Welcome to the IAC and Angi Fourth Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Christopher Halpin, Executive Vice President, CFO, and COO of IAC. Please go ahead.

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. In addition, Angi has published an earnings deck this quarter, which is currently available on the investor relations section of both IAC and Angi’s respective websites. I will shortly turn the call over to Joey to make a few very brief introductory remarks and then walk through Angi’s earnings deck. We will 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 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 releases, the IAC shareholder letter, the Angi deck, and again to the Investor Relations section of our respective websites for all our comparable GAAP measures and full reconciliations for our material non-GAAP measures. Now, let’s jump right into it. I will turn it over to Joey who will walk through the Angi earnings deck.

Thank you, Chris and also congratulations Chris of the new responsibilities. Hopefully everyone saw, Chris has the new responsibility of Chief Operating Officer to Chief Financial Officer [indiscernible] incredible addition to the team since he’s been here and we’re excited about the new responsibilities. We changed up the format a little bit here to walk through this Angi deck. So, hopefully everyone has access to the deck in front of them and I'll take you through page by page. What we wanted to accomplish here is, give you a sense of how things are going there and where the focus is since I have moved over to Angi a few months ago, to my responsibility. So, I'm going to start with Page 3 here, pass the title page and pass the Safe Harbor statement. We're on Page 3, which is, I think the most important slide we have. What you see here is the importance of One Angi. This gets to our history, how we got here and what we offer to our customers. And our customers are both the consumers and the service professionals. We've been in this business now over 20 years. Starting with Angi's List, which was a directory, which gave you, the consumer all the information of service professionals in a category and the ratings and reviews and a trusted source for that information. We also had a home advisor which matched homeowners with service professionals based on exactly what the homeowner wanted to get done and exactly what the service professional was capable of doing. And then we added Handy, which allowed a homeowner to book and pay for a job online and let the platform do the rest of the work. That is the collection of work that a – or the collection of…

Thanks, Joey. As you will have seen in the shareholder letter, we have resumed providing annual profitability guidance. On Page 12, you can see our outlook for Angi. Adjusted EBITDA of 60 million to 100 million. I'd note at the high-end of that range that's more than twice 2022 adjusted EBITDA. We also have given the reductions that we've driven in efficiency to drive free cash flow and CapEx. Our CapEx guidance for 2023 is 40 million to 60 million, which again is pretty much down 50% year-over-year. And then as we discussed, and I'm sure we'll discuss more services is switching to net revenue reporting because of the changes in the terms and conditions in those agreements with customers. To help you in forecasting the business, we wanted to give first quarter guidance on revenue of 370 million to 400 million that at the midpoint of that range with services net, that is basically flat year-over-year. We would point you to the grids and metrics section of our earnings release, wherein you'll see good pro forma data that lays out 2021 and 2022 quarterly revenues and financials for Angi on a net revenue basis if services had been presented at [book net] [ph] historically. With that, I will turn it back to Joey.

Thank you. Let's go right to questions. Operator? Operator, sorry, let's go to the queue.

Yes, sir. [Operator Instructions] Today's first question comes from Jason Helfstein with Oppenheimer. Please…

Thanks. Hey, guys. Good morning. So Joey, everybody likes [to sequel] [ph], because consumers know what they're getting and the studios usually can predict the returns of sequels better than the original. So, I'm not sure what the sequel is now with Angi, kind of reboot number 3, maybe 4, just given this, how are you thinking about the long-term opportunity, it seems like we maybe need to think about a smaller TAM since you're, kind of reducing the focus on the big services, but just maybe help us think how you're thinking about the long-term revenue and margin opportunity of the new – of the rebooted Angi? Thanks.

Yes. I could challenge a few things and I don't really think this is a reboot of Angi, but let me engage on the TAM first and then come back to the other part. The TAM for Angi is the same that it's been and has been the same for quite some time. Some people say the U.S. market is 400 billion or 600 billion, but let's just stick with 400 billion as the home services market and that includes the simple services and all the way to the more complex services. We're still servicing the more complex services. We're just not doing that through our services product. We're doing that through our ads and leads product. And that's a really actually phenomenal channel for our ads and leads product because those leads are very valuable to contractors. And we can make real money on that and continue to and have a great customer experience where a homeowner comes to our platform, looks for a service professional who can deliver in those complex services and we help find them a service professional who can deliver in those more complex services, and we're paid on that on a, either on a lead basis or on a fixed annual contract basis from the service professional. That’s a great place for us to be. Again, there's a revenue recognition difference, which is, if you stick with the 400 billion, pick what percentage you think is spent on marketing, some say between 10% and 20% dispensed on marketing, call that 40 billion to 80 billion, that's still the area that we're playing in. It's just booked now is 40 billion to 80 billion instead of the 400 billion. So, we are still in that. We're still in that with a product that services that…

