Good day, everyone, and welcome to the Angi Second Quarter 2025 Earnings Conference Call. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Andrew Russakoff, 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, a big milestone for us. It is a 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 or 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 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 of our return to revenue growth. And this time, it will be profitable revenue growth. And that is, first, the strong proprietary volume growth, which I just mentioned, the first time in several years. And secondly, the stabilization of our network channel traffic. It's down a little bit quarter-to-quarter, but we now think it's at a stable exit rate. And so we think it is going to be flat to moderately down next year. And those two together point us to growth next year along with the growth in revenue per lead. Finally, you can see the strong value creation looking ahead in what we've done in terms of being much higher value at lower sales force in our Pro acquisition. The other key point in terms of what we've done over the last few years is the improvement in the quality of our customer experience. You can see it in our customer metrics over the last couple of years. We've invested in the core product functionality and coupled with what we've done in terms of pruning our lower quality traffic. This has resulted in moving homeowner Net Promoter Score by 30 points over the last two years. We mentioned this last quarter, but it's still an accomplishment, and it's still true this quarter. And we've moved the total retention across all courts of our Pros by nearly 20% over the last two years in this last quarter. We've moved both the hire and win rates. And by that, I mean a hire is when a homeowner who submits a service request on our platform hires a Pro who has paid for that lead. Obviously, when the Pro pays for a lead and they win it, that's their win rate. In June, our win rates on our core Pro platform are over 20% in July, our internal early data is tracking to more than 30% up year-over-year, and the hire rates are coming right along with those win rates. So we have done this progressively over the last couple of years. At the same time, we've been improving the technology we operate on. 1.5 years ago, we had four different technical platforms with relatively low fidelity integration in the U.S. and three platforms internationally. By the end of this year, we will only be operating on two in the United States and one internationally. At some point in the future, we see us progressively step-by-step getting to a single, modern international platform, which will give us a great deal of operating efficiency and more speed to market. So we are quarter-by-quarter piece by piece, putting all the pieces together to serve the trajectory that we project. We think steadily piece by piece, putting the evidence out so that you can see it too. We still think we're in the early innings, and we still think we have a lot of work to do, but we're very optimistic going forward. I'm excited to answer your questions today on the progress to date and where we're trying to go. With that, I'll turn it back over to you, operator.

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 service 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. To discuss margins broadly, since we've implemented homeowner choice, we've seen an increase in our consumer marketing expenses as a percentage of revenue compared to both the first quarter and last year due to our focus on paid proprietary acquisition channels. This quarter reflected strong execution in that area. The consequence is that while we drive growth in paid acquisition channels, some of that acquisition tends to yield lower margins than our core pay channels. Additionally, we've noticed a slight decrease in organic traffic. As you consider our margins this quarter, the consumer marketing expense has gone up as a percentage of revenue, but we've offset some of that through our paid acquisition efforts, especially since we've transitioned all our sales to the single Pro platform and optimized our sales force. On the contribution margin line, everything balances out. Moving into Q3 and Q4, we anticipate our contribution margins will remain relatively stable. From Q3 to Q4, we expect to achieve operating margin leverage similar to what we've experienced in previous years, but without the fixed expense increase we faced last year in the fourth quarter, which included some one-time expenses that won't recur this year. This will enable us to mitigate some of the fixed expense margin deleveraging observed last fourth quarter and allow more of our profitability to flow 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 the match between homeowners and the right pros, can you talk a little bit about the duration over which those three 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?

