Good day, everyone, and welcome to the Angi Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Andrew Russakof, Chief Financial Officer. Please go ahead.

Thank you very much, and good morning, everyone. Rusty here, CFO of Angi Inc., and welcome to the Angi Inc. second quarter earnings call. Joining me today is Jeff Kip, CEO of Angi. Angi has also published a shareholder letter, which is currently available on the Investor Relations section of Angi's website. We will not be reading the shareholder letter on this call. I'll soon pass it over to Jeff for a few introductory remarks and then open it up to Q&A. Before we get to that, I'd like to remind you that during this presentation, we may make certain statements that are considered forward-looking under the federal securities laws. These forward-looking statements may include, since related to our outlook, strategy and future performance and are based on our current expectations and on information currently available to us. Actual outcomes and risks may differ materially from the future results expressed or implied in these statements due to a number of risks and opportunities, including those contained in our most recently quarterly report on Form 10-Q our most recent annual report on Form 10-K and in the subsequent reports that we filed with the SEC. The information provided on this conference call should be considered in light of such risks. We will 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 release, shareholder letter, our public filings with the SEC and again, to the Investor Relations section of our website for all comparable GAAP measures and full reconciliations for all material non-GAAP measures. Now I'll pass it off to Jeff.

Thanks, Rusty. Good morning, everybody. The first thing I'd like to do is thank everyone for joining us this morning. We appreciate it. Our internal research indicates that this is the busiest earnings morning of the quarter, and we know everybody is working really hard. So thank you. This is our second earnings call since Angi spun off from IAC as an independent public company. I think it's worth taking a minute and reminding everyone again of the multiyear journey we have been on. Last night, we reported our first quarter of proprietary volume growth since the beginning of 2021, the big milestone for us and our journey to state the obvious that everybody knows we have, over the last few years, shed over $400 million in revenue that is on the face of the P&L. To the untrained eye, many people have thought this looks like a bad thing. And under normal circumstances, maybe it would be. We would actually argue it is all a very good thing and quite the opposite for the long-term success of both our customers and the company. What we've really done is first, we have shed lower-quality revenue, which was, in fact, deprecating our customer lifetime value and thus the long-term value of the enterprise. Poor quality transactions mean that customers leave where they don't come back. Secondly, we've removed a material amount of unprofitable marketing and sales expense. In other words, we were spending money to acquire customers at negative profit. And so now that we've adjusted that, you can see our profitability has improved greatly. Both our adjusted EBITDA and our free cash flow are up materially from 2022, where, in fact, our free cash flow was negative. Additionally, today, and I've already cited this, you can see the key markers…

[Operator Instructions] Our first question today comes from Sergio Segura from KeyBanc Capital Markets.

First, it'd be helpful if you could delve more into the leads and service request trends you're expecting for both the proprietary network channels just for the second half of the year that kind of underpin the guidance that you guys gave in the shareholder letter?

Sure. I'll take that. I think that's a pretty straightforward projection for us. We expect that server request and leads to keep growing at approximately the same rate they were growing in the second quarter. But then improvement in year-over-year revenue comparisons will come from more growth in revenue per lead and just to remind everybody that change in revenue per lead is somewhat driven by price optimization, but the biggest driver there is our move to a single platform where we're moving our legacy ad pros who really bought a basket at a significant discount, a basket of leads at a significant discount. We're averaging that portion of the network out by, a, in March, we stopped selling them and b, at the end of this quarter we will start migrating them to the main platform. That will give us lift over time in the revenue per lead. So those are the elements of what we see as our revenue trajectory and our volume trajectory over the back part of the year. I guess the one other note I would say is, we expect that our network volume will kind of stabilize our exit kind of run rates for the second quarter and be roughly stable the rest of the year.

Great. That's helpful. And maybe if I could throw in a second one. Interested if you could talk more about your probable acquisition opportunities and then how we should think about that consumer marketing expense line going forward. That was up year-over-year. So just wondering if Q2 is a good run rate as a percent of revenue? Or do you continue to see a nice runway to invest behind those opportunities and we should expect that number increasing going forward.

