IAC Inc. (NASDAQ:IAC) Q1 2024 Earnings Call Transcript

IAC Inc. (NASDAQ:IAC) Q1 2024 Earnings Call Transcript May 8, 2024

IAC 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 day. And welcome to the IAC, Angi First Quarter 2024 Earnings Conference Call. All participants will be in listen only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. Please also 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., first quarter earnings call. Joining me today is Joey Levin CEO of IAC, and Chairman of Angi Inc. and Jeff Kipp , CEO 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 first 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 as EBITDA for simplicity during the call. I’ll also refer you to our earnings release, 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. Good morning, everybody. Thank you for spending some time with us this morning. I won’t repeat the numbers you’ve seen posted. I think we had a great quarter with real progress on growing profit and free cash flow and that puts us in a solid position for deploying capital from here. Biggest news in the quarter was we were starting to participate now in the new AI ecosystem in a tangible financial way. We announced a deal yesterday with OpenAI where we’ll be compensated for enhancing the ChatGPT experience. We’ll start to hopefully get some incremental users to our properties from ChatGPT and we are going to collaborate on D/Cipher which is a product inside of Dotdash Meredith that we think is the future of advertising on the open web and where we’ve been growing nicely and we think generally taking share on the open web.

And hopefully that agreement is just the beginning of other opportunities for us in that AI ecosystem. And we’re incredibly grateful to OpenAI who from the very beginning here has been a leader in the category including with their first product which really opened the dam for everybody competing in this area and hopefully they’ll still similarly act as a leader as they have done in the agreement with us and starting the opening the floodgates towards new opportunities for us in that area. I also want to welcome back Mr. Kipp. He actually used to be on this call eight years ago and is back in a new capacity as CEO of Angi. I’m not just thrilled about that because it lightens my load at Angi. I’m thrilled about that because I think Jeff has been, I know Jeff has been involved in this business in a meaningful way for a very long time.

Going all the way back to his role as CFO of IAC many years ago where he spent an enormous amount of time getting deep with what was the predecessor to Angi, Home Advisor, and then spent the last eight years very much in the details of the business in running the international business for Angi. And you’ve seen, as we’ve reported, tremendous progress in that business. And I’m really excited now that Jeff has the entire Angi business and he’s very focused on the key to succeeding in that business, which is delivering jobs done well. And I expect a job done well out of Mr. Kipp. So welcome, Jeff. Let’s get to questions. Operator, first question, please.

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Q&A Session

Operator: [Operator Instructions] Our first question comes from John Blackledge with Cowen.

John Blackledge: Great, thanks. Two questions. First, for DDM, overall revenue growth beat our forecast. Could you just unpack the growth within DDM digital revenue across advertising performance and licensing, and maybe how should that trend going forward? And then I have a follow-up on the OpenAI deal.

Joey Levin: Sure. So we felt great about the performance at Dotdash Meredith digital in Q1. Overall, digital revenue grew 13%, led by 19% growth in digital advertising. And that’s due to the combination we’ve talked about before, 8% core session growth, and then improved monetization across both premium and programmatic. Advertiser spending is firming up. It’s not a hot market or on fire, but it’s better and it’s strengthening. And that drives our premium sales. And then on programmatic, we believe we’re outperforming and improving market and that we’re doing better because of our superior tech stack end performance. Performance marketing only grew 3% in the quarter. And that was really pulled down by a 30% decline in services such as which is overwhelmingly financial products, such as brokerage accounts and insurance, performance marketing for e-commerce or goods, as we highlight grew 18%.

So we recognize we’ve got to continue to invest and innovate in performance marketing, particularly on the services side. But we’re confident that we’ll get back to strong growth there. And then a real bright spot was licensing, which returned to growth at 9%, led by strong performance at Apple News and syndication partners. That area had been a headwind really since we closed the Meredith acquisition. But we now feel it will be a tailwind. And OpenAI will be a further element there. Looking forward, we continue to see 10% plus revenue growth in digital each quarter and for the year with solid execution across all three line items. Advertising will clearly lead the way as we see session growth and improved monetization. And what’s your second question, John?

