Angi - Q1 2023

Transcript

Operator (participant)

Good morning. Welcome to the IAC and Angi first quarter 2023 Earnings Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by 0. 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, CFO and COO of IAC. Please go ahead.

Christopher Halpin (EVP, CFO, and COO)

Thank you. Good morning, everyone. Christopher Halpin here, welcome to the IAC and Angi Inc. first 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. 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 first 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, 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, let's jump right into it, Joey.

Joey Levin (CEO and Chairman)

Thank you, Chris. Welcome, everybody. Thanks for joining us this morning. Feels good to be playing a bit of offense again here. I think we've meaningfully turned a corner on earnings. I think, with the back-to-basics theme is working here. We have really focused internally for the last quarter or several quarters, and I think that's starting to show up in our numbers, and that's allowed us to focus on allocating capital again too. You saw we put a lot of capital to work this quarter, and really all of it focused internally on the things we know really well. I think that's consistent with our back-to-basics theme and consistent with what we're seeing in our business, which is, we're getting things working.

We're getting things working in terms of profitability, we're getting things working in terms of customer experience, and we're getting things working in terms of preparing for the future and starting to win competitively. That feels really good to be on that team. I know there's a lot of things we did this quarter that people are interested to hear about, so let's get to questions quickly. Thanks, operator.

Operator (participant)

We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble our roster. Our first question comes from Ross Sandler from Barclays. Please go ahead.

Ross Sandler (Managing Director, Senior Equity Research Analyst)

Hey, guys. Yeah, I just had two questions. First on the buyback and then second on Dotdash Meredith. On the buyback, I think everybody on the call is curious as to the why now. You know, we see the, the math on the core stuff being negative and obviously Angi's and DDM are turning the corner here in the, in the first quarter or first half. Just could you walk us through the thinking on, you know, what goes into that decision and what we should expect going forward? And then on Dotdash Meredith, it looks like the progression here is happening according to plan with the, you know, January -20% going to, like, June positive. Any surprises or anything you would flag in terms of areas of weakness or strength within that business?

Thanks a lot.

Joey Levin (CEO and Chairman)

Sure. Ross, I appreciate the question on share buybacks. I think in a sense you've answered it a little bit in the question. It is the things that you said. One is it's the negative implied value and we think that's a compelling investment thesis. Two, it's the state of the businesses. We feel more comfortable buying back shares when we're generating cash and when we're growing earnings. Those are important milestones for us. And it is the overall environment that we're in and kinda how we feel as a business. We are. When we look at what we have in aggregate, that is a compelling combination of things for us. As far as where it goes from here, you know, we never really can or would answer that question.

I'll say the usual, which is we consider it regularly. We will continue to consider it regularly. When we see opportunities, we'll prioritize share repurchases over other things. The bar for something other than a share repurchase is a very high bar right now. With our capital, we're always looking at lots of things and we'll continue to look at lots of things and when we see opportunities, we will seize them. Right now, that opportunity in the first quarter, I think was very compelling and we seized that there, and it was more compelling than it's been in a very long time.

Christopher Halpin (EVP, CFO, and COO)

Yeah, thanks, Ross. On the Dotdash Meredith, you know, as a reminder that the Dotdash playbook that we are running on Meredith is about bringing the sites over, speeding them up, cutting out both old content as well as ad clutter and driving traffic and performance. As we highlighted in the shareholder letter, you know, broadly across the key Meredith titles, we feel very good. A lot of green on the page, and we're now, you know, 7-12 months into migration, and we're seeing that not only, you know, on an absolute basis, but also strength in similar categories between Meredith titles versus Dotdash titles that would be similar state, that would be steady state. We get the question, so I'll take them head on. PEOPLE is yellow.

That is nothing about the migration. That's purely because last April, May, there was the Oscar slap as well as the Johnny Depp trial. Traffic has been tougher there recently, but we had an excellent first quarter, and once we lap the Johnny Depp verdict, we expect to return to strong growth there. Very good about that property. InStyle has been challenged since we bought it, but we feel good about the game plan there and really getting rid of a lot of low-calorie impressions. PARENTS, we're working on. We have a game plan there. SHAPE is very small. The rest are very strong. That's on traffic. The other key part of the thesis is performance marketing and e-commerce, and that continues to be excellent.

