Angi Inc. (NASDAQ:ANGI) Q3 2023 Earnings Call Transcript

Angi Inc. (NASDAQ:ANGI) Q3 2023 Earnings Call Transcript November 8, 2023

Operator: Good morning, and welcome to the IAC and Angi Third Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded today. I would now like to turn the conference over to Christopher Halpin, CFO and COO of IAC. Please go ahead.

Christopher Halpin: Thank you. Good morning, everyone. Christopher Halpin here, and welcome to the IAC and Angi Inc. Third Quarter Earnings Call. Joining me today is Joey Levin, CEO of IAC and CEO and Chairman of Angi Inc. Similar to last quarter, supplemental to our quarterly earnings releases, IAC has also published its quarterly shareholder letter, which is currently available on the Investor Relations section of IAC’s website. We will not be reading the shareholder letter on this call. I will shortly turn the call over to Joey to make a few brief introductory remarks. We will then open it up to Q&A. Before we get to that, I’d like to remind you that during this presentation, we may discuss our outlook and future performance.

These forward-looking statements typically may be preceded by words such as we expect, we believe, we anticipate or similar statements. These forward-looking views are subject to risks and uncertainties and our actual results could differ materially from the views expressed today. Some of these risks have been set forth in IAC’s and ANGI Inc.’s third quarter earnings releases and our respective filings with the SEC. We’ll also discuss certain non-GAAP measures, which, as a reminder, include adjusted EBITDA, which we’ll refer to today as EBITDA for simplicity during the call. I’ll also refer you to our earnings releases, the IAC shareholder letter, our public filings with the SEC and again, to the Investor Relations section of our respective websites for all comparable GAAP measures and full reconciliations for all material non-GAAP measures.

Now I’ll turn it over to Joey.

Joey Levin: Thank you, Chris. Good morning, everybody. Thanks for spending time with us this morning. Nice to have both Dotdash Meredith and Angi growing again on the bottom line. And I think we have a lot of great work happening at the businesses that should be able to keep that profit momentum going. At Dotdash, the momentum really starts with audience and those trends are good right now even with Hollywood on strike because we’re investing a lot in our content and our platform. We have an attractive and growing audience, a unique, high-performing ad product to sell and industry-leading e-commerce capabilities. If we have a decent ad market through the rest of the year and into next year, I think we’re in great shape. And all the work we’ve done on the cost side should help more of those dollars flow through.

At Angi, we’re making our paying customers happier. The service professionals are retaining longer and spending more over their lifetime, which means they’re making more homeowners happy. We believe that means we’re delivering a better overall experience, which is how we earn our margin. And you can see that showing up in profitability in the business. Profitability isn’t our only priority or even really our biggest right now, and I don’t think we’ve reached maximum profitability yet on our existing service professional and homeowner base. But one of the things we’re learning is that optimized customer experience, the way we’re looking at it today, which is our biggest priority, happens to line up well with profitability because it means we’re making more and better matches on our platform, which makes each transaction more valuable.

When we’re making more matches on our platform, we think we’re lifting win rates for pros and we’re lifting customer satisfaction for homeowners. So all the steps we’re taking may not yet optimize the P&L, but they do prioritize optimization for customer experience. And we believe that long term, how we’re going to win this category. I know patience here isn’t easy, but that’s how we’re thinking about it, and we’re generating more cash flow in the meantime. We’ve got a lot to work with throughout IAC right now. MGM and Turo are, in my opinion, in excellent shape with exceptional leadership, and we’re grateful to be a part of those businesses. But we’ve got plenty to discuss today. So let’s get to questions, operator.

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Q&A Session

Operator: [Operator Instructions] At this time, we will take our first question, which will come from Jason Helfstein with Oppenheimer. Please go ahead.

Jason Helfstein: Thank you for taking the question. Good morning, everybody. So kind of one two part question. So can you help us understand, with respect to kind of the guide for the full year in some cases, being to the low end of the prior range. How much of that is revenue related versus margin related? So just if you can give us some color as far as where you’re seeing particularly Meredith Dotdash, and Angi with respect to the revenue outlook? And then secondly, with particular with Angi, I would imagine that the business is suffering from – given where rates are and the pressure on homeowners and borrowing costs, et cetera, as well as lack of housing transaction volume. If we get into an environment where rates come down in the back half of next year, housing volume comes up, et cetera, maybe how do you think about that impact to Angi and on the discretionary side? Thanks.

Joey Levin: Sure. Thanks, Jason. Maybe I’ll let Chris do the guidance question. But overall, on Angi macro, I still think that what’s happening to the business today is much more our hand than it is the market happening to us. And that’s the proactive actions we’ve taken and we’ve talked about a lot on improving the quality of our customer experience, our homeowner experience, our pro experience. And we’re continuing to make improvements there. And that does take a hit out of revenue. I think from a – our estimate was in the beginning of the year, the market was probably down overall market, not us, probably down in the 5% to 10% range. And I think now, it’s probably that our estimates are closer to flat to maybe up a touch.

