Lendingtree Inc (TREE) Q3 2022 Earnings Call Transcript

Lendingtree Inc (NASDAQ:TREE) Q3 2022 Earnings Call dated Nov. 03, 2022.

Corporate Participants:

Andrew Wessel — Head of Investor Relations

Douglas Lebda — Chairman, Chief Executive Officer, and Founder LendingTree.com

Trent Ziegler — Chief Financial Officer

J.D. Moriarty — President of Marketplace and Chief Operating Officer

Scott Peyree — President, LendingTree Insurance

Analysts:

Ryan Tomasello — KBW — Analyst

Jed Kelly — Oppenheimer & Company — Analyst

John Campbell — Stephens Inc — Analyst

Rob Wildhack — Autonomous — Analyst

Melissa Wedel — JPMorgan — Analyst

Marc Feldman — William Blair — Analyst

Youssef Squali — Truist Securities — Analyst

Mike Grondahl — Northland Securities — Analyst

Jamie Friedman — Susquehanna International Group — Analyst

Presentation:

Operator

Good day, and thank you for standing by. Welcome to the LendingTree Inc. Third Quarter 2022 Earnings Conference Call. [Operator Instructions]

And I would now like to hand the conference over to your speaker today, Andrew Wessel. Andrew, please go ahead.

Andrew Wessel — Head of Investor Relations

Thank you, and good morning to everyone joining us on the call this morning to discuss LendingTree’s third quarter 2022 financial results. On the call today are Doug Lebda, LendingTree’s Chairman and CEO; J.D. Moriarty, President of Marketplace and COO; Trent Ziegler, CFO; and Scott Peyree, President of Insurance. As a reminder to everyone, we posted a detailed letter to shareholders on our Investor Relations website earlier today.

And for the purposes of today’s call, we will assume that listeners have read that letter and will focus on Q&A. Before I hand the call over to Doug for his remarks, I remind everyone that during today’s call, we may discuss LendingTree’s expectations for future performance. Any forward-looking statements that we make 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 our periodic reports filed with the SEC. We will also discuss a variety of non-GAAP measures on the call today, and I refer you to today’s press release and shareholder letter, both available on our website for the comparable GAAP definitions and full reconciliations of non-GAAP measures to GAAP.

And with that, Doug, please go ahead.

Douglas Lebda — Chairman, Chief Executive Officer, and Founder LendingTree.com

Thank you, Andrew, and thank you to everybody for joining us on the call today. Our company continues to respond to the multiple headwinds facing us by focusing on what we can control to improve performance and advance our strategy. The most important item we can control are the projects we spend time working on. Our core growth initiatives that will dramatically improve the user experience remain front and center for all of us.

The product of an improved customer experience is greater loyalty, generating organic traffic growth that reduces our reliance on paid search as well as higher conversion rates and monetization for us and our lending partners. We are working to transform the margin profile of our marketplace by presenting customers with the right offer for a financial product when it is most relevant to them.

A key component of that strategy is reinvesting in our brand. We returned to TV advertising this quarter with a celebrity-driven campaign. Initial results are very positive, showing market improvements in several aspects of brand health and aided customer awareness of LendingTree. As previously communicated, we expect to remain on the sidelines during the fourth quarter due to the normal cycle of seasonally more expensive media and weaker customer focus on financial products during the holiday periods.

Another area that is within our control is our operating expense. Subsequent to quarter end, we took further action to manage our fixed costs that will result in $25 million of annualized savings beginning next year. We’ve reduced our headcount by 20% since the peak in mid-2021 through targeted workforce reductions and limiting hiring to critical roles on growth projects.

We remain well-resourced to continue this critical work for our strategic initiatives and to support our marketplace business. On our last call, I discussed how we are working alongside our partners to help them navigate difficult market conditions. I mentioned our efforts to assist some of our largest mortgage lenders, roll out Home Equity offerings for homeowners that today are enjoying record levels of asset value that they can efficiently borrow against.

We are happy to report these efforts help to lead another record — lead to another record revenue quarter for our Home Equity offering. Strengthening our partnerships during the hard times has proven paramount to our success, and we will continue to work on improving these relationships. The Consumer segment was again our best performer this quarter as personal and small business loans grew revenues 12% and 8% over the prior year, respectively.

We also added a new personal loan and credit card partner to our TreeQual platform. We expect to make an existing product introduction soon that is a direct result of our strategic initiatives aimed to deepen the relationship with our customers while helping them improve their personal finances. The Insurance team provided another example on focusing on what is within their control this quarter.

As their business continues to endure the impact of inflationary headwinds, the Insurance team’s work on improving marketing efficiency generated 4.6 percentage points of margin expansion sequentially from the second quarter, holding flat despite a drop in revenue. I’m excited about the opportunity ahead of us. Executing on our strategy will help us reinvigorate revenue and margin growth and lead us into the next successful iteration LendingTree.

Now operator, I’d love to open the line for questions.

Questions and Answers:

Operator

[Operator Instructions] And our first question comes from Ryan Tomasello of KBW. Please proceed with your question.

