Good afternoon, everyone. Thanks for joining. We're happy to have Chris Halpin, COO and CFO of IAC, and Tim Quinn, CFO of People, Inc., here for a fireside chat. I'll leave a little bit of time at the end if people have questions, but to kick off Chris and Tim, if you could talk about the recent corporate actions, the consolidation, the rebrand. and the management transition may be a good place to start yes certainly and thanks for having us
john um so that we announced in late april uh headed into q2 earning q1 earnings i should say a corporate consolidation which was really a continuation of what we've been doing to simplify iac to distill down value in the portfolio and shrink what we perceive as a large discount in our share price. It continues what we've talked about previously of non-core asset divestitures. Most notably, we sold Care.com, which we talked about previously, but we closed that in the first quarter, raising about $300 million of cash. And we have a game plan to continue to liquidate assets. And we've said we'd prioritize the capital allocation out of the billion dollars of cash now on our balance sheet and what we hope to build and also the cash flow that People, Inc. generates, as Tim will talk about, we'll prioritize that to IAC stock. And we bought back 13% of the company over the last five quarters to MGM stock. We bought a million shares there each of the last two quarters, as well as to strategic M&A at People, Inc. One of the key parts, and we had been scoping this out for a while, was as you get down to the core operating business, which is People, Inc. plus the MGM shares, you don't need two levels of corporate. And it was a clear cost-saving opportunity. We talked a lot with investors of how we were rationalizing IAC corporate, but the big step would be really collapsing the two, and then eliminating duplicative functions, retaining those activities such as investor relations, internal audit, SEC reporting and consolidation, et cetera, retain those that are in IAC corporate that don't exist at PeopleInc, but really eliminate the rest. And we scoped it out. We worked with Neil Vogel, CEO at PeopleInc, And Tim Quinn, my partner, is CFO, aligned it and then got board approval, and we announced it. It is not a rapid consolidation. It is really like two businesses merging through a merger. And we also want to be thoughtful about maintaining mission-critical services, software platforms, et cetera. But it will all be done by February of 27 is our goal. We've talked about we expect to generate $40 million plus of OPEX cash savings relative to the corporate expense at IAC, which was running about $85 million. We also expect to save $20 million to $25 million of stock-based comp on an ongoing basis. And the first clean quarter will be the second quarter of 2027. But we expect to fully see that improvement in free cash flow dilution, et cetera, at that point. So every employee of corporate is either staying a small subset or leaving on a specific date. Our chief legal officer, Kendall Handler, and I are going to stay through Q2 earnings. And then the expectation is handoff to Neil and Tim. and we think it's going to produce a leaner, faster, more efficient IAC, which will also be rebranded People Incorporated to the benefit of shareholders. Anything you'd have?
No, I think that's well said. People Inc. today has about 3,600 employees, so we do have the infrastructure to absorb it. As Chris said, we're being really thoughtful about how we do that, and there are definitely some functions that we are picking up, like IR tax and other areas that we don't have the competency. But I feel pretty confident that we can do this thoughtfully and seamlessly.
Okay, great. Let's move to people digital revenue, the three line items. I just want to drill into each one to start. And so we'll start with advertising. That grew 1% year over year in 1Q. It's a little under 60% of total people digital revenue. Can you talk about the strengths and offsets in the quarter and how things may trend for the advertising line over the rest of the year?
So we had another solid quarter in Q1 at People, Inc. I think it was a 10th consecutive or 11th consecutive quarter of growth. Grew total digital revenue about 8%. As you said, John, advertising grew 1%. There are two kind of countervailing trends that are underlying that 1% growth. On the one hand, strong performance by our premium sales team, selling capabilities, selling off-platform, what we call off-platform advertising. I'd say the ad market is solid, not spectacular, but solid, sector-specific, but strong. And that's counteracting the softness we're seeing from traffic to our owned and operated sites, or traffic to, I'll call it dot-coms today, to distinguish. And so that has been a headwind for the last year and a half or so. It's something we've seen. It's something we underwrote in our financial models this year, but it's something that we're kind of contending with right now. And so the combination of those two things have advertising roughly flatter up a little bit in Q1.