The whole thesis of taking the Dotdash, e-commerce and performance marketing, assets to the Meredith sites and driving them through the Meredith brands is playing out very well. We highlighted we were up in performance marketing, across the board in March for the first time in a while, and we just expect to continue to move from strength to strength across the portfolio. Feel good there. Operator, next question.

Operator (participant)

Next question comes from Cory Carpenter from JPMorgan. Please go ahead.

Cory Carpenter (Executive Director, Senior Equity Research Analyst)

Hi. Thanks for the question. I had two on Angi. You know, Joey, could you just talk about where you're seeing the greater efficiencies that led you to raise the profit guide and how much more room you could still have on the cost side? Then on revenue, the letter talked a lot about focus on quality and sort of cleaning up the platform. You know, how long do you expect it to take to work through this? Does it change your expectations at all for growth this year? I think previously you talked about kind of flattish growth in 23. Thank you.

Joey Levin (CEO and Chairman)

Sure. On profit and on the cost side, I don't expect we're cutting further costs from here. I think we did a lot on that, and I think that's worked very well, not just in terms of generating more profit, but in terms of operating more efficiently. I think with fewer people, we're actually getting more done faster, and that's good. I think we're in a good place there. We've talked about areas where we'll start to reinvest, like marketing, in particular, television marketing on the cost side. That has gone very well, and we're pleased with where we are there.

The quality things that we're doing are going to play out over the course of this year and probably to think about where we'll continue to invest really is more on the revenue side. What I mean when I say invest on the revenue side is get out of certain revenue that we're doing. I alluded to some of these things in the letter. Get out of certain revenue that we're generating that I don't think is long-term good for our ecosystem. I think that leads to probably little declines over the course of 2023 in revenue. I'll let Chris take you through the numbers there, but I think we'll invest more of the revenue or reinvest more of the revenue in the customer experience.

That's things like sending fewer emails, moving away from certain marketing channels, doing less of certain kinds of sales or allowing service professionals to buy fewer products so that they can retain longer and have a better experience and generate a better ROI on our platform. Those We have a lot of those changes happening throughout the organization that we put in place over the course of Q4 and Q1, and that will continue to come into place over the rest of the year. I view that, all that investment happening really over the course of 2023, to grow in 2024. The Most of the cost cuts we did on sales are also complete. You know, that also...

We've changed our offer mix, and so that also has an impact on what we do in revenue, but again, driving more retention and pros to spend more over their lifetime with us. Again, we get the benefit of that in 2024, but that hurts us over the course of 2023.

Christopher Halpin (EVP, CFO, and COO)

Sure. Thanks, Cory. You know, in terms of outlook on revenue and profitability, what we're expecting is that aggregate revenue across all service lines

On a net basis, treating looking at 2022 as if services was booked net for the full year. We expect revenue to be down 5%-10% each quarter for the remainder of 2023. That decline will be most pronounced in Q2 as we had a number of lower, you know, a sort of a spike in lower value revenues during that period last year and stripping that or that push towards quality. We would expect revenue in Q3 and Q4 to be at the, you know, down less in that 5%-10% range on a year-over-year basis. On a profitability perspective, we expect Q2 on an adjusted EBITDA basis to be similar to Q1 in terms of whole dollars.

We tend to spend more marketing in Q2 on things like TV, margins are a little lower. Even though seasonally, revenue is higher in Q2 and Q3, we expect a little bit of lower margins on media marketing spend. We expect margins to be solid in Q3 and Q4 and drive profitability and free cash flow there. You know, as we're getting rid of a lot of these lower quality revenues, expect declining revenues in the second half of the year, the last three quarters of the year, and really setting us up for growth in 2024. We can still have good performance on margins despite that revenue headwind.

Yeah, the only thing I'd just add further to that is the way we're talking about internally, the folks on the Angi team is I've said to everybody, I want to turn off revenue that is not going to be good for our customer experience and long-term customer relationships. If we're building lifelong customers, let's build the lifelong customers and make that healthy. We've got room on profit to do that and I wanna prioritize the customer experience over revenue right now. We've got plenty of profit in there to work with. That's been our priority, and that'll be our priority over the course of 2023 to go and grow from there.

I think I view it as a very healthy thing, and I view it as us being in a very healthy place as a business with those decisions. Thank you, operator. Next question.

Operator (participant)

Next question comes from Brian Fitzgerald from Wells Fargo. Please go ahead.