Ryan Tomasello — KBW — Analyst

Hi. Thanks for taking the question. Last quarter, you talked about the prior 4Q EBITDA guidance of $15 million to $25 million representing a trough EBITDA capacity for the business. I guess how does that commentary change as we flash forward to today with updated macro and also incorporating the expense reductions that you called out?

Trent Ziegler — Chief Financial Officer

Ryan, thanks. So you’re right. So last quarter, we were sort of alluding to what we would expect to be “normalized” kind of trough earnings in that $15 million to $20 million of EBITDA per quarter. Obviously, we were doing that in the context of the brand spend that was weighing on the Q3 results. In the fourth quarter, look, there obviously is typical seasonality that’s weighing on the results, and we would expect kind of the seasonal patterns to alleviate as we step into Q1.

A couple of things, right? We’ve got the expense reductions. We’re not really getting a great deal of benefit from those in Q4. The terminations took place effective November 1. And so we’ll get two months of benefit there on salaries, but actually, the expenses associated with employee benefits will roll through the month of November. And so we’re picking up about $1.5 million of benefit in Q4. That will obviously be a much bigger number as we head into Q1. So kind of stepping back from that, we do feel like as we get into next year, we feel very good about sort of that $15 million to $20 million floor.

Ryan Tomasello — KBW — Analyst

Got it. And then, in terms of competition, I think in your prepared remarks — in the shareholder letter, you called out in the consumer segment around competitive dynamics there. I was hoping you can elaborate that on — on that a bit. We’ve seen some conflicting headlines recently from some of your competitors in that category, reportedly a hiring freeze from one and then another from another strong quarter and outlook. Is that competitive pressure coming from the same place as it has been historically? Or are there any other changes in that landscape that you’d call out for the Consumer segment?

J.D. Moriarty — President of Marketplace and Chief Operating Officer

Sure. Ryan, it’s J.D. I’ll take that one. When we refer to competitive pressure, typically, what we’re referring to is paid search. So on the cost side of the equation, not necessarily going to our partners, but rather competitors in certain of our businesses, namely credit card where we are more dependent than we would like to be on paid search. And so we’ve been pretty candid about the fact that in card, we need to evolve our business to reduce that dependence

TreeQual is part of that, right, because there we’ll get the benefit of our MyLendingTree business as well as some of our other funnels, but it takes time to evolve that. In the interim, we’re not getting as much benefit from increased card spend from card issuers because we’re having to pay an awful lot to get traffic to them, right, and to meet certain volume quotas, etc.

So that’s what we mean when we refer to competitive pressure. There’s a little bit of that in personal loans. Obviously, that’s been a good business for everybody this year. And so there’s competitive pressure there, but it’s not nearly as acute because we have a more — a better marketing mix in that business, but it’s predominantly in credit card, where we’re just not benefiting quite as much as a couple of our competitors there.

Ryan Tomasello — KBW — Analyst

Okay. Thanks for clarifying it, too. Thanks for taking the questions.

Operator

Thank you, Ryan. Our next question is going to come from Jed Kelly of Oppenheimer & Company. Jed, please proceed with your question.

Jed Kelly — Oppenheimer & Company — Analyst

Great. Thanks for taking my question. Just two, if I may. Just circling back around credit cards. You did call out the competition in paid search. But are there any site improvements or something you’re doing to drive engagement? I’m sure MyLendingTree is a big component of that. And then, can you give us an update with credit cards on how TreeQual is trending with some of the larger issuers?

Douglas Lebda — Chairman, Chief Executive Officer, and Founder LendingTree.com

Yes. I’ll just start with that and just I’ll highlight TreeQual and then hand it off to J.D. TreeQual was really — is a component, as J.D. said, of our — of getting credit card right. If you think of every one of our businesses, two-sided marketplace, you have customer acquisition, then you have monetization on the other side. The — on the monetization side, the click-out model is something that we want to improve over time on both — for credit card because it gives the consumer a better experience and there’s a lot of leakage in approval rates that J.D. can talk more about. So once we are tied in more directly with the underwriting of the lenders, you can plug that approval rate leak. J.D., do you want to take it from there?

J.D. Moriarty — President of Marketplace and Chief Operating Officer

Sure. In terms of the experience, one of our — not the most exciting thing to talk about externally, but one of our platform migrations for next year that will be in Q1 and Q2 of next year will profoundly impact credit card in a very positive way with respect to site reliability, speed and ability to make changes. And so that should benefit that business. Now keep in mind, in credit card, we go to market as CompareCards, and that’s something that’s under evaluation as well, how do we migrate and get the benefit of the LendingTree brand for the credit card business.

So those are two things beyond TreeQual. But stepping back from it with — the credit card is probably the business that needs that the most. But just understanding the strategy behind TreeQual because it really resonates across all of our businesses, which is better authenticating who that consumer is for our partner, right? And if you look at our personal loan business where somebody fills out a form, and we are able to better filter that consumer for our personal loan partners, that is, in part, an authenticated consumer.

