Welcome to the IAC and Angi Fourth Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, 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. Good morning, everyone. Christopher Halpin here, and welcome to the IAC and Angi Inc. fourth quarter earnings call. Joining me today is Joey Levin, CEO of IAC and CEO and Chairman of Angi Inc. Similar to last quarter, supplemental to our quarterly earnings releases, IAC has also published its quarterly shareholder letter, which is currently available on the Investor Relations section of IAC's website. We will not be reading the shareholder letter on this call. In addition, Angi has published an earnings deck this quarter, which is currently available on the Investor Relations section of both IAC and Angi's respective websites. I will shortly turn the call over to Joey to make a few brief introductory remarks and then walk through that Angi earnings deck. We will open it up to Q&A. Before we get to that, I'd like to remind you that during this presentation, we may discuss our outlook and future performance. These forward-looking statements typically may be preceded by words such as we expect, we believe, we anticipate, or similar statements. These forward-looking views are subject to risks and uncertainties, and our actual results could differ materially from the views expressed today. Some of these risks have been set forth in IAC's and Angi Inc.'s fourth quarter press releases and our respective filings with the SEC. We'll also discuss certain non-GAAP measures, which as a reminder, include adjusted EBITDA, which we'll refer to today as EBITDA for simplicity during the call. I'll also refer you to our releases, the IAC shareholder letter, the Angi deck, and again, to the Investor Relations section of our respective websites for all our comparable GAAP measures and full reconciliations for our material non-GAAP measures. Now let's jump right into it. I will hand it over to Joey, and he will walk through the Angi earnings deck.