Yes. So just to talk about margins broadly, Sergio, where we are now after homeowner choice is, we've had a little bit of a step-up in our consumer marketing expense as a percent of revenue compared to where we were in the first quarter and last year as we're driving more on our paid proprietary acquisition channels. And then in this quarter, we simply had strong execution there. And what happens is then on the margins, where both -- as we drive on the paid acquisition channels, on the margin, some of those acquisition ends up being a little bit lower margin than in the core of our pay channels. And then at the same time, we have a little bit lighter on our organic traffic. So as you think about our margins this quarter, a little bit higher consumer marketing expense as a percent of revenue, we're making some of that back is in terms of our paid acquisition expense as we've moved all of our sales on to the single Pro platform and optimize our sales force. So at the contribution margin line, it all kind of evens out. We're going forward, we expect in Q3 and Q4 to be fairly stable on our contribution margins. Going from Q3 into Q4, we expect to have operating margin leverage that is similar to the path that we had in the same quarter in the prior years. However, without the fixed expense increase that we saw in the fourth quarter of last year, where we had some expenses that won't reoccur this year in the fourth quarter. So that will give us the ability to avoid some of the fixed expense margin deleverage that we saw in the fourth quarter and have more of our profitability flow through down to the bottom line.

Our next question comes from Eric Sheridan from Goldman Sachs.

I appreciate all the detail in the shareholder letter. Anchoring around the part of the letter that talked about your highest priority product initiatives and improving the quality of match between homeowner and right pro, can you talk a little bit about the duration over which those 3 product initiatives that were highlighted would get implemented by the company and how that implementation might inform elements of yields from those priorities in terms of translating into revenue growth or platform momentum? And then the second part would be I know it's very early, but maybe tying that broadly into how you're thinking about the exit velocity of growth this year and things like those product initiatives contributing to a growth framework for next year?

So let me try and take the product and rate of product change question. And I'll let Rusty talk about how we're thinking about how that rolls forward in terms of revenue and profit. So just to go up the step, our view is that the most important event in the user experience is the job done well when a homeowner who submits a service request on our platform hires the Pro base that lead on the platform and the job gets done well. Literally, everybody is happy with what they've done. Fulfills our brand promise encourages repeat and positive word of mouth about our brand from the customer, and Pros are not here to chat with customers. They are here to get worked on and get paid for it. So it encourages them that they've achieved good ROI and they stay. Our view is we have not historically done the best job matching and without a good match between the homeowner who wants to hire a specific type of pro and knowing that we're serving specific type of pro to that homeowner. If that doesn't happen, we don't get a job done well. So our focus is getting that match done and trying to make sure the two communicate, get the job done well and move on. We're investing first -- there's 3 elements to this. One is getting the service request details correct. We know what the service request is, we can find the right pro. We have to make sure we serve the right pros with the right skills and qualifications, get them matched and make sure that the contact is happening. And we have a number of initiatives in play here. What we talked about in the letter is, first of all, we have rebuilt our…

Yes, sure. So to give a little bit color on how that all comes together in our financials and our metric outlook. On the homeowner side, I'll reiterate what -- how Jeff has characterized this, it's like a pretty simple story. It's flat plus growth equals growth. So with our network channels, you expect it to be stable around the current levels. Going into next year just because we're lapping the rollout of homeowner choice in Q1 of this year will be mechanically down year-over-year next year, but then flat year-over-year for the balance of next year. And then the growth part of the formula comes from the proprietary channels, as Jeff mentioned, where we're making strides and developing additional opportunities there to fuel some future growth. Then on the Pro side of the equation, our strategy is designed to deliver growth in revenue per lead and pro capacity next year. And one reason that happens is the shifting the mix of the Pro base that Jeff mentioned. But we've also been targeting being more targeted in our sales. So with more activity focused against the heart of our prospect pool with a better product offering, and that's resulting in higher value sales. Jeff mentioned this in the letter, but I'll repeat it here because it's a powerful point. We acquired 39% fewer Pros in Q2 versus last year. But the aggregate Pro lifetime value sold in Q2 was down just 4% year-over-year. So each Pro, we're acquiring is much higher value. And then these 2 trends are creating a tailwind that will continue to benefit us into next year. We also have an opportunity to do a better job selling into larger pros. So say Pros in the 10 to 20 employee range. Larger Pros are already a meaningful…

Our next question comes from Cory Carpenter from JPMorgan.

