Welcome to the IAC and Angi Second Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. After today's opening 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, Executive Vice President, CFO and COO of IAC. Please go ahead.

Thank you, and good morning, everyone. Christopher Halpin here, and welcome to the IAC and Angi Inc.'s second 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. And 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 second quarter releases in 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, 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 will turn it over to Joey.

Thanks, Chris. I appreciate everyone taking the time with us this morning, and appreciate all the people across IAC companies who are working hard for our customers. I want to share part of a note I shared with employees yesterday, which I think is apropos to some of the decisions we made in Q2. We win by building exceptional differentiated products that take the hard work off our customers' plates. We do it so they don't have to. Angi does the work to find the right pro to fix your garbage disposal while doing the work to help that pro grow his business. Dotdash Meredith does the research so you can choose the right product, plan the right trip or make a great meal. Dotdash Meredith also does the work to help advertisers find the right customers; that's what D/Cipher is. Care does the work to help families find caregivers, and caregivers find jobs. Vivian does the work so burned out clinicians can discover their dream opportunity, and does the work for hospitals to get clinicians helping patients faster. The better, more efficient, and seamless we are at doing the heavy lifting across IAC, the more time we can give back to our customers, and the more they appreciate and depend on us. But every day, every quarter, every year, we have to set the bar higher for ourselves, and we have to constantly do a better job for our customers. That's what this past quarter was about, and that's how we win. Let's go to questions. Operator, first question?

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

Thanks. On Angi, could you expand on what drove the margin and expected revenue decline in 2Q, and how this impacts your outlook for the rest of the year? And then secondly, you were a bit less active deploying capital this quarter, and how much of that was due to business churn versus other considerations? Thank you.

Yes, I'll do the second one first, quickly, and then I'll go to the first. As you know, we buy back stock periodically; we deploy capital periodically, and there's no consistent pattern on that other than buying shares when we think it's the most attractive use of our cash in the period. We deployed a lot of cash in the first five months of the year when we thought that was an attractive time to do it. We took a breather these past few months, and we will continue to evaluate that, as we always do, on opportunities for deploying our cash, whether it's buying back shares in IAC or Angi or any other opportunities in front of us. On the first question, I've been saying for a while that there were areas where I thought Angi had focused on optimizing for shorter-term revenue over the longer-term health of the business and our customer experience, and that we were going to make changes along those lines. For the past few quarters, we've been doing that. In the second half of this past quarter, we saw a further opportunity to do that, and I made the call to make that change, which I believe was the right call in the business. The impact of that call was really restructuring some demand channels and ramping down channels quickly. This was revenue in the quarter, and it was also profitable revenue in the quarter. We ramped down that pretty quickly, and the impact would be most pronounced in Q2. I think we're already seeing July better from a profit perspective, and we'll see the benefit of some of the changes we made in Q2 over the coming quarter. The substance of it was turning off channels of demand or reducing channels that we thought didn't deliver the ideal customer experience, and in exchange for that, what we're going to drive is longer-term retention of pros and a better homeowner experience on our platform.

Operator, next question, please?

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

Yes, great, thanks. What are you seeing in terms of revenue trends at DDM Digital exiting 2Q, and thus far in 3Q? The performance marketing growth was good to see. How does that play in the back half for DDM Digital rev trajectory? And just on the margins, what type of cadence could we see in the back half? Thank you.