Brian Fitzgerald (Managing Director, Senior Equity Research Analyst)

Thanks, Joey. Thanks for your thoughts on AI in the letter. We wanted to ask if you could highlight some of the key opportunities you see for the use of AI in your businesses, and if you could share any thoughts on how you can differentiate and also defend your content and IP from generative AI competitors. That's the first one. Then the second one was just on Dotdash Meredith on the new intent-driven, cookieless product. Are you looking to drive monetization lift on your general interest sites, using insights gained elsewhere within the network? Or is there an audience extension opportunity across the internet as well? Thanks.

Joey Levin (CEO and Chairman)

Yeah. I'll do the Dotdash one first, and then I'll come to the AI one. We're not so focused on audience extension there. We're focused on proving and showing intent in the product that we have. It has the key features that advertisers are looking for today, which is anonymity or you don't need PII, you don't need cookies, and you have one of the hardest things to come across, which is intent while not having those other two things. The fact that we can deliver that, we're branding that, we're organizing around that, I think is very helpful towards sales. The focus on that is internally. Obviously, there are opportunities for audience extension.

There are components where that can happen, but I think that we have a lot of inventory that we can sell across our sites, and that's gonna be the priority and focus of that today. Not to say that those things aren't possible. And that comes out, I think, in the next few weeks, and so that'll be, that'll be exciting. We'll see how that goes. In terms of using AI in the businesses, there's a bunch of places where we're using... Probably where it's happening fastest and most robustly right now is in code, meaning people writing code and using pieces of code that they can get through these systems or helping them write code faster.

That if you talk to pretty much any developer in any company, they are using it, and they're getting real value from that really quickly, which leads to efficiencies there. There are other areas like customer support, where we have ideas or we're experimenting, but they haven't quite gone live with those things yet. Then just organizing processes around content creation. We're certainly not having the AI write our content, but you can start to organize and outline things and figure out how to prioritize things or use AI to learn, what kind of content works, what kind of content works better than other content, and analyze data as a data analysis project at significant scale. That's working, starting to work for us. When I think about...

I alluded to this in the letter, the marketplace businesses. This is I think maybe one of the most exciting things, although we have nothing live here yet. One of the most exciting things is to use these models to learn our proprietary supply database and learn from our demand, the demand that's coming in, and figure out how to make better matches. Anytime you figure out how to make better matches, that has significant yield for the business. Making better matches is a data analysis problem. These models are built for big scale data analysis, and I think that that could be very valuable. The other thing that I alluded to in the letter I think is really important is take Angi, for example. You know, we have what we call a service request path.

On the service request path for Angi, people come in, we ask them a question, their zip code, then we ask them what kind of job it is, then we ask them some details about that job. That is a multi-step process. It is hard to get a user anywhere through a multi-step process. What the chatbots are doing right now is they're creating this natural conversational UI where users are getting comfortable with those things, which is like a gift from heaven for us to be able to get people to use that UI more comfortably and to have that be smarter and more interactive. We've actually built one already at Angi. It's not live yet, but we've built that.

We're putting more work into building that to get something really exciting there, and that'll be fun, but using that conversational UI to get better data from the homeowner on what they need done, and then therefore match them better on the service professional side. You can make the same thing on the Care side and on Vivian and at Turo, that same thing works. I think that's that could be a lot of fun and really impactful for the business.

Operator (participant)

Awesome. Thanks, Joey. Appreciate it.

Joey Levin (CEO and Chairman)

My pleasure. Thank you. Thank you, operator. Next question.

Operator (participant)

Next question comes from John Blackledge from Cowen. Please go ahead.

John Blackledge (Managing Director, Senior Equity Research Analyst)

Great. Thank you. On DDM, any way to frame the DDM EBITDA margin trajectory in the second quarter and then into the second half, and could you clarify the lease impairment charge in 1Q? Just also on the land purchase, what was the kind of rationale there? Thank you.

Joey Levin (CEO and Chairman)

Sure. Thanks, John. I'll start with the lease impairment. It's a one-time non-cash charge that relates to two floors, in Meredith's office space in New York that when we bought the business were shuttered. They're not used for any purposes right now and have been on the sublease market. We had, at the time of the acquisition, in purchase accounting, we had fair valued those floors and made a sublease assumption. Or the costs associated with those floors flows through our existing P&L. We have came to the conclusion we needed to take a further impairment on that space given the substantial step down in the commercial rental market in lower Manhattan. $44 million...

dollar total charge, $44 million of it is above the adjusted EBITDA line with the rest is depreciation. That's, you know, we will still look to sublease that space, but no real impact on the business. When we look forward to our reaffirming our adjusted EBITDA guidance for the year at DDM of $250 million-$300 million, that is excluding or adding back that lease impairment, especially since it's non-cash. We don't expect significant other one-time charges this year, unlike last year where we were going through the integration. On a forward basis on EBITDA margins, one thing to always remember is Q1 is the, you know, lowest activity revenue quarter of the year as well as the lowest margin quarter of the year.