In the case of TreeQual, we’re going a step further beyond just a form and filtering to essentially prequalify somebody. So it’s a big step forward for our businesses, but the one that will benefit the most will be credit card because it’s operating from a base where we don’t really collect very much information on the consumer at all. It’s just a true click-out business. So just strategically, when you hear us talk about TreeQual, that is what we’re talking about. We’re talking about delivering more value for our partners.

Now as it relates to where we are, we now have four partners in card and one in personal loans. The personal loan rollout will be a little bit more deliberate than it will be in card. The dialogue with card issuers has expanded quite a bit in the third quarter. We have some who want to integrate with us before the end of the year, which is great. Not all of them want to work in the TreeQual fashion that we’ve talked about.

Some want to do direct APIs with us, which is great. We welcome that as well. But the receptivity to a more authenticated consumer, we’re very confident in — or we’re very happy with, I should say. And while it has been bumpy throughout the year because we have a lot of third-party dependencies and as you would imagine given the shifting budgets of card issuers throughout the year with views on the economy, getting partners to spend money on an integration is challenging, we feel really good about the momentum with card issuers and that list is long.

And I think we’re having a different conversation this time next year. And I hope that we have a very different credit card business this time next year one where we’re genuinely delivering the right consumer for the right card.

Jed Kelly — Oppenheimer & Company — Analyst

And just one more just on the brand spend. How would we see that start to show up in the financials where you’re getting the benefit?

Douglas Lebda — Chairman, Chief Executive Officer, and Founder LendingTree.com

So I’ll just — I’ll take that — sorry, Trent. Let me just start more broadly. So you’ll see it in what we call — well, so whenever you run a TV campaign, you run what you are monitoring what’s known as your return on ad spend or your ROAS. And that is in the numbers. It’s obviously not one is to one, and the revenue comes in over time. But we’re very, very pleased with where that is with where we turned out there.

It was actually one of our most successful campaigns we’ve ever run in terms of improving brand metrics. And then you see it over time, as you continue to run, you see it in your multi-touch attribution as it helps your other channels. And we definitely did see that as well. And so I’m really pleased with how the brand campaign run. The other thing I would say is, it also came along with one of our initiatives was Marketplace 24 and came with a revamp of our forms and customer experience as well. And so I feel really good about where the brand went. Trent, numbers?

Trent Ziegler — Chief Financial Officer

Yes, Doug, thank you. You hit a lot of what I was going to get out. I was just going to say, just from a financial standpoint, we’ve not yet made a determination as to how much or the timing of brand investments headed into next year. I’m sure that’s a logical follow-on question. So more to come on that front. But as Doug said, we’re pleased with the early reads. We’ve seen tangible signs of improvement in several of the brand health metrics, things like awareness, consideration, impression, and we’re going to continue to unpack kind of the results of that and formulate our plans for next year.

Douglas Lebda — Chairman, Chief Executive Officer, and Founder LendingTree.com

And the only other thing I’d add is like is when we’re running TV, we’re pretty confident in the health of the underlying business because that does take a while to pay off and can be fairly risky. However, at the same time, we love that our business model can actually support a limited TV spend.

Jed Kelly — Oppenheimer & Company — Analyst

Thank you.

Operator

Thank you, Jed. Next up, we are going to have a question from John Campbell of Stephens Inc. John, go ahead and ask your question.

John Campbell — Stephens Inc — Analyst

Hey, good morning. Clearly, industry refi, I mean, we’re going to be at a trough for a period of time here. I’m just curious about how you guys are thinking about your quarterly or annually, just however you want to frame it up, but your personal kind of trough level of refi revenue? And then separately, if you guys can maybe talk to your lender partners, specifically those guys that have been historically like pure refi shops. Could you talk to how they’re kind of embracing this new norm and whether they’re closing shop or if they’re looking to maybe you guys to pivot to the purchase market?

J.D. Moriarty — President of Marketplace and Chief Operating Officer

John, I’ll take it. It’s J.D. One, historically, you’ve heard us talk about that shift from refi to purchase, and that is absolutely going on. The difficulty here in the second half of 2022 is obviously with purchase — you’ve got two headwinds, right? First, it was purchase inventory and time to close. Purchase as we’ve talked about for those loan officers is more challenging than refi. The second headwind is obviously just rising rates.

And so you’ve seen a lot of macro data on declining purchase volumes. And if you look at the MBA data, this is always a tricky time of year as we look out to 2023 at the MBA data because the forecast obviously just changed quite a bit. They just took down their forecast for overall purchase and refi for next year as well. So that’s tricky. Now what’s different this year is that many of our lenders would typically who are refi in intent would be buying Home Equity leads and trying to convert those borrowers who are expressing an intent around Home Equity into cash out refi.

What is a little bit different this year is that we’ve seen a genuine expansion of the Home Equity product. And so Home Equity is one of our best-performing products within the Home segment, and it has replaced that shift to purchase, and it’s actually bigger than purchase at this point for us. So that’s great. Now we’re mindful of the fact that we still don’t have all of those lenders with a legitimate Home Equity product, right?