John Blackledge: Yes, second question. Could you talk about the DDM OpenAI deal at a high level, including key terms of the deal? And can we expect similar deals with other LLMs like Google, Anthropic, Meta, et cetera? And if you don’t strike a deal with those companies, are they precluded from training their models on DDM content? Thank you.

Joey Levin: Yes, so the deal, we obviously can’t get into the very specific terms, but at a high level, there’s three elements to the OpenAI deal. There’s displaying content and links attributed to DDM in the relevant ChatGPT responses. There’s using the historical and ongoing DDM content to enhance their model’s performance. And then there’s partnering with DDM and OpenAI on building out the D/Cipher cookie list intent-based targeting ad solution. That’s a first of its kind partnership and we think that really enhances the future, has the potential to enhance the future of privacy protected advertising and we’re excited to collaborate with them on that. It’s a multiyear deal and it involves both all the elements we said and that includes financial compensation and we’re really excited about that deal.

In terms of others, I think, look, as I said in my opening remarks, OpenAI led the way in showing the world the possibilities of Gen AI and a sort of chat interface. And I think that they can, they, I’m hoping that they will again demonstrate to have led the way in dealing with publishers and journalism and content. And I do expect that others will follow that may take time and some may sort of go through various stages of resisting that. But I do expect that that others will follow over time. And the deal is not exclusive, which means that we certainly have the opportunity to do a lot more there and we really are grateful to OpenAI for figuring out how to get this done and I think really from the beginning, [inaudible] under Sam Altman’s leadership have had the right tone in thinking about a healthy internet ecosystem and making sure that that OpenAI but AI generally is a force of good for the world And they’ve continued to demonstrate that so far.

Operator: The next question comes from Cory Carpenter with JP Morgan.

Cory Carpenter: Thank you. On the Angi CEO transition, Joey, why was now the right time and Jeff, it’d be great to hear your vision and strategic priorities as CEO. And then I have a follow up, but I’ll let you answer that one first. Thanks.

Joey Levin: Thanks, Cory. First of all, just having a full time CEO is obviously better and so as soon as we could do that we were, I was especially excited to do that. And one of the things that besides sort of improving the businesses’ fitness and customer centricity over the time I was there I wanted to understand in depth, the issues and the opportunities and one of the things that became very clear in my time there was what had been accomplished in the international business and what continues to be accomplished there. And that was a product of Jeff and an incredible leadership team in the international business that goes deeper than Jeff. And realizing that both we had the talent there and the depth there created the opportunity to elevate Jeff to run the whole business. And I think he’s going to do a fantastic job, but I’ll let him comment on it.

Jeff Kipp: I don’t think that there is really a change in strategic vision. I think Joey has rightly put the customer at the center of what we’re doing at Angi. And we have really focused on delivering a better experience online, and then most importantly, delivering jobs done well to both sides of the marketplace. And so the work he’s done with removing what’s called empty calories and moving the business forward in terms of being customer first is what I hope to continue. I hope we deliver more jobs done well each year from here on out. We plan to, and there’s no real change.

Joey Levin: Corey, you had another one?

Cory Carpenter: Yes, and maybe perhaps for Chris, could you give us an update on your Angi revenue expectation this year, and if you think you’ll need to reinvest ultimately to return the business back to growth? Thank you.

Christopher Halpin: Sure, thanks, Cory. Well, second part first, we definitely don’t think we need to invest more incrementally in the business at Angi to get revenue stabilize them back to growth. And in fact, Jeff can talk to it in continuing a lot of the work that Joey’s done. We continue to see opportunities on the cost side and is why we’re confident in our adjusted EBITDA forecast and continued margin improvements, even with the revenue declines. On a revenue outlook basis for the next quarter, second quarter, we guide towards similar to percentage revenue declines for total revenue at Angi in and around what we’ve seen in the last two quarters, sort of that mid-teens level. I’d note we took further actions to eliminate low value revenues at Angi this quarter.