I had two. Jeff, in the shareholder letter, you talked about the kind of evolution of organic versus paid traffic. Just hoping you could expand a bit on that dynamic and the implications it has for you. And then you've talked about this a few times, but I just want to dive a little deeper on the upcoming transition of ad service Pros to the new platform. Kind of what can you tell us in terms of what needs to happen behind the seats for that to effectively be executed and what some of the potential risks there are?

Great. Thanks, Cory. I think first, in the letter, we were specifically focused on research organic traffic. I'll touch base on the range. I think free search organic traffic, which people often refer to as Google SEO -- unbranded Google SEO is -- it's probably a declining asset for most businesses you talk to, Internet marketplaces, content providers, et cetera. Google has not been growing rents over time. 5 or 6 years ago, our unbranded free search traffic was about -- it was a little over 20% of our total volume. Now it's a little less than $10 million. That's not a heroic accomplishment. Many people would look at it as the opposite, but it's sort of the trend of the industry. We've been able to hold share over the last 1.5 years or so in terms of where we are in chair of voice. And we have been constantly working to get our technical setup right and make sure our content is fresh and applicable, and we're going to continue to do that. That being said, we're not projecting growth in what Rusty just talked about in the free organic. So all of our volume and all of our margin assumes continued decline. The good news is that when you're below 10%, the decline is not major. So we're not banking on any of this here. We've done everything what we've done in the second quarter with proprietary traffic without any help from Google SEO, and we're going to do what we do going forward and our projections going forward are what they are without any help, and if anything, a little bit of hurt from the way Google runs its SEO. We look at our ability to grow as we are very effective online marketers, and we have…

And our next question comes from Stephen Ju from UBS.

This is Vanessa on for Stephen. So I just wanted to lean into the marketing spend. What does the payback horizon look like on that? And how should we measure ROI in terms of your marketing and sales channels. And just one more. What are you doing to build branded traffic?

Vanessa, I'll take the first one. So our approach to ROI on both sides of the marketplace, is philosophically to acquire volumes out to incremental breakeven on a lifetime value basis with fully loaded costs. And when we say incremental breakeven, that means that we're targeting for the last dollar we spend to breakeven, which means that our goal is to maximize the aggregate profit as opposed to targeting kind of any specific margin percentage. So for SR acquisition, we're doing this on a 1-year basis. Much of the payback does come in that first session, but there's still significant value from repeat use and engagement through our CRM campaigns in the first year. In our digital marketing, we apply data science models to establish our bids, and that estimates whether or not it would be profitable to increase bids to say, spend an extra dollar to acquire more volume. In some channels, incrementality is easier to determine. So Google is probably the best example of this, while in other channels, we triangulate between multiple attribution approaches and then test up and down to determine our optimal levels of spend. Then on our Pro acquisition, we want to scale our dials, meaning the time of our sales force until our lowest value prospects convert at a value equal to the cost of the last set of dials. The way to think of this is that if we add to the size of the sales force, that results in making additional dials against lower converting portions of our prospect database until you reach the point of diminishing returns and then the cost of those dials exceeds the expected lifetime value of the Pros acquired through those dials. Jeff actually laid out our approach to Pro lifetime value in the shareholder letter. Essentially, we use our historical revenue retention rates to project the expected revenue we will collect over a 36-month period, and we apply our current margins, and that gives you lifetime value. And then we'll size our sales force such that our lowest-performing segments are still breaking even and covering the fully loaded cost of those sales. This approach has increased our LTV to CAC to 2.8x this past quarter, which is truly meaningful improvement over our acquisition efficiency in recent history. But philosophically, as I mentioned, our goal is actually not to target any particular LTV to cap ratio. The objective is to maximize the total aggregate profit, which Jeff laid out is represented by LTV minus the acquisition costs. So we're targeting that profit. So for instance, as we look for new pockets of volume that actually might mean that we're able to acquire incremental pros at an LTV to CAC ratio that is kind of just above 1.0. And while that would average down our ratio, we would do that since it would grow our aggregate profit. And then the similar concept applies to marketing as well. Jeff, do you want to take the branded traffic?