There are still some trying to convert to cash out refi, but it’s a much healthier business than it was — than it has been in the past. And so that’s kind of what’s different. Now as it relates to refi, what we struggle with the bid is we look at the same stats that you do, which talk about the number of Americans who would benefit from a refinance at this point. And that pool is obviously historically small.

But there is still a projected amount of refinance that will occur next year. And so from an operating perspective, our goal is to find ways to reduce our cost of acquisition and deliver for those partners. So we are at the point in the cycle where our ability to acquire should improve. There should be less competition. We’re seeing signs of that happening now. And what we’ve got to do is for that base of refi that is projected to occur and it seems to occur every year despite rising rates,we’ve got to deliver for our partners there.

Now the other thing that you would ask is what are our lender partners doing, one of the things we monitor is reductions in workforce among loan officers, right? So we monitor that on a regular basis, and we — and we’ve seen a fair amount of that, as you might imagine. And so we have to monitor that and we have to work with our lenders to make sure that the loan officers that they’ve retained are productive.

And so this is kind of the period where we know that those lenders reduce the number of lead sources that they buy from, right? Their list gets a whole lot shorter, and we’re happy when we’re the retained partner. And then we try to make it as valuable for them as possible. The only difference relative to previous cycles is Home Equity is far more substantive.

And as we look at the business go forward, when rates just stabilize, right, we think it should be a healthier business that’s not just a function of one product in refi, but three products, refi, purchase and Home Equity.

John Campbell — Stephens Inc — Analyst

Okay. That’s very helpful. Thorough answer. I appreciate that, J.D. One more on Insurance. I mean, clearly, you guys have to go through the planning stuff for the guide or from the 2023 outlook for Insurance. Happy to take anything you want to provide there. But just maybe broadly, if you could talk to just the conversations with carriers? I mean, I just feel like that business is prime to move as soon as things kind of normalize in the channel, however long that might be. And then also, if you could maybe just talk to the competition out there and the kind of cost to acquire.

Scott Peyree — President, LendingTree Insurance

Yes. This is Scott. I’ll take that question. Just starting with the long-term outlook, yes, at a high level the carriers, I mean, there was — there’s been growing optimism in the second half of the year that, a, their rates are catching up. Some carriers feel the rates are already in a good spot. A number of carriers feel like sort of catching up to the inflation and just one or two additional rate increase cycles will get them ahead of the inflation.

I’ve heard from a number of carriers that they — their feelings starting at the beginning of the year, did they have their own auto insurance inflation index that will get things like price used cars, costs to repair cars, time to repair cars, etc. And I feel like a number of them are feeling that that’s going to start to lower at the end of this year, beginning of next year. And so then the rate increases are going to quickly start surpassing that to get them back into a good position.

So cautiously optimistic. And what I’d like to say is bold in italicized the cautiously word there. I think we’ll start to see momentum starting at the beginning of next year, but it’s not going to be right back to normal — the good old days are beginning, but it will start to build. And like you mentioned on your question, I think it will snowball as it starts to build and competition for consumers, though everyone expects to be — have a lot of consumer shopping in market next year.

And then on the other side about just the competitors and the cost of acquisition, I think all of us are taking our own different tack. I can just speak specifically to the Insurance side on LendingTree. Our tax was subdued client budget is just, A, focus on margins and B, focus on quality. And so what we really did working closely with our clients, we’re not trying to force too much traffic to them right now.

We’re just focusing on the highest-quality traffic, highest-intent traffic. For example, our search traffic is up 72% year-over-year Q3 compared to Q3 last year. And we’ve been controlling and sub dealing some of the less high intent traffic, which allows us to monetize as much as possible in today’s time, the current traffic, which I feel has put us in a good position to get — when those budgets start coming back to get a big piece of the buy as the highest-intent traffic is going to be the first thing that the carriers want.

Operator

Thank you, John. And up next for questions, we are going to have Rob Wildhack out of Autonomous. Rob?

Rob Wildhack — Autonomous — Analyst

Guys, can you hear me?

Douglas Lebda — Chairman, Chief Executive Officer, and Founder LendingTree.com

Yes.

Rob Wildhack — Autonomous — Analyst

Great. Thanks. I wanted to ask you about cash generation and the free cash flow that you generate for your — excuse me, you referenced the shareholders. Year-to-date, capex is down about 70% year-over-year. So can you talk about how in an environment that’s as difficult as this one from a macro and competitive perspective, you’re ensuring that you’re investing enough while also balancing that against cash generation and free cash flow.

Douglas Lebda — Chairman, Chief Executive Officer, and Founder LendingTree.com

Yes, I’ll start with that. Yes, in terms of investments, we have — what we did last year or this year is we had a very focused set of key strategic growth initiatives. Obviously, we’re an OKR company as well. So people have initiatives below that. And by having that level of focus, that’s enabled us to keep a lid on — a lot of that capitalization is probably software, trying to tell me if that’s not the case.