Thank you, Chris. And also congratulations, Chris, on the new responsibilities. Hopefully, everyone saw Chris has the new responsibility of Chief Operating Officer and Chief Financial Officer, and he's been an incredible addition to the team since he's been here. We're excited about the new responsibilities. We changed up the format a little bit here to walk through this Angi deck, so hopefully everyone has access to the deck in front of them. I'll take you through page by page. What we wanted to accomplish here is give you a sense of how things are going and where the focus is since I moved over to Angi a few months ago. So I'm going to start with Page 3 here. That's the title page and the safe harbor statement. We're on Page 3, which is, I think, the most important slide we have. What you see here is the importance of One Angi. Let's get to our history, how we got here, and what we offer to our customers. Our customers are both the consumers and the service professionals. We've been in this business now for over 20 years, starting with Angi's List, which was a directory that provided consumers all the information about service professionals and their ratings and reviews. We also had HomeAdvisor, which matched homeowners with service professionals based on exactly what the homeowner needed. Then we added Handy, allowing homeowners to book and pay for a job online and let the platform do the rest. That is the collection of tools available to a homeowner in the lifecycle of trying to get any job done for their home. And now that's all available on one platform, branded as Angi. Same is true on the service professional side. We learned how service professionals want to engage with our platform and homeowners. Some just want an online presence where we help manage their ratings and reviews for a fixed price per year. Some prefer to only pay for specific jobs and clients, and others just want to do their jobs, which is what Handy historically provided. No one else offers that full suite of products. The ability for homeowners to do everything in one place and for service professionals to buy products in one place is a unique offering. That's what One Angi does. If I turn to the next page, you can see that this collection of services makes us the biggest in the category by a wide margin. It's not just on revenue; we are also number one in brand awareness, even with the new brand. Our brand is much better recognized than any other pureplay brand in the category, which is a real asset. The scale in revenue is also important for the customer experience. Liquidity is crucial, meaning the ability for a homeowner to find a pro and the pro to find homeowners. That liquidity is essential for engagement on the platform. The scale of revenue also allows us to innovate and experiment with new products, which we've done a lot in 2022. Not all innovations work, but we are constantly innovating, and having a large surface area for innovation is a real asset. Moving on to Page 5, I want to show you how we are organized. We're focusing on two segments: ads and leads, and services. Ads and leads comprise a vast majority of our revenue and profits. That's a great business with significant potential which we'll get into. The second piece focuses on services, which, while a smaller portion of the business, is crucial for customer experience and our future. We invested heavily in that segment in 2022 and prior, and while we are past the peak investment, we will still invest to enhance the customer experience. The fundamental difference between ads and leads and services is that service professionals pay to find customers in ads and leads, while we pay service professionals in the services segment. We want all of them to be able to work on our platform. Within ads and leads, some service professionals may pass on a variable basis, with no commitment per lead, while others may pay a fixed annual commitment. Each of those products works for some professionals. Looking quickly at roofing, we made substantial investments in 2022 and faced embarrassing losses. However, that will not continue as we’ve made that business profitable and expect it to remain so going forward. Corporate is our overhead, which will be an expense area for the indefinite future. Internationally, we are small but have teams in each country we've entered, and we are moving onto a common platform for efficiency. This brings us to total Angi earnings. On Page 6, focusing on ads and leads, this is a profitable business with real upside. Last year, we faced declines primarily due to a rebrand that impacted our marketing efficiency. We’ve now returned to growth and expect that to continue as we drive marketing efficiencies. In terms of adjusted EBITDA, we are recovering from the declines and see a positive growth trajectory. Now switching to services on Page 7, we experienced strong demand growth due to substantial investment. 2021 was exceptional, and that trend continued into 2022. We’re making changes to the business, moving away from complex services to focus on lower average order value services, which are more profitable. We've reduced investments towards the end of 2022 and expect continued improvement on that front. Page 8 addresses a critical question: Why continue the services business? The answer is it's essential for the future. Moving forward, 100% of services will be priced online, which aligns with homeowner preferences. We have a 2x repeat rate in services, which shows customers see value and return often. Additionally, we maintain a Net Promoter Score over 50, indicating strong customer satisfaction. Mobile transitions are significant for driving repeat rates and customer satisfaction, with a notable increase in mobile app usage when delivering services. Looking at the right side of the page, the value per job starts at $230 in Q4 after variable costs, indicating a positive contribution margin. As we exit complex services, we expect improvements in our profit margins due to a more profitable service mix. On Page 9, we see multiple growth levers. Changes made to the brand have impacted the business positively. We could realistically regain a significant portion of our SEO presence from pre-rebrand levels, alongside growth in profit from SEM. Brand awareness is also building with the new brand, resulting in greater overall efficiency. It's crucial to note that while some service professionals may not be a fit, those that do engage with our platform tend to stay long term—averaging four and a half years. We're focused on making this group even happier. Long-term growth is inherently tied to our ability to increase the numbers of service professionals for whom our product works. On Page 10, we're actively pursuing efficiency throughout the organization. We've reduced our sales force by 21% year-over-year, which translates into fewer transaction service professionals but at a lower acquisition cost. Our revenue per transacting service professional has increased significantly year-over-year. Regarding advertising expenses, we are working to improve our efficiency, as seen in our advertising costs relative to total ads and leads revenue. We anticipate further improvements there through 2023. Page 11 shows we’ve cut product development expenses and capital expenditures significantly in the latter half of 2022, and we’ll continue to see cost savings moving forward. Page 12 outlines our outlook for Angi, where we've resumed providing annual profitability guidance.

Thanks, Joey. As you have seen in the shareholder letter, we have resumed providing annual profitability guidance. On page 12, you can see our outlook for Angi, adjusted EBITDA of $60 million to $100 million. Notably, at the high end of that range, that's more than twice 2022 adjusted EBITDA. We have also driven reductions in efficiency to boost free cash flow; our CapEx guidance for 2023 is $40 million to $60 million, which is down about 50% year-over-year. Furthermore, we've discussed transitioning services to net revenue reporting due to changes in agreements with customers. For guidance, we wanted to provide the first quarter revenue projection of $370 million to $400 million. At the midpoint, this reflects flat year-over-year growth. We encourage you to reference our grids and metrics section for proforma data that shows 2021 and 2022 quarterly revenues for Angi on a net revenue basis.