Thanks, John, I'll take those one at a time. So, top line just for us, in June, it was a key moment in the integration and the performance of the combined Dotdash and Meredith assets. We had said since the beginning of the year we were aiming to get to flat on digital revenues and on traffic. We achieved both; we actually had 1% digital growth in June, led by strong performance marketing. We were able to reach stability in sessions and in traffic during the month of June across the portfolio. That was led by the former Meredith assets broadly. We feel good about where those assets are on the migration and growth plans. We continue to optimize, and we're very focused on continuing the momentum behind InStyle and People, but we'll always have more volatility due to the entertainment category. It sets us up well for the second half. The third quarter, as we indicated in the letter, we expect at or around flat, maybe slightly negative. That's due to a combination of ups and downs, continued growth in a lot of the Meredith properties, stability in certain Dotdash properties; we had a very strong Amazon Prime Day. But also, we've seen some softer traffic trends in the entertainment category as well as some partner sites. For Q3, we expect sequential growth, but year-over-year, the top line will be flattish to slightly down, but we expect a very strong Q4. The performance, the comps, the trends we feel good about where we are, including the tailwinds of Performance Marketing, which wasn't fully rolled out to the Meredith properties last holiday, as well as support from D/Cipher. Performance Marketing was a key theme of the acquisition, and really rolling out the Dotdash ecommerce integrations to the best-in-class Meredith brands. We had 12% growth in the quarter, which we are, hands-down, continuing to improve and expect accelerating growth going forward. We expect incremental EBITDA margins to be in the 80%-plus range given our cost structure and efficiencies we've driven. You can see improvements in sequential digital revenue growth and EBITDA that are better. We expect to continue to see improved margins year-over-year, and also on a sequential basis in Q3. Q4 seasonally is always a major quarter for Dotdash and Meredith, both in terms of advertising and Performance Marketing revenues as well as margin scale. We forecast a strong Q4. Operator, next question?

Our next question comes from Eric Sheridan with Goldman Sachs. Please go ahead.

Thanks so much for taking the questions, maybe two on Angi if I could. First, following up on Cory's question from earlier, you really stood out to us in the letter that you talked about lost revenue and used a phrase like 'good riddance.' Can you talk about how much of this process of mix shift on revenue is inside your control versus outside your control, and where we might be in the evolution of getting the type of revenue you want in the Angi business? Second, along the same lines, it was interesting to see a power graph on International in Angi in the letter. Can you talk about some of the key learnings from International? And I think you used a phrase that it's a good leading indicator for the trajectory the U.S. might eventually take, and maybe give us some color on that trajectory? Thank you.

Yes, thanks, Eric. So, we did when making a lot of the changes in Angi, we did the easiest stuff first. I’ll break the revenue down into a few buckets. The first is revenue that came with either zero earnings or negative earnings. That stuff is easy to get rid of, especially if it has a bad customer experience. You saw a lot of that happen very early in Q4 and Q1, so things like Managed Projects and more complex services which we discontinued or other channels where we were doing unprofitable revenue. That’s relatively straightforward, and I think we've cleaned up all of that. The second bucket is where we were bringing service professionals onto the platform that weren't really well set up for the platform, which meant that they turned too quickly. We’re far along with that, so those folks did generate some revenue but wouldn't have generated profit over the lifetime relative to their sales costs because they didn't stay long enough. The third bucket, which was what you saw happening in Q2 where we're bringing in demand, generating revenue, but could drive higher churn among our service professionals or homeowners, which would be detrimental to the lifetime value of that customer experience. That was the focus of the change in the second half of Q2. What drives all these decisions is whether we are delivering a great customer experience that is economically viable, as well as growing the platform and the number of pros, homeowners, and revenues. I believe we are much closer to a healthy place right now. As far as International, one of the great things is we were able to try different models with relatively little outside attention. In each of those countries, we started with a different model on different technology platforms, and we learned a lot about each of those models. We were able to find the best parts of each. The things that worked in Europe, which we have not yet gotten to work in the U.S. but give us great hope are: a self-enrollment model on the Service Professional side, meaningfully lower sales costs. We made significant changes to demand channels quickly, especially in France, where we completely overhauled our affiliate channel. The last aspect is a double-lock-in customer experience, meaning the homeowner chooses the pro and the pro chooses the homeowner when both come together as a billing event. That seems to be working from a product perspective. I don’t know if we’ll go all the way there in the U.S. on a product, but that product does work in Europe, and it’s quite impressive. Integration has also been a big focus, and we've integrated three of the four platforms, which allows us to operate more efficiently and innovate easier.

The only thing I'd add is last year’s second quarter was peak for low-calorie revenues or regretful revenues in terms of pro experience or higher pro churn. You can see some of that in the graphs on service professional retention coming out of that period. You had real drops in SP retention. Roofing also had its peak revenue last year, which still isn't where we want it, but has an oversized impact on Angi’s year-over-year revenue declines. Operator, next question?

Our next question comes from Jason Helfstein with Oppenheimer. Please go ahead.