Let me address the question about product changes and their impact on revenue and profit. At a high level, we believe the key to a positive user experience is ensuring that a homeowner successfully completes a service request on our platform by hiring a qualified professional. When this happens, everyone involved is satisfied, which strengthens our brand and encourages repeat business and positive referrals. Professionals, or Pros, focus on completing jobs efficiently and earning compensation, so their success reflects good investment returns for them, ensuring they stay engaged with our platform. Historically, we've struggled with matching homeowners to the right type of Pro. If the match isn't good, the job isn't completed effectively. Our priority is improving this matching process and facilitating communication between the homeowner and the Pro. We're making investments in three main areas. First, we’re working on accurately capturing service request details to correctly connect with the right Pro. This involves ensuring that the Pros have the necessary skills and qualifications. We have initiated several projects, including a complete overhaul of our question-and-answer technology. We also introduced a feature—an assistant that helps homeowners articulate their service needs more clearly so they can get directed to the correct tasks and avoid mismatches. Our talented team is currently testing improved questions and answers derived from our expertise. We've conducted tests on almost three-quarters of our volume with positive early indicators: we’ve seen a significant reduction in incorrect task requests, and our Pro engagement metrics are also showing improvement. By the end of this year, we are aiming for an 80% success rate in these matches, with further refinements planned for 2026. In addition, we’re exploring a new Q&A function on our landing pages to enhance matching capabilities, taking inspiration from popular technologies like ChatGPT. On the Pro's side, we are refining the matching process by allowing them to choose the tasks and ZIP codes they prefer. This approach boosts their likelihood of success, leading to improved job completion and satisfaction for the homeowner. Previously, many of our Pros were constrained by a legacy advertising system that limited their options, affecting their engagement and the effectiveness of their match. As we transition to a new model, we anticipate better alignment between the right Pros and jobs, enhancing the service quality, which will build customer trust. We're also launching an online enrollment system based on our successful European model, which has previously resulted in substantial registrations. This system encourages better matching through a crowdsourcing effect. We are implementing various initiatives aimed at enhancing both the homeowner and Pro experiences. We expect significant positive impacts on our business over the next year, particularly in the coming six months, with continued incremental improvements contributing to increased customer lifetime value and brand loyalty. Rusty, would you like to add anything further?

Yes, of course. To provide some insight into how everything aligns within our financials and future metrics, on the homeowner side, I want to restate what Jeff described as a straightforward situation: flat plus growth equals growth. We anticipate our network channels will remain stable at current levels. As we enter next year, we will experience a year-over-year decrease due to the homeowner choice rollout in the first quarter of this year, but we expect stability for the rest of the year. The growth aspect relies on our proprietary channels, where we are making progress and exploring new opportunities for future growth. On the Pro side, our strategy is aimed at increasing revenue per lead and pro capacity next year. This is partly due to the change in the Pro base mix that Jeff mentioned, but we are also concentrating our sales efforts more effectively. By focusing on our primary prospect pool with an improved product offering, we are achieving higher-value sales.

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 scenes for that to effectively be executed and what some of the potential risks there are?

Thanks, Cory. In the letter, we focused on research related to organic traffic. Regarding free search organic traffic, commonly known as Google SEO, it seems to be declining for many businesses, including internet marketplaces and content providers. Google hasn't increased its traffic significantly over the years. Five or six years ago, unbranded free search traffic represented just over 20% of our total volume, and now it's fallen to just under 10 million. While this might not appear impressive, it reflects a broader industry trend. However, we've maintained our share over the past year and a half. We've been making continuous improvements to our technical setup and ensuring our content remains relevant, and we will keep doing this. That said, we do not expect growth in free organic traffic moving forward, so all our forecasts consider a continued decline. Fortunately, once you're below 10%, the decline isn't substantial, so we aren't relying on this metric. We've achieved everything in the second quarter through our proprietary traffic, unaffected by Google SEO. Our future projections do not depend on that either, and we are good marketers with a leading industry brand in a shifting landscape. We've efficiently driven volume on various platforms, evidenced by our proprietary traffic rising while SEO is down. We're also planning to enhance our TV advertising next year along with other initiatives. We're preparing for potential integration of large language models to improve our offerings and continue business growth through evolving interfaces. Our strategy is clear, and we are executing it effectively. The migration of Pro platforms in the U.S. is a critical execution task. We have successfully completed five international migrations, dealing with similar or larger numbers of professionals. We've turned our international business from a small loss into around $20 million in profit. The process includes several steps: performing a feature gap analysis, technical work to create data migration pathways, an effective go-to-market plan to communicate changes to professionals, the actual data migration, and providing customer care post-migration. In Europe, we have seen a higher success rate in migrations than usual retention figures due to increased reactivation and care. We believe we have a solid playbook for this process. While past performance doesn't guarantee future success, we are dedicated and have had a dedicated team working on this for months, and we feel prepared. Importantly, professionals are coming to us to purchase leads for their business. Even if there are some complaints about interface changes, their primary goal is to buy leads and grow their business. If we can replicate our European success in the U.S., we will be in a strong position, benefiting both the professionals and homeowners. We are optimistic; our dedicated selling on this platform has been effective, and we are reaching the same customer base we have served for many years.