But I think it’s because we’ve got a focused list of a few things that we think can move the needle and we’re beavering on them this year and hope to probably still do some beavering next year, but that’s really why it’s really just staying focused. And we’ve never been a company that overspends without discipline on the revenue side. And I think that’s why you’re seeing it over this company’s history. Trent, anything else?

Trent Ziegler — Chief Financial Officer

Yes, Rob, I’d just add — I’d just point out that you noted that capex was down considerably year-on-year, recognize that throughout 2020 and 2021, we had a lot of capex related to quarters build out, right? And so I would sort of refer to back to normal levels with completion of that project. From a cash flow standpoint, our adjusted EBITDA to free cash flow conversion is pretty high.

I mean, that’s a pretty good measure. And then obviously, we’ve got about a $20 million annualized interest burden that we’re mindful of, but certainly not problematic, but better where is going to — the model is one that still continues to generate pretty good cash flow quarter-to-quarter despite what we’re dealing with on the macro level.

Rob Wildhack — Autonomous — Analyst

Okay. And then to stick with cash, you’ve run the business at times with more cash than the $286 million that you have now, at times with a lot less cash, too. So how much of the $286 million in cash today would you bucket as “run” the business-type cash?

Trent Ziegler — Chief Financial Officer

Yes. We conservatively — conservatively, we need about $75 million of cash to run the business. So certainly, there is excess cash on the balance sheet. We’re looking for ways to deploy that. Obviously, we’ve got to be mindful of kind of where our leverage levels have gone given the current EBITDA profile that we’re dealing with. So we continue to evaluate options, whether it’s tuck-in M&A or potentially delevering.

But given sort of current macro conditions and uncertainty about near-term macro conditions holding on to that cash is, we feel like it’s a pretty good idea to sit on that cash and sort of see ourselves through this near-term uncertainty.

Rob Wildhack — Autonomous — Analyst

Got it. If I could just sneak one more in. Could you just remind us what the leverage covenant is?

Trent Ziegler — Chief Financial Officer

So our credit agreement is governed by a broader secured net leverage test. And so it’s 2.5 times secured net leverage. Obviously, the only portion of our debt that’s secured is the term loan that we did last fall, that’s only $250 million. So from a secured net leverage test, we’re in a net cash position. So that’s a very little concern.

Rob Wildhack — Autonomous — Analyst

Very helpful. Thank you, guys.

Operator

Thank you, Rob. Our next question is going to come from Melissa Wedel from JPMorgan. Melissa, you have the line.

Melissa Wedel — JPMorgan — Analyst

Thanks so much. I appreciate taking my question. I was hoping we could go back to Insurance for a moment. A follow-up question for Scott. I heard what you said about expecting to see a bit of progress early in 2023, but without ramping throughout the year. Would you expect a similar cadence on the margin or something else?

Scott Peyree — President, LendingTree Insurance

Yes. Melissa, this is Scott. Well, I would say, for starters, we’ve already started the margin profile adjustments, and we’re very focused on the — we were, I think, as Doug or Andrew mentioned earlier in the call, we’re up 4.5 points from Q2 to Q3, we’re going to be up in Technical Issues two points from Q3 to Q4. So we’re feeling really good about the trajectory of our margins again.

As I said in my previous answer, just instead of focusing on trying to deliver anything and everything to the clients, just focusing on delivering the highest quality, which is what the clients want right now and making the most monetization out of that limited traffic instead of trying to overwhelm the client with traffic. And so I think that puts us in a very good margin profile when the growth starts. And so then the goal is just to maintain that margin profile as we get to revenue growth.

Melissa Wedel — JPMorgan — Analyst

Okay. That’s really helpful. And then I had a follow-up question on a comment. I think it was in the shareholder letter about there being sort of record consumer search activity within Insurance. I wanted to make sure I’m understanding that correctly. Are you guys looking at that as sort of just a rational consumer response to auto rates that have been increasing? Or is there something bigger to read into that in terms of sort of like pent-up demand for auto?

Scott Peyree — President, LendingTree Insurance

Yes. I’m not sure if that reference was in our letter or somewhere else, but that is a phenomenon that — that is — yes, okay. So yes, that is a phenomenon that’s happening right now. And it is a — I would say more so than pent-up demand. I mean auto insurance is something that consumers are always shopping for. I think it’s more of a rational consumer response to raising rates.

So I mean people are getting the renewal notices right now. And there’s the shock value when you see a 10% or 15% rate increase because all the carriers are putting through rate increases to try to catch up with inflation. So that just drives shopping behavior. So at the end of the day, everyone is putting rate increases in, but it incentivizes people to shop, which is a good thing for a company like ours.

Melissa Wedel — JPMorgan — Analyst

Alright. Thank you.

Operator

Thanks, Melissa. Our next question is going to come from Cristopher Kennedy of William Blair. Christopher, you have the line.

Marc Feldman — William Blair — Analyst

Hi. This is Marc on for Chris. I just wanted to ask one question here. I saw that MyLendingTree users grew during the quarter. But obviously, the revenue contribution from MyLendingTree went down 25%. I mean, historically, you’ve talked about a lot of the revenue from MyLendingTree coming from personal loans. So I wanted to see if you could talk about any of the dynamic there between MyLendingTree user growth and then revenue contribution?