Thank you. Everyone now knows how to spell Oppenheimer. I have two questions: first, I'd like more information on Dotdash - Meredith Dotdash. Are you facing any competition for engagement considering the significant rise in short video content like Reels, TikTok, YouTube Shorts, and so on? Secondly, you touched on your outlook, but could you elaborate on specific categories? What trends are you seeing in the second quarter, and what do you anticipate for the third quarter? My second question is about MGM. This seems like a timely investment. Initially, there were intentions to gain exposure to online sports betting and iGaming. Although MGM has benefited from the recovery in Vegas, is there a way to leverage that into a more direct approach to online sports betting or iGaming? Thank you.

I'll go first and then I will turn it to Chris. Quickly on the social media side, we compete for attention with any other form of media. We compete with other forms of media, including TikTok. I'm not sure that we’re losing any traffic to TikTok, but we compete in that context. On MGM, we've actually spent considerable time looking at opportunities in this space. We came close on one but have learned a lot; we’re excited about the progress MGM is making.

Yes. And building on Joey's point, the demographics we have and where we excel indicate we don’t see losing any traffic to those sites. In fact, they are revenue and reader lead generation opportunities since many of these top Meredith brands had limited social media presence. We are focused on building integration as a channel for these brands, while also expanding our own video presence. We don't view new short-form video as a threat but more of an opportunity. Macro, we would say the market is still soft from a premium demand perspective in brands. However, it is second derivative positive; if the programmatic market is down 5% to 10% as we said in the letter; that is an improvement over Q1 and parts of Q2. Categories thriving include retail, beauty and style, travel, and auto as mentioned in the letter. Some of that is absolute growth, some of it is due to soft second quarter last year due to supply chain or retailer backup. Weakness continues in finance as that category is trying to find footing in a higher interest rate environment while lapping aggressive comps from a year ago. Telecom has little spend outside one or two players, with major players still figuring out their positioning. Lastly, the entertainment and streaming categories currently have challenges due to ongoing strikes impacting new shows and ad spending. We expect the comps to get easier, even if overall strength in the market does not improve.

Our next question comes from Stephen Ju with Credit Suisse. Please go ahead.

Okay, great. Thank you. So, Joey, I do have a question on Decipher. How do you think advertiser ROIs compare before and after? Is there an opportunity for you to capture more wallet share as a result of this move? Looking longer term, Google has been moving toward a cookieless world with an implementation target next year. Should we consider this a risk for you?

Thanks, Stephen. That's the goal with Decipher. Dotdash Meredith now has data indicating that intent outperforms cookies. Google, which delivers intent, has historically outperformed all other channels for us. Intent is a very meaningful signal, and Decipher successfully maps intent. Our key goal is getting advertisers to try it out so we can showcase ROI. This is also important due to the move towards cookieless platforms like iOS, and Google's planned shift in 2024. We intend to keep building content that demonstrates intent and proves ROI for advertisers.

Okay. And secondly, on Angi, reading between the lines on the shareholder letter, it sounds like you are looking to play a bit more offense in 2024. You've cleaned up and shut some empty calories there. What still needs to be done from a product perspective? Thank you.

Yes. We talked about a lot of the work we've done on the pro side. The work is never done on either side in terms of product. We are encouraged by the progress we've made with the pro experience, especially in pro retention shown in the letter. The second-half of the year will focus on the homeowner side. We aim to launch more innovations on the homeowner side in the second half this year to set us up for offense in 2024. For instance, we plan to surface the directory earlier, allowing homeowners to more quickly find and interact with pros on our platform. This has potential for pros and homeowners alike, driving engagement and conversion. Ultimately, we'll focus on driving retention and repeat rates on the homeowner side.

Operator, next question?

Our next question comes from Brad Erickson with RBC Capital Markets. Please go ahead.

Yes, thanks. Just two follow-ups on Angi, talking about the pros this morning and some pruning you're doing there. Angi has always had a tough time with fulfillment rates for demand coming into Home Advisor. How do you balance pruning pros with having enough to support growth? That's the first question. Secondly, on Angi Services, where are you from a category perspective? Are you fully baked in terms of services offered now, or do you still need to bring on new categories as growth vectors? Thank you.