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. 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 one-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. 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. While that would average down our ratio, we would do that since it would grow our aggregate profit. A 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 three 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, 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 from 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. 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. 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 videos where we've gone and helped homeowners with their jobs. We're calling them house calls. We actually had one reach more than 25 million views. It was a custom doghouse where we supplied one of the pros. It was a collaboration with an influencer, but 25 million views. I told the marketing team, I said I'll take one or two of those a month, please, going forward. We have a pretty significant effort there. We've engaged with an outside agency with a reputation for doing this well to augment our efforts. That's just getting up to speed. Then I mentioned the one collaboration with an influencer was really successful. We're also working with influencers. So we're not banking any of this in our forward numbers. We're looking at TV as delivering a kind of recent return rates sort of analytically derived and we think there's opportunity, but safe to say by focusing on the product, by restarting our TV and by getting our branded message out in every other channel we can find we are working on enhancing the leading brand in the business. I think our unaided awareness is still far and away the best in our aided awareness as well. It's a really key asset we have that we want to continue investing in.

Our next question comes from Brad Erickson from RBC.

This is Audrey on for Brad. I have two quick ones. The first one 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? Are these constraints contributing to the trends we've observed in the numbers over the past few quarters? 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 Pros 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. 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. 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 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. 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. 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. Whether that's true or not, I think increasingly you also are reading about millennials and other people looking at the trades; the trades are paying it better and better. I have two sons; one of them is going into construction. One story does not make a trend, but you see it more and more. Whether or not that's a major factor, we don't know, but there is more money to be made. Housing is a constraint; new housing is a constraint; people want to repair their old houses. We are not sure that this is a long-term secular issue in that business. It's been a pressure. We'll see. I think the other trend people have pointed to is consolidation. You read a lot about private equity or you hear a lot anecdotally about private equity getting involved in some of these businesses, consolidating and building scale. When Rusty talks about looking harder at larger pros and the opportunity there, we're looking at the same thing. For us, we're a very small fraction of the industry. If you look at online travel, a few years ago, I have refreshed it, but a few years ago, half of all online travel was booked online, 80% through the OTAs, and then 80% of the OTA traffic was booking in Expedia. That means the two market leaders had 32%. We're below 2%. We're one of the market leaders for sure. We think we have some room; that's both on the pro side and on the homeowner side. At the end of the day, people are going to need walls and roofs and electricity and plumbing, and people are going to serve this. We do not think that there is some massive secular trend working against us. If anything, pros are not going to get disintermediated the way some other jobs like CFO are getting projected to be. Rusty is laughing at me and is projected to be disintermediated. In terms of there's a question we've commonly gotten that you might be making, which is how does an individual Pro's lifetime capacity work? Do they win work and then get off the platform? When they win a homeowner, do they just keep that homeowner? There are a few elements to this. One is certain trades lend themselves to the tradesperson or Pro effectively taking a homeowner at lifetime value. My electrician is a home adviser guy who's been on since it was ServiceMagic. I hired him in 2018. He comes every time I call him; you've done probably north of $10,000 worth of work for me. I justify the value of a lot of his other leads, but I've not gone back to Angi for another electrician since 2018. That happens. Over time, our value proposition should play. Sean knows that he gets somebody like me in every batch. As long as they're winning with us, they're not going to leave us. Finally, there's the constant scale where we see our largest pros telling us constantly we'll take more leads if you have them, obviously, we want them in good enough quality, but we'll take more leads. On some level, there's unlimited capacity there. We think you have a range of use cases. I think all SMB businesses have this phenomenon where somebody like my optometrist in Manhattan, who has a small office, got on Zocdoc; I used to book him through Zocdoc. Now I can't; he's filled this book of business. He can't bring any more people into a small office, and he's done and he's happy. This is a common SMB thing that will happen, but we have a lot of opportunity with larger pros. We still provide a great way for Pros to scale and take more and more capacity and grow their business. While we think it is a real thing, we do not think it is a definitive limiter because we've effectively always been dealing with that phenomenon. Because we've skewed smaller, we probably have more opportunity to win there going forward.