Let's jump right into questions. Operator, let's go to the queue.

Yes, sir. We will now begin the question-and-answer session. Today's first question comes from Jason Helfstein with Oppenheimer.

Thanks. Good morning, everyone. Joey, people generally prefer familiar options because they know what to expect. Studios tend to have a better grasp on the returns of sequels compared to original films. I'm uncertain about the current status of the sequel with Angie, possibly the third or fourth reboot. With that in mind, how are you approaching the long-term potential? It appears we might need to concentrate on a smaller total addressable market since there's a shift away from the larger services. Could you share your perspective on the long-term revenue and margin potential for the rebooted Angi? Thank you.

Thanks. Yeah, I could challenge a few things. I don't think this is a reboot of Angi. Let's engage on the TAM first. The TAM for Angi remains around $400 billion for the home services market. This includes both simple and complex services. We're still servicing complex services, but we're doing that through our ads and leads. That's a valuable channel for our ads and lead product because this creatively and effectively matches homeowners with service professionals. We can make real money on that, creating a great customer experience. The dynamics here are about recognizing the revenue correctly; the marketing sector shows about $40 to $80 billion spent on marketing for Angi. Regarding the 'reboot' and Angi, I will be straightforward; we overspent in 2022 and tried many things, some of which didn’t work. We must take that lesson and be diligent with capital going forward. We must balance innovation with cost management to maintain focus on core efficiencies.

And just a quick follow-up. If you're not going to build on the services side—previously, the goal was to become the general contractor to capture a better take rate. If the bulk of the business is going to be ads and leads, should we not think about a lower conversion rate of that 10% to 20% of advertising over time?

No, it’s not that. Our intention with the services business was to elevate customer experience while providing comprehensive coverage in more categories, giving homeowners choices. We found it challenging to maintain profitability in complex services but can execute effectively on less complicated services. We can deliver compelling customer expectations while facilitating a reasonable service professional price. Our goal aligns with ensuring homeowners have meaningful solutions available on our platform. As for long-term growth, we are aiming for a double-digit revenue growth. 2023 may be a transition year due to changes made, but thereafter, we believe consistent growth is absolutely achievable alongside expanding margins. Thank you. Next question?

Thank you. Our next question comes from Cory Carpenter with JPMorgan.

Thank you. I wanted to stick with Angi, I had two questions. First, just hoping you could expand a bit on your expectations around revenue trends maybe beyond Q1 this year but not long term. In the non-profit you mentioned earlier, that roofing has turned profitable. So I hope you could talk about where else you're expecting leverage to come from in 2023 across the different segments. Thank you.

Yeah, sure, Cory. Thank you. We’ve provided guidance of $370 million to $400 million in Q1 net revenue in the services category, with the midpoint being flat year-over-year. We expect similar trends for the remainder of the year, with growth in ads and leads and declines in overall services revenue as we shut down less profitable, compounding services. We also anticipate gross profit to grow in the mid-single digits as a result of favorable mix between ads and leads and services. We aim to return to consistent net revenue growth by 2024. On the EBITDA side, we expect margin expansion and continued profitability driven by cost savings, marketing efficiencies, and fixed costs leverage in ads and leads. We see the potential for significant improvements in adjusted EBITDA from services and roofing.

Our next question today comes from John Blackledge with Cowen.

Great, thanks. Maybe pivoting over to Dotdash Meredith. So two questions. First one, just thoughts on the '23 revenue and EBITDA trajectory? Second, could you discuss recent traffic trends across some of the key brands you highlighted in the letter? How should traffic trend as we progress through 2023? Thank you.