Thanks, Brad. It’s a great question and something we’re focused on. On fulfillment, we've been improving notwithstanding the lower nominal service professional count. We have an internal metric we call ZACBAR, which is Zero Accept Contact or Booking Rate, tracking how often we offer no solution. We've been reducing the extent to which we offer no solution. This connects to services; we offer matching with a lead pro or ad pro, which provides customers the opportunity to get their project done. Not everyone will convert to services, but offering them an option drives fulfillment and engagement. Services are crucial from a competitive standpoint, which creates a significant value add. We believe we can still expand services, as we've shrank it this year, initially growing it too quickly. We're currently focused on services we can price accurately and remotely while generating a margin. We have ideas on categories for the future but won’t roll them out this year.

Thank you. Operator, next question?

Your next question comes from Ross Sandler with Barclays. Please go ahead.

Hey, guys. On Dotdash Meredith, as we look into '24, what are the puts and takes that would allow the business to grow faster or slower than the overall digital ad market? How do we think about that? Additionally, regarding the SEO impact from new AI search pages, one of your peers mentioned that SEO traffic to premium properties are seeing a benefit from Bing's changes since early this year, with SEO traffic growing orders of magnitude faster than baseline. What are you seeing, and what do you expect from Google's new search generative experience pages?

Thanks, Ross. In terms of '24 and the rest of '23, three main revenue streams are advertising (both premium and programmatic), performance marketing, e-commerce, and services execution. There are good reasons to project growth across all three in 2024. On the advertising side, we've worked through the toughest pandemic comps, and our sales force is executing well across categories. With Decipher, we could capture share in both premium and programmatic over time at attractive monetization rates. Performance marketing is moving from strength to strength, expecting to create more content, integrations, and fine-tuning. Licensing has passed its tougher comps working through things at Apple News and other markets, and we should see growth there. We expect traffic growth for both historical Dotdash and Meredith sites. As for generative AI, we have not seen a loss of traffic so far in our properties and discussions about how to be a partner are ongoing. Overall, we expect both historical Dotdash and Meredith to grow traffic.

With those platforms, they are built to send traffic, which is their fundamental business model. It’s easy to imagine a scenario where they could get better at helping users discover that traffic. There are also issues regarding accuracy, which could cause users to seek out platforms like ours for validation.

Thank you. Operator, next question?

Your next question comes from Brian Fitzgerald with Wells Fargo. Please go ahead.

Thanks, guys. We want to ask about Care leadership change there. Given the new phase of the business and the leadership change, does that imply anything about how you're planning to invest around Care.com? Thanks.

Yes. Thanks, Brian. No, I don't think that changes anything along those lines. Brad is focused on continuing the existing strategy and executing against instant book while growing the caregiver base and family base in ways that delight both sides. There’s no fundamental shift in our core business strategy or capital allocation from IAC's perspective.

Yes, we like the margins at that business. It's scaled well as it's grown, and the incremental margins are solid. We plan to drive organic growth and pursue any M&A or inorganic opportunities that arise and make sense.

Of course. Thanks, Brian. Operator, next question? Your next question comes from Youssef Squali with Truist Securities. Please go ahead.

Great, thank you very much. So, maybe just a follow-up to Brian's question on Care. Can you talk about how big the transactional book offering is today and how we should think about that opportunity relative to subscription? At Dotdash, are there any common characteristics causing some of the titles like Parents and Shape to trail in terms of traffic? What are you guys doing to reverse that? Thank you.

Yes, I don’t think we'll disclose a specific breakdown of revenue at Care. I view transactions long-term as a driver of subscriptions so we can offer user transactions on booking. The goal is to showcase the value of transactions, demonstrating the value of the platform, ultimately leading to more subscriptions. On Instant Book, it really opens up traffic that doesn’t sign up for a subscription.

Regarding properties that are lagging in the Meredith portfolio, it varies. InStyle was a good property initially struggling. The management team has cleaned up low-calorie impressions and is optimistic about future performance. Parents is in a high-traffic category, seeing high patterns a year ago, with a strategic action plan in place. Shape is small and non-core, and while we still keep it, we recognize its limited impact. Each has its own situation, but we feel good about opportunities in those brands.