And then performance marketing grew mid-teens. It's about a quarter of people digital revenue. 25% of that was monetized via off-session views. Will that mix shift continue within performance marketing, and how should we think about the key growth drivers for that segment?
Yeah, it will continue, as you suggest. What performance marketing is is basically specifically the largest piece is referring users, consumers to retailer sites using our guides, ratings, and reviews and other techniques that we have. We think it's a valuable service to consumers. It is certainly a valuable service to the retailers themselves. We drive over a billion and a half dollars at retail to the likes of Amazon, Walmart, Nordstrom, Wayfair, and so forth. That business has some of the same drivers as the advertising business in the sense that two or three years ago, the predominance of that business was search-based referrals to our dot-coms. We've been able to diversify that business to a more distributed content model, getting those same or similar call to actions to consumers around retail products to Apple News and Discover and email and off-platform marketing and all of those types of things. So that's what you're picking up in that 25% that is in the non-session-based revenue. It's been a really strong performer for us, the performance marketing line. I think Q2 will continue to be strong. Back half, the comps get quite a bit harder, but we still continue to expect to grow.
Okay, and then licensing had another great quarter, and that's about 15% of the mix. Could you talk about the key drivers and your partners there that's driving super strong growth?
Yeah, as you say, licensing has been particularly strong for us. It had a really good quarter in Q1. The way to think about the licensing line is there's three subsets to it. There's content licensing, which is the biggest and fastest growing. That's where we distribute our content across different platforms. Again, Apple News, Meta, Facebook, even Yahoo, MSN, all those types of guys. I think we have an advantage there because we're continuing to make high-quality branded content that's resonating. And the economics certainly support that, and the revenue supports that. The second line within licensing is our AI licensing, our data licensing. That's where you'll see the OpenAI deal or the growth this year is coming from the meta deal to a little lesser extent of a smaller Microsoft AI deal that we have there. So that's contributing. And then the third piece is sort of more standard product and brand licenses, the biggest of which in that revenue category is our Walmart BHG license, which is one of the largest kind of private label brands in Walmart. And you can think about that as growing roughly in line with Walmart. So e-commerce strong, in-store not as strong, but kind of a flattish to modest growth piece of the business.
Okay. That's super helpful. And I know you touched on this, but let's maybe dig a little further into the traffic and monetization. So if you can just kind of talk about the flow of the traffic with the advent of AI and chatbots and how people has pivoted to growing off-platform views, you know, amidst the Google search traffic declines with the introduction of AI overviews and AI mode.
Sure. To tell a quick story, Chris and I and a bunch of other folks, Neil and others, were in Las Vegas in Q4 of 2022, the week that Sam Altman launched ChatGPT. So, you know, we saw sort of like the version 1.0 as it was, as and before it was hitting the market. And I think like probably all of us, the first time we saw it, we were like, whoa, this is totally, totally different paradigm, right? It's going to, this is going to change sort of everything. We were literally looking behind the curtain to see if this is real. And so even back then, we started to think, like, the business is going to change. It's going to have to evolve. The way people are going to consume media, research topics, do all those types of things are going to be very different. And we started then to lean into our brands. We organized, first and foremost, one leader in charge of each brand. And basically, that leader had the mandate to publish content or create content for the magazine for the dot-com, maybe the same, maybe different content for YouTube or TikTok or Instagram. What that allowed us to do is start to grow, you know, create native content and grow audiences off platform, again, not within our owned and operated or within our dot-com. You know, it's been, what, three and a half years since then. It's been, you know, kind of slow to emerge and then fast, you know, quickly came upon us. And so we have, again, two counter, you know, countertrends within our business. Our owned and operated.com traffic is in decline and has been for several quarters. We're down 16%, 17% in Q1. We expect that to maybe get a little bit worse even in Q2. We have the other side of the house, the off-platform views. The off-platform audiences grew nearly 40% on a kind of two-year CAGR in Q1. What we've gotten really good at is monetizing those off-platform audiences through any number of means. We have events. We have sponsorships. We're creating original programming. And so to frame this out for everyone now with that context, 60% of our revenue comes from a visit, is derived from a visit to one of our dot-coms, to one of our branded sites. That grew or shrank, rather, 1%. It was basically flat in Q1. 40% of our revenue grew 24% in Q1, and that's revenue that was derived from all other sources, anything that is not trafficked to our dot-coms. So we really think that that's a good mental model for the future of the business. We need to hold serve on the dot-coms, sort of accept and acknowledge the reality of the current environment, continue to grow and lean into the brand-led experiences that are off-platform.
