Angi Inc. (NASDAQ:ANGI) Q4 2023 Earnings Call Transcript

Angi Inc. (NASDAQ:ANGI) Q4 2023 Earnings Call Transcript February 14, 2024

Angi Inc.  isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, and welcome to the IAC and Angi Fourth Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s remarks, there will be an opportunity to ask questions. Please note this event is being recorded. 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. fourth 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’ll shortly turn the call over to Joey to make a few brief introductory remarks, and we’ll 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 fourth 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: Good morning. Happy Valentine’s Day. I think I’ve done this call on Valentine’s Day many times over the years, so I’m not going to try another bad Valentine’s joke. Hopefully, you’ve all had a chance to read the letter and review the numbers. I want to start again by giving you a very big thank you to all the teams across the businesses at IAC and the corporate folks at IAC, at Angi, Dotdash Meredith, MGM, Turo, for making our job much easier this quarter. It’s a heck of a lot easier to write these letters and get on these calls when the news is good, so thanks to everyone for making that happen. And it wasn’t just one quarter. 2023 was a year of real hard work, changing our mindset, getting things done on behalf of our customers and the long-term health of our businesses.

And it really paid off in this last quarter. So thank you all. Hopefully, some of you are listening in this Valentine’s morning. And that’s why Chris and I have a spring in our step this morning. It’s not just Valentine’s Day, that’s performance. So Drew, let’s get to questions. Thank you.

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Q&A Session

Operator: [Operator Instructions] The first question comes from Cory Carpenter with JPMorgan. Please go ahead.

Cory Carpenter: Thank you. I had two on Angi. Maybe Joey first, could you just expand on the trends you saw in the fourth quarter and what led to the upside relative to your guide for Angi? And then secondly, it would be helpful to hear your expectations on the revenue side for Angi this year and what’s embedded within your ’24 profit outlook? Thank you.

Joey Levin: Sure. Thanks, Cory. I’ll take the first, and Chris will do the second. The biggest thing that we’ve underestimated, and we’ve really continually underestimated this is — notwithstanding talking about it a lot, is service professional retention. And the progress there has been tremendous. It’s a result of a lot of things we’ve done to drive satisfaction, first of all, targeting better service professionals with sales. Giving them more compelling, committed offers; giving them a chance of success, and some things we’ve done on the demand side to improve the mix of demand to help their win rates. And that retention has continued to move up. And I think we haven’t gotten as good at sort of modeling that upside, and we look at it conservatively.

But as that comes through, it makes each individual transaction for us, unit economics more profitable. Because we have more service professionals, active and engaging with service request. Related to that is things like bad debt. We’ve been outperforming on bad debt all year because, again, we have happier service professionals. The other thing is the margins in our paid marketing. And we’ve been expanding the margins in our paid marketing through, I think, a combination of smarter spend and some conversion improvements. And obviously, that’s good for margins. And all year 2023, relative to 2022, we’ve been much tighter on fixed costs and costs in general. And so, the combination of those things all came through on profit. And I think a lot of those trends are – I would say, almost all of what I just said, I think, is durable, sustainable for the future.

So that’s, I think, a good thing for Angi’s margins.

Christopher Halpin: Yes. Thanks, Cory. In terms of outlook for ’24, we expect the revenue trend to improve over the course of the year from the declines you saw in Q4. But we also think it’s important to remain — retain flexibility in terms of revenue growth in order to do what we need to do to keep improving the foundation for user experiences, both on the pro side and homeowner side. What does that mean in Q1? We’d expect to decline in revenue year-over-year to be roughly the same rate as we experienced in aggregate in Q4 of ’23, maybe a little bit better in Q1. The bulk of the actions that we took last year to eliminate low-margin and low-quality revenues really showed up in Q2 of last year. So the comps do get easier. Q1 will be the most challenging.

We expect year-over-year revenue declines throughout ’24, but expect that percentage to narrow as we lap the easier comps, and also the fruits of some of the actions that Joey talked about. And we’re taking on the demand side begin to show. But we’re not forecasting a return to revenue growth this year. On profitability, we expect to sustain the 10% plus EBITDA margins we demonstrated in this last quarter, when you normalize for the insurance settlement. We expect Q1 adjusted EBITDA to be up slightly year-over-year, despite the lower revenue over what we generated – to be up over what we generated in Q1 of ’23. And we’d forecast 10% to 12% adjusted EBITDA margins each quarter in ’24. So – and that’s how you get to the $120 million to $150 million of adjusted EBITDA on our guidance.

Thank you. Next question operator.

Operator: The next question comes from John Blackledge with TD Cowen. Please go ahead.

John Blackledge: Great. Thanks. Two questions. First on Dotdash, DDM Digital, the ad revenue growth acceleration was better than expected. Can you talk about the key drivers of the acceleration? And then for ’24, how should we think about the trajectory of DDM Digital ad revenue growth and EBITDA for the segment, just given the acceleration in EBITDA upside in 4Q? And then second question on free cash flow in ’24. It looks like IAC will return to kind of be a big free cash flow generator. Any way to kind of frame free cash flow conversion of EBITDA in ’24? Thank you.

Joey Levin: I’ll start, and then I’ll turn to Chris again. Digital revenue growth was really all the key factors: traffic, meaning volume; price, meaning ad sales rate; premium sales monetization. And that was, I think, a big win for the business and a big change in direction that we’re pretty proud of. You can see that core sessions, which is over 80% of traffic, grew 10% and continued to accelerate. I mean, that’s a really nice trend to see. And the rate, if you just look at revenue per session, up nicely, too. Premium sales is about 2/3 of our ad revenue, and that was solid really for the first time since the ad recession started in Q2 of ’22. That’s a credit to, again, performance of our product, but also the combined sales force just working well together.