operator

Operator

Thank you. That concludes our question-and-answer session for today. I'd like to turn the call back over to Doug Lebda for closing remarks.

Doug Lebda

Analyst

Thank you. And thank you everyone for your time and you're really, really thoughtful questions. I was commenting here that it's wonderful to have so many more people who understand our business model, who are really focused on the company. It helps us to get into much greater depth with you as you all climb the experience curve of this business. And just a high-level to comment on this business and what we're seeing and why we're so excited. If you think about internet businesses like travel or shopping or anything else, you have moved for a lot of times from people dependent things to things that are enabled by technology. If you look at the travel industry, when we used to all go downtown and pick out our airline tickets that moved online. As it moved online, it got more and more efficient at every step of the chain. And that is continuing to happen with us. The mortgage business is just like that. It's moving from a people business that used to be local entirely to a technology driven business. That is a macro trend that continues and that's going to continue. Then on the marketing side, and you see this as we look at market share, you move from broad marketing or people dependent marketing like mortgage brokers going out and bringing customers that way. We have the same thing in stock trading to targeted marketing, where a lender can either run a search campaign, where they're targeting keywords, but with lenders they can move to actually target marketing and actually get profitability on a per loan basis knowing exactly how they bought that. That trend is going to continue unabated because you can see the rise in internet advertising and our form of internet advertising is the most targeted way you could actually go get customers. So as you see that people dependent trend moving to automation, we win as you go from broad marketing to targeted marketing, we win. As you see lenders get more automated, we win. And that is what's going to continue to drive share and penetration. And then the last thing I would say, I have never seen a more positive, competitive situation than we're seeing right now, where we're continuing to take share, where we're continuing to advance our lead; where we're continuing to see how some of the other companies are performing as we continue to get business development deals. We're winning in the marketplace. So the markets growing. The industries are trend and we're winning in the marketplace. And I've never seen a greater team who's ready to scale and lenders who are scaling with us. So thanks for your time. Thanks for your attention. And we're thrilled with what's going on. And we look forward to talking to you in a couple months.

Operator

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone have a great day.