Douglas Lebda — Chairman, Chief Executive Officer, and Founder LendingTree.com

Yes, invariably, what happens with our — with that base, as we’ve talked about, that base disproportionately benefits our personal loan business. And while that business remains strong, recognized that in the third quarter, what we saw among our lenders was more tightening of filters with concern about the economy, right? So they moved up with respect to credit quality, and they were also increasing pricing to the borrower, right?

So that’s the behavior of the personal loan. Now that exists in our marketplace business but recognize that what’s happening is the MyLendingTree base is being filtered that much more relative to those tightening filters. So you saw a deceleration effectively in that engagement because of the tightened filters and the increased pricing from our lenders.

Now the other thing to keep in mind is the number two product for the MyLendingTree base in any given quarter has historically been refi. So you’re seeing the impact of that as well. And so it’s always an interesting thing to look at alignment between that MyLendingTree base and revenue in a given quarter. Operationally, we tend to focus more on, are we growing the base, are we diversifying the base?

But there are some read-throughs in a given quarter that are probably a little bit short-term oriented. So essentially, we think it’s related to the PL tightening and the refi and not much more of a read through than that.

Marc Feldman — William Blair — Analyst

Got it. Then I guess kind of following up with the TreeQual initiatives. Have you guys thought about any additional product types to expand TreeQual into or kind of focus right now on where it’s at with personal loans and credit cards?

Douglas Lebda — Chairman, Chief Executive Officer, and Founder LendingTree.com

I’m going to let J.D. pick up on that one. But in some of our other products, for example, mortgage, you’re already tied into pricing engines. So J.D., take it from there.

J.D. Moriarty — President of Marketplace and Chief Operating Officer

Yes. I think — as I said before, the business that will benefit the most initially will be credit card. We want to get that right first. Personal loan, what we’re seeing is a real overlap. You’re starting to see — we see real growth in the base of lenders in personal loans. We also see a trend where many of our personal loan lenders are getting into credit cards, growing a credit card business as well.

So it’s a natural extension. But honestly, the focus for TreeQual for the next year will continue to be on those two products. The thing that TreeQual enables us to do that is really interesting is it’s not just going to be dependent on the MyLendingTree base. So you could envision a scenario where a consumer in our personal loan marketplace is looking for a personal loan that is perhaps inefficient, maybe it’s a small dollar size.

They’re looking for an $8,000 personal loan and the pricing for that loan is inefficient for them, and we can offer them a credit card in the experience. So think of like an interstitial that would show up in that consider this. And so it gives us the ability to be way more dynamic and responsive to the consumers’ need, and that’s where this will evolve. So we’d rather really get it right in cards and personal loans, and then we’ll figure out whether it can apply to other products, but that’s the first leverage point.

Marc Feldman — William Blair — Analyst

Got it. Thank you guys for taking my questions.

Operator

Alright. Our next question — and the next question is now going to come from Youssef Squali of Truist Securities. Youssef?

Youssef Squali — Truist Securities — Analyst

Hi, good morning. Can you hear me?

Douglas Lebda — Chairman, Chief Executive Officer, and Founder LendingTree.com

Youssef, yes.

Youssef Squali — Truist Securities — Analyst

Good morning. I apologize I joined late. So this question may have been asked. But just on the credit card business, down 10%. Maybe can you just expand on what went on there? One of your peers that also reported last night showed quite a different picture on that segment of the business. Just trying to understand kind of maybe the competitive dynamics versus things that you have done that may have caused that kind of decline. What’s baked into your kind of outlook for Q4 as far as credit card is concerned? And I have a follow-up.

J.D. Moriarty — President of Marketplace and Chief Operating Officer

Sure. So Youssef, we’ve talked about the fact that the thing that we need to improve in our credit card business is our marketing mix, right? We’re very dependent on paid search. And so in that respect, when we get budget from an issuer, we’ve got to go out and go acquire traffic. And so that traffic has been expensive. And as a strategy for our card business, we’ve got to improve that over time. We’ve got to improve and find low-cost sources of traffic.

And so when you think about that, you typically think about what is organic or near organic, so content which takes a long time, right? You have to develop SEO content, and it takes a long time to get there. So the competitor that you’re mentioning is a known player, their primary strategy is SEO. And what we’ve observed in the quarter is two things. One, they obviously talked about an acquisition.

But two, they have stacked more, what I would call, card sort on top of their organic or editorial content. So if you go into a Google search and you see what was previously a “editorial” content around cards, it is way more transactional than it was a quarter ago. And it has an array of cards that are available to you, etc. So that is a strategy that they’re benefiting from in the quarter, and they’re better leveraging their SEO content.

Now as you know, the SEO business is an important business, but one that you have to manage the quality of the content over time. It’s important to us to grow that and have it be part of our marketing mix for sure, but it’s something where our card business simply does not benefit as much from it as we would like it to. And that’s really the distinction in the quarter in the card business.