Yes. So I alluded to the branded traffic question a little bit earlier. But I think there's 3 elements. I think the most important element is product and our experience have to deliver on our brand promise. No matter what we say or do or whatever kind of cool creative, we put out our version of where is the beef or whatever. We have to deliver when the homeowner gets to us and the Pro gets to us. So I think, first of all, all of the work we're doing to raise our success rate and come a place that people will download an app for is really critical to our brand growth. At the end of the day, serving our customers leads to retention and repeat, which is, I think, the best form of growth we can get. I think secondly, we have historically been a pretty significant investor in TV. We backed off that a little bit this year and took TV out of the first quarter because we wanted to get through the homeowner Choice transition and observe the landscape and really focus on our online acquisition and how the business model was going to behave. We've started the TV up again at a little lower rate than last year, but we are planning to probably in aggregate maybe even double our TV, something directionally up 50% to 100% from this year. And obviously, TV is a great way to reach homeowners and pros and deliver our USP and our brand promise and get them to come try us or use us again. I think thirdly, there's a whole other range of activities. We have launched this year a pretty strong and comprehensive effort against paid social. We have a significant internal effort. We have published multiple…

Our next question comes from Brad Erickson from RBC.

This is Audrey on for Brad. I have two quick ones. The first 1 is how do you think about Pro capacity in Pros filling their book of business, if you can just run us through that? And does it get to a point in time where this is a blocker for future incremental growth? And then secondly, can you provide any insights into service provider supply constraints within the home services industry in general? And then are these constraints contributing to the trends we've observed in the numbers over the past few quarters? And are you seeing any shifts or improvements in this area?

So I am going to try and take those two together, I think they're sort of related to overall Pro capacity. Rusty touched earlier on near term, what we're seeing, which is our nominal pro growth, we think, should inflect by 2027. However, because we're growing our capacity for Pro by discipline on our prospect selection and dials, and by shift of resources into higher capacity segments of the Pro network, we're almost pari passu on lifetime value created before cost. And so between those two areas, we think we're in pretty good shape to grow pro capacity for at least the next couple of years. Let me take on kind of industry trends and whether there's caps next. And then I want to get to sort of a question that's bounced around a bit about how pro capacity works. So in terms of the industry, we're a small portion of the industry. We think we have 5 -- maybe 5% of Pros in America on our platform. We think there's ample room to grow. As Rusty pointed out, we actually think we're under- indexed on the higher capacity pros. So we're probably under-indexed on overall capacity. We're probably below 5% capacity. And so as a very small portion of the market, we have a lot of opportunity there. We have great name recognition. Again, we're delivering good value creation. So we think we have some runway there. The trends in the industry have been a couple. People have talked a lot about how kids aren't going into the trades these days because they all want to be machine learning people and CFOs like Rusty. So whether that's true or not, I think increasingly, you also are reading about millennials and other people looking at the trade, the trades are…

Our next question comes from Ygal Arounian from Citi.

Max on for Ygal. I guess just maybe on the macro, we're just seeing in the macro trends and how that's impacting the better full year guidance. I think last quarter, you included 3 to 5 points of incremental headwinds. So just curious if that's still included. And then maybe secondly, on capital allocation. You guys were obviously very active in 2Q buying back stock. Just how do you think about maybe the pace of buybacks through the rest of the year and just your overall capital allocation strategy?