Q4 is consistently the largest. Looking forward, and we talked about the phasing in the letter, but we expect Q2 to be pretty consistent with Q2 of last year on a adjusted EBITDA basis, adding back, you know, one-time expenses and the like. We expect to have some good scale both in margins and profitability in Q3. Last year in Q3 we were going through the integrations. We had a lot of inefficiencies on our ad stack and cost structure. Then Q4, you know, given where we're headed and the growth in e-commerce and our expectations of both traffic and revenue growth, assuming the ad market just stays as it is, we're not anticipating improvement.

We expect to have strong profitability there and, you know, our goal is to get to 35%+ digital, adjusted EBITDA margins. That's how we think about the year. With respect to the land purchase, you know, Related and Blackstone don't need to be worried. IAC is not going into the real estate market. This was a specific situation. When the headquarters was built, just under 20 years ago, it is on a 75-year ground lease. To a parcel of land that was owned by a New York property firm. The ground lease payment that we make there has been fixed at a low level since opening in the mid-2000. We were headed towards a large step-up in fair market value.

Even though the broader commercial real estate market is soft right now, you can imagine since, you know, in the last nearly 20 years, there've been some significant increases in commercial real estate values. That step-up would have at the fair market value, would have flowed directly through our P&L. First off, for us, we could buy the land and avoid a significant increase in our ground rent. Secondly, combining the building with the land increases our optionality around realizing the value. When it's just a building on a ground lease, it's hard to do much in the form of either a mortgage or other transactions to extract value from the property. It just gives us greater flexibility and optionality around assets on our balance sheet.

Then finally, it was a, you know, disrupted market due to rising interest rates and broader tough capital markets for real estate. I think the market knew we were the best buyer, so we felt good on an opportunistic basis. That is the context and, you know, we think it'll create value for our shareholders.

John Blackledge (Managing Director, Senior Equity Research Analyst)

Thank you.

Joey Levin (CEO and Chairman)

Thanks, John. Operator, next question.

Operator (participant)

Next question comes from Brent Thill from Jefferies. Please go ahead.

Brent Thill (Managing Director, Co-Leader Tech Sector, Internet Research)

Good morning. Joey, on Emerging and Other, can you dive a little deeper into Care.com? It looks like there was profitability in that segment, just understanding what's going on there. The question around why more Turo at this point? Thank you.

Joey Levin (CEO and Chairman)

Sure. I'll do Turo first and a bit on Care.com. I'll ask Chris to add in on Care.com. Turo is a perfect business for IAC. It is a marketplace business with disaggregated supply and disaggregated demand that is delivering a great customer experience in between. The question in that was when we first invested is it a economic model that works? Between insurance and other things and trust, it's, you know, can you make that equation work? Turo proved they can make the equation work, and you can see it in the financials they filed with their S-1. It is one of these businesses where scale improves the product, not just the price.

The more people that get on there, the better it is for hosts. The more hosts that get on there, of course, the better it is for guests. They're a significant category leader, and I expect that lead to continue to expand. When you see a business with those kinds of dynamics, and you have the opportunity to own more, and you know the good and the bad, we took that opportunity. When I look at the size of the market that they play in and their market share and the way that they've gained market share, I think that's really attractive, and I think that they have the potential to play in some other markets that could also be really attractive.

That's a business we wanna own more of. Just lastly, it's a exceptional management team. I mean, Andre Haddad, the CEO of that business, is a product person to the bone. He is a avid user, guest, host of the product and constantly trying to improve the customer experience. When we see that also gets pretty excited. It gets pretty exciting. He's someone who wants to continue to do that for a very long time, and that adds to the story for us. It sort of had every feature that we look for in a business, and when we saw the opportunity to own more, we took that opportunity. In terms of Care.com, Care.com is very much a back to basics story.