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 Q2 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?

Let me take the beginning of that, and then if Rusty has anything to add, he'll add. We saw a very significant impact in April, impacting both homeowner traffic and wins for Pro. We think we saw some disruption in our retention in April and 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. We think we're getting hired less, so we're not overly worried about it. We think this will shift. As we exited June, we saw our wins per Pro jumping and our hire rates jumping double digits, and that's continued in July. 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. Whatever the economic insecurity 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. I want to emphasize that we are pleased with our business performance, but we remain cautious given the current macroeconomic environment. I want to remind everyone, as we discussed last quarter, that our business often shows some modest countercyclical tendencies. One reason for this is that professionals tend to rely on us more when homeowners are spending less. We typically see benefits in terms of retention, acquiring new professionals, and engagement on our platform. Additionally, two-thirds of our business consists of nondiscretionary tasks, which tend to be stable during economic cycles, and this proportion has remained consistent 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.

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. 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. 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 market doesn't matter as much relative to improving the overall asset quality and naturally improving the conversion through self-selection from both the consumer and the Pro over time?

I believe your idea could be correct. However, there are some differences with Zillow that suggest there may be other valid ideas. The capacity of real estate agents likely operates differently from professional capacity depending on the category. Homeowners consistently tell us they prefer to have a choice of two or three professionals, except in urgent situations or straightforward repeat jobs. There will always be some rotation of professionals. If there's only a high demand for a small number of large professionals, it may be possible to serve specific areas and tasks with just a few. Nevertheless, our observations indicate that there is enough capacity per professional shift that we should monitor this over time to ensure there are always multiple professionals available. Currently, we aim to present two to 2.5 professionals per search request. We want to guarantee multiple options for homeowners because it enhances their hiring rates, increases satisfaction, and boosts their confidence as they can make comparisons. There are factors in Pro segmentation that imply we might not settle on just three professionals. While I believe we could eventually meet demand in these areas and tasks with a fixed set of professionals, it likely requires more time and effort before we can confidently achieve that.

Yes, that's a valid point, Jeff. It's quite a theoretical question at this stage since you are currently undergoing the migration. Regarding the growth in revenue per lead, how much of that is due to category expansion versus improvements in conversion and other underlying metrics? Are there additional factors you haven't mentioned that could contribute to increasing revenue per lead over time?

So obviously, if we drive the win rate up, we have the opportunity to take more price per lead. 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 they pay and what they get, but we can probably get more pricing there. 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. 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 as 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. We think that that'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 one 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?

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. 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. 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 finely tune your incremental profitability, but we have ways to do it. 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. 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 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 our machine learning team that the job is going to convert in the anticipated LTV. On average, we've really been able to fine-tune this. One of the net results has been an increased capacity per new Pro. Our new subscription pros are 2 to 3x as much capacity as our traditional lead pros, and that's a combination of efforts there that have added up to that. We think we have the plan and we think we've been executing against it. We think you can see it in our numbers so far. On the sales side and on the online and rolled side, we're trying not to excited about that. But if we're acquiring more than 10,000 pros a month in markets that are half of GDP or less of the United States, we think we have an opportunity to add a few thousand a month there. In our European pros only by 20%-ish less leads per month than our legacy leads product pros. We think we have the opportunity to really expand capacity and have supply to meet demand and grow the business. We think we've got a reasonable number of pieces of that thesis in evidence and can thus project what Rusty is talking about with 2026, which isn't overly aggressive with a fair amount of confidence.

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. If you think about every day, we have people working on optimizing our funnels, matching, bidding, conversion and then there's kind of the density of and liquidity in the network. When we improve those things, it makes the monetization of every individual SR impacted right? 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. Other times, we take that as profitability, and we reduce our marketing cost. 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. I really want to thank everybody for all your time on a very busy earnings day. I 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.