Makes sense. And I mean, to that point, will there be a point where the traffic from Google search stabilizes?
That's the debate we always have. That's where we discuss. Is it asymptotic to something? It's asymptotic to something. The way I would think about it is there are brands that are out the other side of it already. They have literally no exposure, de minimis exposure, less than a million dollars, say, of exposure to search-based traffic. InStyle is a fast-growing site in our portfolio that has virtually no search exposure. By contrast, there are certainly brands that do have some exposure and will have to go through sort of the same transformation that InStyle has done. And I think those are the ones that you'll see some traffic headwinds on. And kind of the most obvious example I can give right now is our recipe traffic. I think we probably get collectively more recipe-based audiences or traffic than anybody in media. And while that is 50% penetrated by our estimates with AI overviews, there's still a ways to go there. Now, we think that that's not the ideal use case for AI, but Google and others may have a different view. And so we'll see. So it's really a portfolio approach. we certainly do think it levels off we think we're closer to the other side of this than the beginning but you know we're not totally out of the other side
yet either yeah I think keep me honest but there there are there is a there there's a cohort in the middle of brands where they are now at pretty much max potential 95% AI overview frequency so they have they have gone through that and whereas in style may be getting zero search partly because of the changing behaviors of their users, there are those that have gotten, and they are still getting some search. Yeah, that's the, exactly. It's sort of these three groups, and the debate is that third group I'm saying, is there some baseline of search that top brands will get even when you pound the user with AI mode? We're not so aggressive as to assume that will happen, but it is very logical to assume it's asymptotic to something, but we're not going to make any predictions.
Just going back to sticking with the traffic and the views, engagement, on the off-traffic views, just remind us the key platforms, number one, And I think you mentioned them, but just, and then are there some platforms that you don't have relationships, like scaled, that you don't have relationships with that?
I mean, we try to be anywhere where a consumer wants to consume content, right? And we've tried to modify our content formats to those platforms, the biggest of which today are Apple News, Meta, Instagram, TikTok, for sure, YouTube. Each one has their own monetization ecosystem, none of which we control, unfortunately, like we did our dot-coms. But we have figured out ways, and each one's different. And so we have figured out ways, I think very clever ways, and successful for brands ways to monetize those audiences off platform. So, yeah, that's the play. I don't think there's specifically places that we aren't at aren't in or are having a lot of success today. And as new entrants emerge, we're pretty quick to get involved.
And I would say, Tim has talked about it, but forget if it's the parable or ESIP's fable of the ant and the grasshopper about who gets ready for winter and who doesn't and how they perform, but it is really true that they massively pivoted their strategy in the 23 period. We were talking about it, but investments in video, investments in developing content for these new platforms and the reps to customize the content by platform for optimal performance. And this isn't like old SEO. This is actually is it video, how is it structured, sentence length, all these things, and then to sell against it, as Tim said. So it is, I don't know if it's too late, it's too strong, but it's probably too late for so many of the competition to make this pivot and be able to do it. And it is reflected in our numbers and Neil and Tim's performance relative to many other content producers and engagement-dependent web platforms.