So while we definitely have payouts that are higher than they were a year ago, now keep in mind, payouts tend to be peaking in the third quarter. So they were healthy a year ago as well. The difference is that we’re just having to pay an awful lot to go get that traffic. And so that’s been the challenge.

Youssef Squali — Truist Securities — Analyst

And then in terms of what’s baked in your Q4 outlook?

J.D. Moriarty — President of Marketplace and Chief Operating Officer

We don’t — in our Q4 outlook, we continue to — we — the only thing baked in is the seasonality of Q4. We don’t assume that, that improves at all in card.

Youssef Squali — Truist Securities — Analyst

And is that something that you guys are going to lean much more aggressively into because you’ve always had a little bit, but not a lot of it and that was by design. Does this kind of.

J.D. Moriarty — President of Marketplace and Chief Operating Officer

Yes, we’ve actually seen — yes. It’s interesting, Youssef, across our business, SEO, credit to the team, the results this year are actually quite good in many of our verticals. It’s just recognized that we’re trying to support many verticals with improved SEO performance. And not — we’re not as concentrated, all right? We do have — SEO has to support home. SEO has to support personal loan, right, insurance. And so in that respect, you’re just not seeing as direct of a benefit as somebody who’s more focused on the card business specifically?

Douglas Lebda — Chairman, Chief Executive Officer, and Founder LendingTree.com

Yes. And the only thing I’d add is you target your SEO and your content, which we — and we’ve got teams — great teams doing that at your highest value products and stars have been tilting obviously, not as much credit card than our competitor. And the only other thing I’d add is, in a paid marketing business, while that sometimes can — obviously free traffic is better.

But the challenge with free traffic is it doesn’t double and triple like you can when you can lean into paid marketing. And so I think our paid marketing capability is very, very good. And as J.D. said, we need to step up on the content game. And the nice thing there is somebody else has another trick, we can do it, too. And we think the LendingTree brand will pull better than pretty much anybody at the end of the day.

Youssef Squali — Truist Securities — Analyst

That’s great. That’s helpful. And maybe just one question on profitability. So I know you’ve gone through some cost cutting. As you look at longer-term profitability, I guess, how do you balance out profitability derive from just top line growth, which arguably is kind of hard to control versus just profitability from better cost containment, which you guys seem to be doing?

I guess what I’m asking is, it looks like profitability is probably troughing in Q3. But as we look beyond Q3, Q4 into next year, I mean, how long before we get back to double-digit kind of EBITDA margins at least based on what you’re seeing today?

Trent Ziegler — Chief Financial Officer

Yes. I mean we talked about this a little bit earlier as well, Youssef. Last quarter, we sort of mentioned a kind of a $15 million to $20 million trough EBITDA level in a “more normalized environment.” Obviously, the macro conditions have continued to get worse. Q4 is always seasonally a tough quarter. Q3 was impacted by kind of the upfront nature of the brand investment.

And so as we said earlier, we still feel really good about that 15% to 20% — or $15 million to $20 million floor on a quarterly EBITDA basis going into next year. Obviously, we’re going to continue to push and manage the business to try to do better than that. I guess two things. In terms of just balancing revenue opportunity and cost cutting, macro conditions have been tough, and we’re responding accordingly.

We’re weathering this tough environment where we’ve got for us, our mix of business being sort of anchored in Home and Insurance, those two, in particular, are experiencing tough headwinds, and I think we’re being disproportionately impacted by those headwinds relative to some of our competitors. And so we’re navigating through this environment.

We’re going to continue to manage the cost structure with discipline. But we’re certainly still well enough resourced to continue to execute on our strategy and drive growth in the quarters and years ahead.

Douglas Lebda — Chairman, Chief Executive Officer, and Founder LendingTree.com

The only thing, Youssef, I’d add to it is, and Scott alluded to this in terms of his margin profile, right, recognize the Insurance business started to see constrained budgets, call it, in the second half of last year. And now Scott and team have done a great job of managing margin in their business, VMM, right, in their business by — so they’re delivering higher quality for their partners at a lower cost, driving our margins higher with better quality delivered, right?

And now in the Home business, we need to do the same thing. When you see that revenue deceleration, what you would typically see is our margins would expand a bit because we’re not chasing every last bit of traffic because our partners only want the best traffic and so we’ve got to do that in the Home business. The only business we have that is not operating at a margin that we’re happy with right now among the big businesses is card, right?

And so we’ve got to manage it in the businesses on a VMM level, and then we’ve got to manage our opex, which obviously Trent mentioned the work that we did in the quarter, which we should all emphasize will be ongoing, right, is to reduce that opex and deliver margin. That is absolutely part of our strategy as we move forward in 2023.

Youssef Squali — Truist Securities — Analyst

Thats helpful. Thank you.

Operator

Thank you, Youssef. [Operator Instructions] Next question is going to come from Mike Grondahl of Northland Securities. Mike?

Mike Grondahl — Northland Securities — Analyst

Yes. Hi, guys. So my question is just about mortgage. Any thoughts on evolving or improving the customer experience kind of with mortgage during this very slow period? How are you thinking about evolving that customer experience?