Okay. And just a quick follow-up. If you're not going to build, I mean, the whole reason you were trying to get into the services where you are, the general contractor, is because you basically, I think, thought you could get a better take rate, right? Because when you provide ads and leads, at the end of the day, there's a diminishment, right? Because the service provider has to compete to close that with other service providers. And so, you don't get the full cut. So, I mean, do you agree with that thesis? And just if the bulk of the business is going to be in their ads and leads, we just have to think about, kind of a lower conversion rate of that 10% to 20% of advertising over time? Thanks.

No, it's not that. What put us into the services business was trying to drive the customer experience. So, trying to be able to get greater coverage in more categories or give the homeowner more options. So, what that means is, for example, where advertising doesn't work because there's a supply demand imbalance, you can't go to the service professional and say, well, come on our platform and we'll give you all the leads for [free] [ph] or even better we'll pay you to take the leads to make sure the customers get a better experience. What you can do in services is, you can price those things to make it attractive to service professionals to service the customer on your platform. So, what we're trying to get to is, more homeowners who come on to our platform have a solution that works for them. Now, we have to do that in an economically feasible way and doing that in the complex services wasn't working out economically for us, but in these other areas, it does. And so, we can service more customers with a solution. The other thing is that homeowners, many homeowners, in particular, younger homeowners, want to do less work or I should say, are comfortable with the platform doing more work. So, that means that they trust the platform to give a fair price. They trust the platform to find a reasonable service professional and they allow us to do that work on their behalf. And yes, that does lead to more take rate in that example, but really what's driving that is having a compelling customer experience, which I think we can deliver. Okay. On the long-term revenue growth and margins, we think this is – should be a double-digit revenue grower. Again, 2023 is going to be choppy because we're removing some empty calories and changing a bunch of things in the business, but kind of after 2023, I think double-digit revenue growth is absolutely achievable with expanding margins and there's a lot of leverage to expand margin. We talked about cost savings and efficiency, much of which we've already realized. But we do think that we can grow margins just by incremental revenue on a fixed cost base from here and that's what we expect in the business. Thank you. Next question?

Thank you. Our next question comes from Cory Carpenter with J.P. Morgan. Please go ahead.

Thank you. I wanted to stick with Angi. I had two questions there. First, just hoping you could expand a bit on your expectations around revenue trends maybe beyond 1Q this year, but not long-term. In the nonprofit, you mentioned earlier that Roofing has turned profitable. So, hoping you could talk about where else you're expecting leverage to come from in 2023 across the different segments? Thank you.

Yes, sure, Cory. Thank you. So, we provided guidance of [370 to 400] [ph] in Q1, net revenue with services and net in the earnings deck. Midpoint, as we said, would be flat year-over-year, I think it's fair to assume similar trends for the rest of the year with services on a net basis, but that's with growth in ads and leads and then some declines in aggregate services revenue as we lap having closed down a number of the complex money losing services as the year went on. So, what that results in is, we do expect gross profit to grow mid-single-digits across the overall Angi business this year, really due to – even if total revenue is flat, favorable mix between ads and leads and services. And as Joey said, we expect to return to consistent net revenue growth in 2024. On the EBITDA side, we do anticipate continued scale and margins and growth and profitability. Part of that is driven by cost savings and marketing efficiencies and really the fixed cost leverage that exists in ads and leads, which is such a high gross margin business, but also when you reference this, you can see in the segment reporting that – our new segment reporting, the magnitude of the EBITDA losses in both Services and Roofing in 2022 for different reasons that we've documented well throughout last year. We expect both of those to improve, Joey referenced in the presentation the continued contribution margin scale per job in services that will drive profitability and then also Roofing, we feel like we've optimized that business and are executing on the post storm volumes and just have a good steady state as well. So, variety of factors will drive growth in adjusted EBITDA and then also reduction in CapEx will drive free cash flow.

I think that covers it well.

Thank you. Next question, sir.

Our next question today comes from John Blackledge with Cowen. Please go ahead.