So let me take the beginning of that, and then if Rusty has anything to add, he'll add. So we saw a very significant impact in April, impacting both homeowner traffic and wins for Pro. So we think we saw some disruption in our retention in April, May, as homeowners were hiring pros less on our platform. When we talk to our pros, especially our larger pros, they said, look, people's confidence in the economy is disrupted, you can read it in the paper or online, if you will. And we think we're getting hired less. So we're not overly worried about it. We think this will shift. And as we exited June, we saw our wins per Pro jumping and our hire rates jumping double digits, and that's continued in July. So on some level, that intent to hire has corrected itself. We don't have a totally comprehensive view of the consumer from where we sit, we still see some pressure in consumer traffic, not dramatic. We're obviously very effective on the paid side, but we think we see and maybe our brand and on our research, we see a little bit of pressure there, but not dramatic. At this point, the 300 to 500 basis points is rolled into our run rates. We've come up a little from April. So maybe it's at the low end of that, maybe it's 200 or 300, we're not sure. I'm guesstimating. So there's some pressure. But we basically forecast off our run rates. We think we're excelling more on our paid execution than on the recovery, but there's obviously some recovery in there. We think we're on track on our full year numbers. We're actually outperforming. But again, it's more on the execution, we think. And we think that whatever the economic in security is has improved, but there's still some embedded in the business. Rusty, I don't know if you'd add anything to that.

Yes. No, I double down on just that it's -- our business performance, we're happy with, but it's still just a cautious macroeconomic environment. The only thing I'll add is the thing that we talked about last quarter is just reminding folks that our business has tended to have some modest countercyclical dynamics to it. One reason for that is that pros need us more when homeowners are hiring less. So we tend to see a benefit in terms of retention, pro acquisition on both costs and volumes and then pro engagement on the platform. And then the other reason is that 2/3 of our business is in nondiscretionary tasks that are -- tend to be resilient through cycles, and that ratio has basically held this year.

Did that answer your question? Do you have any follow-ons?

Yes. And then just maybe on capital allocation, I'm just typing about buybacks through the rest of the year.

So on buybacks, obviously, our Board is going to do buybacks when it deems it a best and highest use of our capital at that time, and we've done a bunch. The one thing I would say is we're not going to do this much every quarter for a variety of reasons, one of which is there's limitations on how many shares you can go out and buy back after doing a tax-free spin based on sort of historical IRS rulings and what's out there kind of in the understanding and interpretation of the law and in our tax sharing agreement with our former parent. So I wouldn't expect every quarter this kind. I don't think it's unlikely that we'll buy in more shares over time, but I can't predict it. We'll monitor where it is and our Board will make the decisions that it deems best. So -- but obviously, we've the Board thought it was a very good allocation of our capital in this last quarter, and we made a significant move there and reduced our share base. And obviously, with the way we're looking at the business going forward, we're optimistic that, that can be accretive.

Our next question comes from Dan Kurnos from the Benchmark Company.

Obviously, you've covered a lot of ground, Jeff. I just want to go back to your very comprehensive answer on sort of the market approach and SP capacity. If we get through double opt-in, and we go to a ZIP Code-based approach, which feels very similar to what Zillow has done, is there any reason to think why we can't get to a point where just a handful of top pros in each category dominate ZIP code. And that, frankly, the total SP count in the matter -- in the market, it doesn't matter as much relative to saying just improving the overall asset quality and naturally improving the conversion through self-selection from both the consumer and the Pro over time.

So I think your hypothesis may prove to be true. I think there are some differences with Zillow that suggest that there's alternate hypotheses that may also be true. The real estate agent's capacity probably works a little bit different than pro capacity depending on the category. Homeowners -- in all our research, homeowners have always told us they want 2 or 3 pros to choose from, except with an intermediate emergency or a pretty transparent repeat job. And so you're always going to have some rotation of pros. And if you only have the large kind of bottomless pit type of pro appetite that we were talking about earlier with really large press, you might be able to serve zips and tasks with a few Pros. But I think that what we've observed is that there is enough capacity per pro shift that we effectively need to measure that out over time. And make sure that there's always multiple pros. If we can, we're at 2, 2.5 per SR, who we present. We always want to make sure there's multiple pros for the homeowners that improves their higher rate, that improves their satisfaction and improves their confidence because they can compare. So I think there's dynamics in the Pro segmentation that suggests to me that maybe it won't get to just 3. I don't think you're wrong that we can cover at some point with a fixed set of pros all of the demand in these ZIP codes and tasks. It's just probably a longer drive than I can hit. I probably need a few strikes at the ball before I can get on to that green and really answer that with high confidence.