That makes sense. Maybe sticking with the AI kind of theme, but from the content creation perspective, just how is people leveraging AI across its major brands?
Yeah, I think I mentioned earlier, we're making more content today than we ever have before. It's all human-made, always has been, will always be human-made. at a lower cost per unit than we've ever had before. That is definitely accruing to our benefit. We talked about the licensing line, but across the entire business. We are aggressively using and have for now a year plus AI tools and gotten more efficient using AI tools to help us write that content. So anything from topic selection, brief writing, workflows. Now again, there's still a human on the other side writing something that is specifically kind of curated and picked by them. But that's helped a lot, and we have that ability at scale. I think there are certainly other applications, many applications, obviously, for AI within the business, the next largest of which is ad targeting. We have always commanded a premium in the marketplace for our ads. Our ads perform. We can use that intelligence to make the targeting even better, both on-platform and off-platform. I think that the buy side is getting more sophisticated and finding the value in our inventory and paying more for it. And so, again, these are advantages that are, I think, pretty unique to us and certainly unlocked with AI. So we debate, honestly, internally at this point, is there more risk to AI than downside on the traffic site? You know, and it's like some days it feels like, yes, there's more upside and some days maybe a little less so. But there's certainly a much more balanced view of sort of what AI brings to our company today than two years ago.
That's great. Just maybe pivoting to margins. The People Digital, the EBITDA and 1Q was better than expected. I think it was like 45% incremental margins, which is higher than we had. So just curiously call out on key drivers there and how to think about 2Q and the rest of the year for people.
Yeah, I mean, we've always been and continue to be hyper-focused on being smart and prudent with our capital. Neil says ruthless in some respects. Yes, ruthless with what we continue to do versus what we stop doing and reinvest in other areas. we've had we had particular strength in q1 as you know to 200 basis points of improvement in margin as a result of the strength we're seeing primarily in licensing and these off-platform advertising products both of which I mean licensing has exceptionally strong margins the input is the content creation we just talked about which we're doing very very efficiently and the the off platform advertising also has extremely strong margins so those two things or that collection of lots of little things, but we'll put in those two buckets, we're able to offset the headwinds from traffic, which has a deteriorating margin impact. So we feel really good about the discipline we've brought to the table, the mix of businesses we have, the brand environments that support a premium. We think Q2 should continue to be solid in terms of margins, And, you know, we think the year will be, you know, at least comparable to last year, if not a little bit of margin expansion. So we're on the right track.
Maybe zooming out to total company margins, I think the guide for total IC, $210 to $260 million EBITDA this year. How should we think about free cash flow conversion? And looking into 27, I know Chris mentioned the savings that will be worked in as the year goes on next year. But, yeah, just free cash flow conversion with the nice kind of EBITDA generation. Yeah, you want to talk about People Inc.
People Inc. has very, very strong free cash flow characteristics. We would expect at least 50% of our EBITDA to drop through to free cash flow, if not more. We're delevering pretty quickly at this point. And so we've said, you know, kind of publicly at least $150 million of that guide, of the broader IAC guide is People, Inc. And, you know, we're on track for that. In fact, we had a very strong cash generative quarter in Q1.
Yeah, and then overall IAC, I mean, clearly People, Inc. is the free cash flow machine. We guided corporate to about $96 to $105, I think, which doesn't reflect the savings. It actually reflects the one-time cost. We'll have about $15 million of one-time costs across the year associated with severance, some retention bonuses, related costs, et cetera. And many of the exits are back-end weighted in the year, so you don't get the full impact. That'll pull down a little bit. One other note, you talk about AI-generated content. Unfortunately, the AI bots came out and said we missed earnings last quarter because CARE became a discontinued op. So don't only believe people created content, not AI-related content. But we will have CARE is now a discontinued op since we sold that, and then we have wound down our search business, which will also be reflected as a discontinued op. I would note we are looking to sell the domains that underlie that search business. and we've started that process and we know we have some quite valuable ones including ask.com that maybe in the current market context could be even more valuable but we shall see what the market will bear so the numbers will be cleaner of People Inc and then our emerging and other where both businesses are free cash flow generative and profitable both the Daily Beast and Vivian and then as you get into Q2 of next year, we'll be chugging along at hopefully $45 million of corporate costs.