Great. Thanks. Maybe pivoting over to Dotdash Meredith, two questions. First one, just thoughts on the 2023 revenue and EBITDA trajectory. And then second question, could you discuss, kind of the recent traffic trends across some of the key brands I think you highlighted in the letter? And then kind of how traffic should trend as we get through 2023? Thank you.

Sure. Thanks, John. I'll start and Joey jump in on. I'll blend those two questions probably together as I answer. So, obviously, we're disappointed with the declines in the fourth quarter in digital revenue at Dotdash Meredith. I would say in the later portions of the quarter, particularly December, it is very exogenous of broader market. We feel good about where we are through the integration and that our platform is executing well as opposed to the trends in the summer and early fall. To get to revenue stability, which is our goal. We need stability both in traffic, aggregate traffic, as well as ad pricing. Aggregate traffic volumes across the portfolio is still down circa 5% to 6%, mainly driven by real weakness in a number of the historical Dotdash sites that just had large booms during the pandemic in Omicron, Investopedia, the Spruce, and others. We feel good about where the migrated Meredith sites are as we detailed in the chart in the shareholder letter. As the year progresses, we expect traffic to get to stability at some point in the second quarter and then grow in the back end. That is due to continued momentum on the migrated Meredith sites, easier comps as we move further past the pandemic and just general operational improvements. The ad market we describe right now is, sort of stable weakness. If you go back to May, June last year, that's when the market first fell out of bed after Walmart earnings and Target earnings, it firmed up in the back to school area, but it really froze in November and December on both the premium/direct and the programmatic side. And there was really minimal spend through the end of the year. Since the beginning of the year, [mark] [ph] is definitely…

Thank you.

Operator, next question?

Our next question comes from Ross Sandler of Barclays. Please go ahead.

Hey, guys. One more on Dotdash Meredith and then a quick follow-up on Angi. So, just high level, we've seen all this explosion of new tools like Chat GPT, and Generative AI coming out, and I'm just wondering how that might impact Dotdash Meredith. On one hand, you could potentially produce content much more efficiently in the future. On the other hand, SEO traffic might be negatively impacted. So, just could you walk us through how you're thinking about that and overall impact down the road? And then on Angi, in one of those slides, there was a stat about service provider retention being 25% or thereabout after year one. So, kind of surprised it's that low, this kind of laid into the maturity of the Angi platform. So, how can you improve that SP retention stat? And how does that play into the sales force efficiency that you're talking about? Thanks a lot.

Sure. So, starting with AI, every new technology is a threat and an opportunity and we certainly think about them in both ways. I think on the Dotdash Meredith side, one of the things we're really happy with is the – in the context of generative AI and Chat GPT is that we did the combination with Meredith. And the reason I say that is because brands really matter, trust really matters, voice really matters. You can ask the bot questions and it's amazing at answering those questions, but it doesn't have a voice, it doesn't have experience, and it doesn't have a brand that stands behind those results. In fact, it sort of goes out of its way to not stand behind those results. And I think that's really important in areas like [taste making] [ph], which we're doing in a literal sense with food, but also in travel and home and things like that. But creating new [tastes] [ph] and creating new content around that is really important to have a brand and have a voice, which is what we have at Dotdash Meredith. There's a big difference if you want to draw the line between commodity content and differentiated content. And I think that commodity content, which I'll call, kind of fact based content has been threatened or significantly removed, but from the search engines for a long-time. It exists on the search engines and SEO, but generally they hold on to that traffic now. So, something like greater than 50% of traffic doesn't read Google anymore. And that's in those fact based questions where Google can provide the answer or the chatbot can provide the answer. We've been dealing with that, preparing for that, and are kind of past that as it relates to the search…

Thank you.

Operator, next question?

The next question comes from Brian Fitzgerald at Wells Fargo. Please go ahead.

Thanks, guys. From the Shareholder Letter, the decreased focus on service requests, it sounds like you may be giving up some near term revenue in exchange for those SEM, SEO benefits. Anything you can tell us about the expected scale or timing, lag effects associated with that, and maybe more broadly any additional color on tweaks or changes to your SEM, SEO strategy in general?