Yes, that's fair, Jeff. Very hypothetical question at this point since you're just going through the migraine. And then just on the growth in revenue per lead, is there -- how much of that is incremental category expansion versus obviously improving conversion and sort of all the other underlying metrics. Are there any other pieces that you haven't talked about that could help drive revenue per lead higher over time?

So obviously, if we drive the win rate up, we have opportunity to take more price per lead. And if we can deliver high confidence in the lifetime value to lead above the job, I mean, our pros are basically judging their value by how much do I pay, what do I get, but we can probably get more pricing there. So I think there's some pricing opportunities that, that all has to do with value delivery and the Pros buy into the value delivery. I think secondly, if we could obviously buy higher consideration jobs at cheaper prices, we would scale up there and that would shift our revenue per lead. The higher consideration jobs are probably more competitive out there. But we have found pools of them to access over the last few months with our online marketing. So if we can shift average consideration up, that would shift revenue per lead. I think really the biggest driver for us is right now, it's going to be shifting out of the old ads model, which had a much higher discount than the 30% we're offering is an intro subscription as much more than double in some egress and moving away from that and then giving those Pros, the leads they want at a lower discount and effectively delivering them the same value. And we think that that's what's going to be the core driver over the next year or so of that consideration size and revenue per lead. Operator, I think we have time for one more question, if there is one.

We do have an additional question. This comes from Matt Condon from Citizens.

My first one is just on the proprietary service requests growing 7%, but if you look at consumer marketing expenses, it was up 13%. Can you just help me think about just the efficiency of marketing spend specifically on the consumer side or the homeowner side of the marketplace. And then my second 1 is just how do you think about balancing the efficiency and Pro acquisition, which is having enough supply on the network to drive just superior consumer experience.

So let me start. If Rusty has anything to add or he thinks that I've missed anything, he'll jump in. So on a simple ratio of proprietary growth versus marketing growth, I think the way you have to think about it is we've executed a mix shift and by executing the mix shift into paid proprietary with the free Google SEO coming down a bit, you're paying more on the average per lead. However, Rusty explained our approach, which is incremental breakeven. So as we look at our bidding, we're able to judge where the next incremental piece of spend would start losing money and we stopped there. And then our goal is as we get more efficient there is to move that breakeven point further out and create more profit under the curve, if you will, earlier in the curve. Not all platforms work the same way. Meta for example, you're not as able to finally tune your incremental profitability, but we have ways to do it. And so we're constantly working on getting more efficient. I think you have a little bit of inefficiency built into the second quarter as we scaled up new channels, but again, not material. So I think you have a mix shift, and I think that's the way that's working I think we expect that to stabilize a little more going forward, but we will always sort of ebb and flow a little bit there. I think on the Pro capacity, I think, again, Rusty hit that one, we do the same thing there where we, again, have a pretty high-powered artificial intelligence machine learning team. They work on scoring all our prospects and bucketing them and we work on dialing to the last dials breakeven based on the likelihood as scored by…

Yes. And then the only thing that I'd add on the marketing side is that we're kind of talking about our marketing execution in isolation, but it's really a fully integrated commercial engine with our product and the Pro side of the network. So if you think about every day, we have people working on kind of optimizing our funnels, matching, bidding, conversion and then there's kind of the density of -- and liquidity in the network. So when we improve those things, it makes the monetization of every individual SR impacted, right? So we're able to move up that monetization through the product and optimizations in the product. When we do that and we make each unit of volume more profitable, sometimes we're able to bid into that and get more volume and sometimes, which might actually increase our marketing cost, but increase our overall profit. And then other times, we take that as profitability and we reduce our marketing cost. So it can go either way on that, and the goal is to grow overall profit through execution on marketing as well as optimizations in the product.

Thank you. And really thank everybody for all your time and a very busy earnings day, and look forward to talking to you all in the future.

Ladies and gentlemen, that will conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.