That's great. I have some more questions. And you kind of touched on the capital allocation a bit. And so this will take us into kind of MGM and Turo and other areas. But I don't know if anyone in the audience has a question or if anyone has a question on MGM. I don't know if we have a mic, but I'll repeat the question.
Happy to answer. I think for those not in the room, the question is really, I think, how do we think about MGM Japan for the Osaka project for the value of our MGM holding where we own 26% of MGM resorts and talk through the dynamics at play in the MGM.
Yeah. If it really is going to produce $2 billion a year, and if we get to 44% of $880 billion,
Okay, we got it.
Don't answer the question.
We got it.
Hold your hand. It's more than $2 billion.
No, no, I'm saying I got it. So what I'll say about MGM Osaka is this. It is an incredible opportunity to build what will be the only legally licensed gaming integrated resort in Japan. And we've seen what's happened in Macau and Singapore where legalized gaming is brought to cultures where there is a high propensity to wager and also high incomes. And this will be in Japan. It will also benefit from international travel. And they are building, with our partner Oryx, MGM is building an extraordinary first-class facility. You raised questions about currency. You can go through the game theory of is it better to have which way the yen moves versus the dollar when you're building versus when you're moving money out, all of that. MGM Resorts has been very thoughtful around hedging, although it is a very long-dated project. So if anybody knows currency hedging, if you start going out eight years, the vol kills you, so you can't really do that. But very thoughtful about hedging around local financing and also on tax structuring. We are strong believers in the project. MGM management continues to work well and refine it. And when we look at the projected yields and the opportunity to own and manage with Oryx, the single integrated resort in a market like Japan, we think it's incredibly attractive. And investors, as we get closer to the launch date of autumn of 2030, will realize that even more. Okay, thank you.
Maybe one more. Well, two more, quick. Speed round? Yeah, right. Turo, just stake and.
Yeah, we own 32% of Turo. We very much like the business. It was a huge pandemic winner. And by their own admission, they probably, in the tail end of it, didn't seize on all the momentum they could. There also were headwinds in the rental car sector. And there just wasn't enough awareness of those who hadn't experienced it. The team, they've hired a great CMO who's focused on all the right actions. They've improved the marketplace dynamics. As we said in earnings, they are back to double-digit growth, and we see further momentum. They're EBITDA and free cash flow positive. Barry said, you know, I think he said on the call, I wouldn't expect to own it in four years. But he sees real continued room to run. And they have a great market opportunity in front of them.
Maybe last, talked about Google during this discussion. And then there's this lawsuit as a potential monetization event. Could you just talk about the timing and how you guys have discussed the size of the potential event?
Yeah, we think it'll take the entirety of this year into next year to resolve optimistically. I think that there's a chance, of course, it could settle, but that doesn't usually seem to be Google's way. We believe, for the benefit of the room, Google was found to have used its monopolistic power to disadvantage advertisers and suppliers, publishers, in the ad tech space. We think that we can rely on the government's findings and the ruling, and that we're really talking about, at this point, damages. And the debate for the next several quarters will be about how far the look back is and what size damages we think as People, Inc., predecessors, Dot Dash, Meredith, with the time-to-time properties, we are among the largest plaintiffs in this action. And we've said publicly $100 million plus, and we think it could be even meaningfully more than that, but we'll have to wait and see.
And the other thing I'd add, because we've gotten this question, the appeal Google made of the finding on the search monopoly end of last week, or this week, is not related to this case. It is related to the overall search behavior slash SEM world. This is the ad tech case, the old double click, Google 360, all that. They are not appealing that. They've already lost it.
Thanks, all. Thanks for joining.