Douglas Lebda — Chairman, Chief Executive Officer, and Founder LendingTree.com

So I referred in my — in one of the questions to Marketplace 24. The first phase of that project was the revamp of the customer journey through the point of submitting a form on the marketplace. The second version of that we’re working on right now, which is to improve the CRM, if you will, between the time that a customer click submit and the time that they close. What we think that will do is move up the lenders close rates.

As their close rates go up, their cost per funded loan goes down and then they increase their bids. And we’re working on some really interesting ways of sharing data back and forth between us and lenders so that we can use that data over the long purchase cycle of a mortgage. When you think about a mortgage, it’s a highly considered purchase. It’s not something that you buy in one click on a website right away, you want to go talk to your spouse, you want to go shop around and you need to manage that customer and we need to give them confidence all the way through the process of selecting a lender and locking in. And that’s the focus of that. And we’re just kicking that off. But that’s a really big focus there.

Mike Grondahl — Northland Securities — Analyst

Okay. Thanks for recalling.

Operator

Thank you, Mike. And last question comes from Jamie Friedman of Susquehanna International Group.

Jamie Friedman — Susquehanna International Group — Analyst

Hi. So just to revisit some of the prior comments, so I’m hearing you’re right. With regard to the margin, I don’t want to mess this up, but I think you said — I think you said in a previous answer that you were still comfortable that the margin, say, mid-cycle can return to the, say, mid- to high teens that they’ve been historically. I don’t want to put words in your mouth, but is that about right?

Trent Ziegler — Chief Financial Officer

Yes. I’m not sure I said that specifically. I think what we said was sort of continuing some commentary from last quarter. As we get into next year, despite any improvement in the macro and perhaps even allowing for some degradation in the macro, we still feel pretty comfortable that we can deliver kind of a $15 million to $20 million floor with regard to quarterly EBITDA.

Jamie Friedman — Susquehanna International Group — Analyst

Yes. Okay. And historically, that’s been significantly influenced by the relative margin characteristics of the different business segments. So is there any underlying assumption there? Or is that just because of kind of cost improvements in the overall corporate structure?

Trent Ziegler — Chief Financial Officer

Both. I mean, as we’ve said, we’re very focused on both preserving the kind of the gross margin within each business. In an environment where the revenue opportunity is challenged or limited, we’re maniacally focused on preserving as much margin within that as we can. And then the opex piece is a different animal, but we’re obviously very intently focused on that as we head into next year. I mean, clearly, we’ve taken some steps throughout this year. We did a workforce reduction in January. We’ve done another one here just last week, and we’ll continue to kind of evaluate that as we head into next year.

Douglas Lebda — Chairman, Chief Executive Officer, and Founder LendingTree.com

Yes. Let me just make a clarification, too. When Trent expresses confidence in normalized EBITDA, the reason we could do that as a company is that the — that we’re basically always balancing supply and demand in our — in the core of the business model. So if insurance companies, for example, are demanding fewer customers, fewer leads, we go turn down the marketing spicket and you still make EBITDA, you still make VMM, you just make less of it.

The flip side is when people increase their demand for personal loans, as bids go up or if the conversion rates go up, your monetization goes up and then you can go market into that and increase the supply of leads into the market. So as you — in either one of — because the marketing costs and the revenue are joined at the hip, the margin percentage roughly goes up and down.

And as long as there’s enough demand in the system for insurance companies, for mortgage companies and banks to actually work with us, then you go — then you have enough VMM and then you go look at your fixed cost structure. And except for your growth initiatives, there’s — you beaver away at that as Trent has already talked about.

Jamie Friedman — Susquehanna International Group — Analyst

Got it. Thanks for that, Doug.

Operator

Great. Thank you, James. And thank you, everyone, for your questions. At this time, I would like to turn it back to the speakers for any closing remarks.

Douglas Lebda — Chairman, Chief Executive Officer, and Founder LendingTree.com

Thank you very much, and thank you again all for being here. I sort of alluded to this in my last answer. But given the diversification of the model, the way the marketplace works, we are absolutely thrilled that we’ve been able to execute the past several years in a really, really, really choppy market. And when we talk about supply and demand, keep it in that context, demand for all of our leads, if you will, across segments have been down.

And we’ve been able to — not only the business model is resilient but our team has been fantastic at seeking out opportunities. J.D. referred earlier to the fact that when lenders do pull back as they reduce demand, we love the fact that in most instances we’re the last place standing as a marketing partner. The next thing I just want to highlight is managing cost, Trent already hit on this, that’s really important to do as a company.

It is not lost on us, and we are going to every dollar we spend is going is going to the right place. And then after that, what we do is, I believe, very, very strongly in our core set of growth initiatives and what they’re going to do for our company. And they won’t all work. But I bet we’re going to have a couple of hits in there. I want to thank you all shareholders for being with us. Hopefully, we’re giving great transparency and stay tuned because you haven’t — there’s a lot more to hear from LendingTree coming up. Thank you.

Operator

[Operator Closing Remarks]