But the changes that we’re making, obviously, have taken us down. The active real estate market or a more active housing market, I think, is generally good for the demand side of our business. And when homes transact about $15,000, you think in work that happens per home transaction, so that creates a lot of movement in the industry. The flip side to that is that pros are busier and so pros may need less business in those times. And so we’ve talked about that kind of natural hedge in our business where – if pros are doing less work, they’re more eager to be on our platform and the flip side is homeowner demand goes up in those scenarios. We are not anticipating any meaningful movement in the market, up or down. We think we’re reasonably well positioned to handle either one of those scenarios.

But we’re not anticipating either one of those up or down, and we think that we have room to expand profitability in the business kind of regardless in that scenario. But on the revenue side, it is proactive actions that we are taking that I think is most guiding what’s happening on revenue in the business.

Christopher Halpin: Yes. Just a couple of elements on that. We did guide to the low end of our EBITDA range of $100 million to $130 million last quarter. We feel we’ve just tightened where we are there. As Joey said, it’s overwhelmingly driven by revenue softness from the proactive actions taken to improve lead quality. Some of those had a larger impact in the short term than were initially anticipated. Probably the bigger factor also is a few of the channels that were reduced, have ramped up more slowly than we anticipated, but we’re fully confident they will come back and are seeing that happen. So it is a – for Angi, it’s – the relatively short-term impacts of the actions taken, nothing on margin degradation relative to your question.

For Dotdash. Meredith, it’s due to a confluence of factors, predominantly macro. We guided in the letter and in our call last quarter for some softness in Q4 as we began to – some softness in Q3 traffic in our entertainment sites. We really started to see that in August, driven by the strike and just the lack of activity in Hollywood. That pulled down Q3 results a bit. The bigger story right now is we anticipated and had been pretty clear with the market that we expected a much more solid Q4 environment for advertising this year than last year when really, last holiday season, the market totally froze up. We’ve seen steadily strengthening premium demand and programmatic pricing in Q3, but similar to a number of other publishers and platforms, that reversed for a bit in October, clearly driven by war, macro concerns, higher rates, et cetera.

So we lost some momentum. Trends have been better so far in November, but it’s still an uncertain environment. So we’re expecting a holiday season that’s only mildly better from a macro perspective on advertising. You will talk about – we talked in the letter and I’ve talked about 80% incremental margins. That drives growth year-over-year in EBITDA. But on the flip side, versus plan, if advertising revenue is lower, that goes to the bottom line. So – and then Performance Marketing continues to be strong, and we expect that to continue apace, I guess, absent a major consumer slowdown. But we feel good about where we are. Things have been better so far in November relative to what was a broader slowdown in October, and we’re going to continue to monitor it.

Jason Helfstein: Thank you.

Christopher Halpin: Thank you. Operator, next question.

Operator: Our next question will come from Brent Thill with Jefferies. Please go ahead.

Brent Thill: Good morning. You talked about Angi in the buyback, utilizing the 1.4 million shares left. You didn’t buy an IAC stock in Q3. Can you just talk about the rationale behind repurchasing Angi versus IAC?

Joey Levin: Sure. Just one correction, Brent, but it’s 14 million shares in the Angi authorization. The purchases at Angi, I think, are relatively straightforward. I think it will be – there’s not a ton of volume there. But one of the things we want to do is offset dilution or potential dilution there. And so buying back up to the authorization helps accomplish that. And of course, if we’re buying, we view it as attractive. As it relates to IAC, look, we bought $165 million worth of IAC so far this year. It’s something that we have considered, we always consider. I think we took a pause this quarter when we saw the reaction to Angi last quarter, which I think even surprised us in terms of its magnitude, and we wanted to look and see where things settle out. And that’s something that we will continue to evaluate.

Brent Thill: And quickly on care and the growth accelerated from 2% to 4%. What do you think it’s going to take to get back to double digit?

Joey Levin: Yes. So the slowdown there has been driven by predominantly the consumer side. We had a solid quarter, especially in enterprise there in the third quarter. We’re excited about Brad Wilson, the CEO, and the management team he’s brought in. It’s really going to be around reigniting consumer growth. That’s both on product and conversion, challenges that have happened, probably a little bit of macro slowdown potentially. But we still really believe in the market opportunity and the position of care and believe it should be a consistent double-digit grower. And then we’ve got opportunities on marketing that we’ve talked about consistently for the last few quarters. So we are – they are still working on repositioning the platform and getting the marketing going.

We think we’ll see steady improvement across ’24, and it’s going to be consumer-driven. Enterprise is solid. You can see that corporate demand for backup care broadly for their employees is robust, albeit they’re going to be more price sensitive or not be willing to spend as aggressively as they might have during the pandemic. But you’re going to add accounts and continue to expand that market. So it’s really basic blocking and tackling. We’re excited about what Brad and team are driving, and we’re looking forward to 2024.