Sure. Look, I think you're right that we will make or we are open to making those trade-offs. It's not clear that that will be a trade-off, but if it is, we are open to it. When I say that, I mean, the directory experience. I think what we want is to be able to service the customer throughout their entire journey. And some customers are not ready to transact the moment they come to Angi. They're just looking to do research and the directory or elements of the directory can help with that. I think our goal is to take those customers and start to build the relationship with them, bring them into the ecosystem as opposed to trying to get them to transact in that first moment of that first session. I view that as long-term positive to lifetime value and revenue retention. Whether it's a trade-off or not on revenue, we don't really know that product will launch or I should say relaunch sometime this year. And it also has the potential to increase traffic or even maybe meaningfully increase traffic. And if we do those things that should balance out. There was another component to your question, which, oh, SEO and SEM in the things around them. So, we've had – since I got their teams focused entirely on SEO and focused entirely on SEM – sorry, much of that existed before I got there, but the level of focus and the level of resources there has expanded. And I'd say that given our focus on this area where I think our focus was somewhat distracted previously, we are finding real results. So, just as an example, we've said to the SEM team and we have some great people working on SEM now. We said there's…

Thanks, Joey. Appreciate it.

Thank you. Next question.

Our next question comes from Daniel Kurnos at The Benchmark Company. Please go ahead.

Hey, thanks. Good morning. Joey, if you kind of touched on a little bit just on [EMG] [ph], you talked about it more in the shareholder letter, but I guess maybe if we think about your narrow focus in services, can you just talk a little bit more about differentiating that offering and kind of winning in that marketplace backed by, sort of the new TV brand campaign, if that's the way? Are there other creative ways to win as you go through that more narrow focus? And then on Dotdash, Chris, I know that EBITDA is always a math equation as you like to point out. We've had incremental headcount reduction. We've had incremental synergies since the acquisition. And we know Joey called out some more cost efficiency efforts. So, I guess the real question is from a longer-term perspective, you did touch on it a little bit, but is there any change to your, sort of longer tail expectations for where margins or revenue for that matter ultimately ends up?

I'll start and then I'll turn it to Chris, although I can quickly say, no. The answer to the second question. The first question, yes, it's a great question and there's a few important areas in winning in services. Obviously, everything starts with having a delightful intuitive customer experience. One of the things that's happening in services right now is, again, because we have this orientation around the service request, we put all our customers through the service request and then they see our experiences after the service request. So, even though we exposed the services business in a lot of areas post service requests, the reality is that 80% of our customers are something like that never see the services product because it comes after the service request. And by the way, once the service request is complete, we ask another series of questions to drive the services business. You can imagine us showing that much earlier in the process, not pushing the customers for whom it's relevant through the service request and sending them directly into a services experience and exposing that in the categories where we can deliver those less complex services, the lower average order value services, we can expose that actually more often and get more people to see that product and use that product. The most important thing in that area is just getting people to try. Because again, once they try it, and once they complete it, we know they're really happy. We know they come back more often. We know they use the mobile app. And the constraint on that is, kind of how we're putting it and where we're putting it. The other area is making it clear to customers that all these opportunities exist for them. I think we've confused that a little bit. I think we've shown, sort of too many things at once or not enough things at once. And I apologize for this sounding a little bit muddled because I don't want to get into too much detail on the product, but we are capable of delivering the product that we know the homeowner wants. We just have to show them that clearly, show them that when they want it and not force the entire experience through one funnel and then on that more narrow set of customers deliver a somewhat [reduced experience] [ph].

Okay. And yes, Joey said it, but on Dotdash Meredith, nothing that we've experienced so far undermines our belief in both the long-term profit scale and the business and cash flow generation. It's obviously doing 931 million of digital revenue and 2022 disappointed us, part of that was the integration. If we got it done faster, it was probably too optimistic we could have driven our playbook and activities faster, but bigger share was just getting hit hard by the ad market, but as we grow revenue and particularly as we scale e-commerce and a lot of the high margin e-commerce integrations, which we're seeing being proven out, by Neil and team, all of those combined with revenues will be highly accretive to profitability and we feel as good about the long-term margins there as we have it anymore.

Awesome. Thanks guys.

Thank you. Operator, next question.

Yes, sir. Our next question comes from Youssef Squali with Truist Securities. Please go ahead.