Thank you. Operator, next question?

Our next question comes from Brent Thill with Jefferies. Please go ahead.

Joey on Angi, when do you believe it can return to being a growth asset? Ultimately, what will it take? What pieces are needed for that recovery?

Yes, we think we'll get back to growth in 2024. There are key elements involved; margin recovery is already underway. We've generated $55 million of cash flow year-to-date, up $110 million per year. But your question is mostly about revenue growth. In 2024, we need to focus on SEO and traffic or top-of-funnel audience growth. The Angi brand is growing healthily, and HomeAdvisor.com is declining. The drag will lessen over time as HomeAdvisor shrinks in proportion. Retaining pros and improving homeowner conversion will also be key drivers. Services represent a major competitive differentiator with high customer satisfaction and repeat rates. We need to feed more demand into that product to enable growth.

Operator, next question?

Your next question comes from Ygal Arounian with Citigroup. Please go ahead.

Hey, good morning, guys. I want to go back to the gen AI discussion for a second. Two points on that. First, how important is gen AI in your content creation? Has it been beneficial? What are your thoughts around that? Then regarding the search and LLM training piece, there's been a lot of talk on publishers pushing back about how their content is used to inform AI. Thoughts on that, and how are you approaching it?

Sure, I'll start, and Chris can add. We're utilizing gen AI across several areas in Dotdash and with all businesses, particularly in content creation. We’re focused on back-end productivity, incorporating content briefs and outlines to enhance our production process, seeing increased productivity as a result. Additionally, we're exploring user experience personalization, answering related questions to better retain users engaged with our content. On the ad side, we can customize ads more effectively, testing creative for improved targeting. Regarding LLM training, our position is clear; fair use is a defined standard and we intend to protect our intellectual property rights. We've engaged in discussions with vendors, and major LLM operators need to understand that removing economic incentive for content creators isn't sustainable. Some deals are emerging, and we hope for productive conversations in the ecosystem.

Thanks, Joey. We’re hosting a two-day AI summit right now. The applications are diverse across our companies; from application development and customer service onboarding to leveraging AI for better interfaces. Many of our businesses have used AI and machine learning for years; it continues to evolve. Generative AI presents more applications and is improving advertising tools and content development. This has the potential for productivity enhancements and deflationary cost impacts across numerous customer-centric operations.

Thank you. Operator, next question? The next question comes from Tom Champion with Piper Sandler. Please go ahead.

Good morning, thank you. Joey, on Angi, how important is getting service professionals back to growth? It was flattish sequentially this quarter. What’s your strategy on the gross ad side of the equation?

Yes, we absolutely need to get gross ads going. It hasn't been the main focus recently, but we must drive that as well. Lots is happening with the pros right now. We've lost many on the services side moving out of more complex services. The dollar value is more important than nominal count but we will ultimately need nominal count to grow too. I believe this is possible in late 2024.

Thank you, Tom. And then one last question, operator?

The last question comes from Kunal Madhukar with UBS. Please go ahead.

Hi, and thanks for taking my question. I have one housekeeping question based on the Q and shares you reported in the Q, you had about 85 and change in terms of shares, but at the press release as of August 4, you talked about 82. So, have you bought back more shares since the quarter ended? That’s housekeeping. Then regarding gen AI, do Bing and Bard need to learn from multiple different sites? If they choose a small subset of partners for training, what’s the impact on your properties?

I can take both, and Joey can jump in. The delta in share count is due to shares associated with our CEO grant to Joey, which are not counted because of performance triggers. That accounts for the difference between the 85 and 82. Regarding your question on LLMs, there’s an inherent philosophical question; they traditionally focus on having the best of the internet, and if they limit their learning to a subset of content, they risk inferior results. Those limited results may lead to less accurate answers and a higher risk of what they call 'hallucination,' which goes against fundamentally what the internet has been working to achieve; it’s ideally in a fair and meritocratic manner to highlight the best of the internet. If they limit their data sources, they reverse many advancements in information provisioning.

Okay, thank you, operator. Thank you all for the questions, and have a good day.

Thanks, everybody. So long.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.