Sure. Thanks, John. I'll start, and Joey can chime in. We're disappointed with the declines in fourth quarter digital revenue at Dotdash Meredith, particularly in December due to broader market conditions. We feel good about the integration and execution of our platform relative to trends in earlier portions of the year. To achieve revenue stability, we need both stable traffic and ad pricing, with aggregate traffic down about 5% to 6%. We expect traffic stability, potentially in flat lines through Q2, with growth returning in the latter half due to operational improvements. We anticipate first quarter performance to remain soft due to both ad market weakness and tough comparisons. In terms of margins for Dotdash, the first quarter is traditionally our lowest due to its seasonal trends. However, we expect to see stability in the ad market by the second quarter's end, and revenue growth in the second half of 2023. Overall for the year, we aim to stabilize traffic and revenues around the second quarter and target full-year growth. Our profitability will benefit from our tighter cost actions. Revenue scale on high-margin digital revenues remains in focus as well. While we are currently aware margins won’t be fully visible until digital recovery occurs, we anticipate margin growth as digital revenues pick up.

Thank you.

Thank you. Operator, next question.

Our next question comes from Ross Sandler of Barclays.

Hey, guys. One more on Dotdash Meredith and then a quick follow up on Angi. So high level, we've seen an explosion of new tools like ChatGPT and generative AI. I'm just wondering how that might impact Dotdash Meredith? On one hand, potentially producing content more efficiently in the future; on the other, SEO traffic might be negatively impacted. So could you walk us through how you're thinking about that?

Sure. Starting with AI, every new technology is a threat and an opportunity. We're mindful of both. On the Dotdash Meredith side, we view the integration with Meredith positively, particularly as brands and trust matter in content production. While AI is capable of responding to inquiries effectively, it lacks the branding and experience element that our team delivers, which is important in culinary, travel, and home content production. We must lean into our differentiated content because that is where our value lies. In terms of new technology, generative AI can help produce cost-efficient content in its earlier stages. For Angi, we're not as troubled by the 25% service provider retention after the first year. We know that most churn occurs within the first three months and we're actively working on improving first impressions through clearer pricing structures, enhanced services, and improved expectations management for new service professionals. We're actively focused on retention by improving the onboarding process—ensuring that service professionals understand the product will work for them and what they can realistically expect in terms of success on our platform.

Thank you. Operator, next question.

Our next question comes from Brian Fitzgerald at Wells Fargo.

Thanks, guys. In the shareholder letter, the decreased focus on service requests suggests you may be foregoing some near-term revenue for SEO benefits. Can you tell us about the expected scale or timing lag effects associated with that and any additional nuances around your SEM and SEO strategy?

You're correct that we are willing to make those trade-offs if necessary. We aim to service customers throughout their journey, even when they might not be ready to transact during their initial visit. Directory elements serve to build relationships effectively. We plan to gradually expose the directory with positive traffic effects as we shift the product back into market. We've made significant internal focus on enhancing our SEO. Since my arrival, we have dedicated teams to SEO efforts and have found notable results by resolving fundamental issues. For instance, identifying where a decline stemmed from within our SEM approach led to increased conversions. Our interaction with the SEM team is designed to yield results, and we're optimistic about the outcomes from these ongoing initiatives.

Thanks, Joey. Appreciate it.

Thank you. Next question.

Our next question comes from Dan Kurnos at The Benchmark Company.

Hey, thanks. Good morning. Joey, you touched on the narrowed focus in services. Can you talk about how you're differentiating that offering and potentially winning in the marketplace alongside a new TV brand campaign? Are there other creative ways to win as you continue this narrowed focus?

Certainly, the key is ensuring we deliver a seamless customer experience. As we offer services, we want to ensure customers are aware of their options from the start. Many customers may not see our services until after their service request. We need to bring visibility to our service offerings so that customers see them before completing their requests.

Nothing that we've experienced undermines our long-term profit growth and cash flow generation expectations. We feel as confident about the margins in Dotdash Meredith as we ever have.

I still spend real time on M&A, both for Angi and IAC in general. We're looking for opportunities, but we’re not in a rush. We believe the current pricing environment will remain stable for some time, and improving the willingness to transact will probably increase as market volatility settles down. Thank you. That does it. Happy Valentine's Day, everyone. Thank you for spending your morning with us. We'll see you next quarter.

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