Great. Thank you. I have a question on Dotdash and maybe just a clarification on Angi. So, on Dotdash, obviously a lot happened since the acquisition happened. And I guess as you look beyond 2023 as the long-term growth potential of the business, is it just fair to assume that that business overall, and I'm just talking about the digital side of it, not the print, should grow generally in tandem with digital advertising? Historically you guys made the case that you should grow faster because of the content, because of a lack of exposure or two things like IDFA, etcetera. has that changed, just kind of how should we think about growth beyond just 2023 for that business and maybe drivers there? And then the clarification is around just the recognition of revenues going from gross to net. Who is the merchant of record here? Because my understanding now is that you're still getting paid by the customer and turn in and pay in service professional for some of these less complex services. Wouldn't that imply that you may need to do it on the gross base? I'm just a little confused on that front if you can maybe clarify it? Thanks.

I'll let Chris do the gross-to-net of say, we are collecting the money from the homeowner and then we are paying the service professional, but it is correct that it has to be recognized in that based on the way the terms and conditions work now. And I'll let Chris do more on that, but on Dotash Meredith and the long-term growth rate, we do expect to grow faster than the digital advertising market and we should grow faster than the market. Again, right now, there's a lot of things going on with the integration and getting us to the right place, but we are still – all of our content is clean content meaning it's all created by us. It is safe content. It is not covering controversial topics. It is good safe clean places to put advertising dollars at scale, number one. Number two, we don't need personally identifiable information. That is a good trend in our favor. We have intent on our content and I think that that will make it a good place to spend to ad dollars. And the other one is that we have performance on our content. And that's when we literally – when people are clicking through and making a purchase from our site to where people are doing research on [indiscernible] and purchasing later, but they're researching things that they are considering where they are considering making a purchase. And I do think that with that focus with that intent, with that trend of not meeting the PII, I think we're in the right place in this market to be taking share over time.

Youssef, on the terms of conditions and revenue recognition, we viewed this as we've been looking to align in terms of conditions across our various business lines of Angi for a while. And we viewed this resetting moving away from complex money losing share services and really driving behind simpler higher volume services as an opportunity to reset a number of things. In aligning the season fees between ads and leads and services, the accounting literature is clear that we are not a principal. We're providing the connection and a number of customers and pros have renegotiated or re-jiggered services over time based on expanded scope or when they're there. So, just formalizing that element, but it is clear that under the literature where we're not a principal, it should be recognized on a net basis.

That's going to be [true, handy] [ph].

Yes. Correct.

Great. Thank you, both.

Thank you. Operator, one last question.

And our last question today comes from Tom Champion with Piper Sandler. Please [Technical Difficulty].

Hey, good morning. Joey, appreciate all the detail around Angi and you digging in there. It sounds like you intend to run the business indefinitely. Just curious if you could update us on your thoughts there and also, the letter includes some interesting comments around M&A, I'm wondering if you could just flush that out a little bit? Any thoughts there would be much appreciated. Thank you.

Sure. Two good ones. We are not actively searching for a CEO at Angi right now, but that doesn't mean I plan to be in the job forever. I think we want to get to a good stable growing place. And when we have that, we can to find the right leader for the business, whether internally or externally. We've made some important hires there. We'll continue to make some important hires, which gets a lot more leverage out of me into the business. And as you know, as I said earlier, Chris and others stepping up at [corporate] [ph] to cover other things. So, right now that is working and I'm enjoying the work. I'm doing at Angi, and I think we're making great progress. And so, I'll continue to do it, as long as it's necessary, but that certainly is not forever. And that's a good segue to your second question, which is, I'm still spending real time on M&A whether it's for Angi or for [ISC] [ph] generally and I'd say certainly much more weighted towards [ISC] [ph] generally. And we are continuing to look for opportunities. There is – we are not in a rush. We said that last time, we're saying that again. I think we're in this current pricing period for a while. I don't think the market is going to run away from us on price. And I do think that there are things that are starting to be priced attractively for us. The issue now isn't so much that the pricing is out there. It's the people's willingness to transact and I think willingness to transact becomes much more pronounced as the prior market fades further into the rearview mirror. There has been a lot of volatility in the markets lately and things going up and down very quickly, but that also I think generally favors people transacting because they know they start to realize things can come and go relatively quickly and it's not the mindset that fit in over the last 10 years, which is everything only eventually goes up. I think that there's an adjustment that's happened. I think more time passes, more stuff in the rearview mirror, more ability to transact, and we're patiently looking at things. And there are real opportunities that hopefully will have a chance to transact that.

Great. Thank you.

I think that does it. Happy Valentine’s Day, everybody. Thanks for spending your morning with us, and we will see you next quarter.

Thanks, everyone.

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.