It's doing the incremental work on cost and on revenue to get a little bit better every quarter. It's also a category leader. It's also a marketplace business. Just moving the small things is what's happening there. We haven't had yet a huge breakthrough on product. We haven't needed... I mean, we'd like a huge breakthrough on product. We haven't needed a huge breakthrough on product, though, because there's been lots of basics work. There's a new product. The new product is starting to roll out a little bit. There's some upgrades in terms of the user experience are starting to roll out, and then we'll keep innovating from there.

Christopher Halpin (EVP, CFO, and COO)

Thanks, Brent. Just relative to profitability, you should think of in Emerging and Other as Care of the lion's share of profit there. Also, Mosaic is profitable. You've got some smaller businesses that are in investment mode. In the first quarter, as Joey said, some good execution and some good cost management on a year-over-year basis. There were a number of initiatives that, you know, had over-proliferated in 2022 that we Phased out during the year and really focused on back to basic big value drivers. On a go-forward basis, you should just bear in mind Q2 tends to be a lower quarter of profitability for Care.

Emerging and Other as a result as we invest in marketing, TV, others, going into the summer season and into ahead of back to school. That's also some elements in Q1 related to employee, household employee, tax income that lead Q1 to be profitable. Q2 will be lower, and then we foresee real strength in Q3 and Q4 there. We like the state of the business, good gross margins, continued margin scale that we can drive. On a revenue basis, enterprise has been solid, even in what is a tight corporate spending environment. Return to office is a tailwind to utilization of the service, of the enterprise backup care service. Consumer has been slower growth. Top of funnels been challenging.

We see some marketed opportunities to improve our marketing and conversion. You know, we love the business long term as a grower, industry leader, with a huge opportunity to convert offline to online. You know, we expect it to keep pushing forward there, including through innovating the product and improving the marketing, as Joey said. We feel good. We just gotta put our head down and keep executing.

Jason Helfstein (Managing Director, Head of Internet Research)

Thank you.

Joey Levin (CEO and Chairman)

Thanks, Brent. Operator, next question.

Operator (participant)

Next question comes from Jason Helfstein from Oppenheimer. Please go ahead.

Jason Helfstein (Managing Director, Head of Internet Research)

Thanks. Two questions. You talked about SEM conversion improving in ANGI. How do you think about this impacting revenue? Just maybe your thoughts about leaning into, you know, SEM with obviously paid marketing as this is working better. How just how are you thinking about that and timing? The second question, you highlighted, performance marketing improving at Dotdash. How are you thinking about convincing brand advertisers, you know, that historical Meredith brand advertiser, to act more like a performance advertiser, which to some extent they're already doing on, you know, in retail media, right, on other properties. Is this just a tough time to convince them in a slower ad market to do that? You know, when you're thinking that's more of a 2024 catalyst.

Broad thoughts on how you know, kind of effectively get what's now kind of retail media budgets coming into the new Dotdash Meredith. Thanks.

Joey Levin (CEO and Chairman)

Yeah. One thing on that, Jason, I'll cover both, and again, Chris, add in. The great thing about performance marketing is you really don't have to convince folks on that 'cause it performs. The harder one is the brand marketing, where it, you know, the line between spend and return, it requires a lot more machinations. The performance marketing is very straightforward, you really just have to get people to sample a spend, and then they can scale as much or as little as it works. And generally it works because of the intent of the audience. That's pretty straightforward. We really just. The big thing there is just getting it up on the sites and getting the units there and things like that.

On SEM conversion at Angi, this is really important. One of the things when I got in there that I focused on was seeing the conversion having been on a relatively steady decline for close to two years, now reversing that decline. One of the components of doing that is. We've now stemmed and reversed that decline in conversion. The first thing we do when we did that is start to capture the margin and make sure that we can capture the margin. Now we've proven that. The next step is the scale. We wanna scale carefully and smartly, there's a two components to scaling.

One is making sure that you can find the spend at the same efficiency, which I'm reasonably confident or highly confident, I should say, we can do across the search engines. The second is to make sure that you have the supply side and the rest of the Angi ecosystem working to absorb that, and we gotta get all that working in concert. A third piece is making sure that as you do all this spend, that you're prioritizing the spend channels that have the best customer experience and have the best margin, so that you're not trading off the same. You can sell if a service professional wants to buy one lead, you wanna sell them that best lead rather than a worse lead.

The things that we're doing surrounding this are building the technology or deploying the technology or making sure the technology works so that we can get all of that optimized together. That is a lot to optimize, and we wanna make sure that we get that right as we scale this, and that will happen over the course of this year. Again, margin first. I think we've proven that. Now we look towards scale and that'll begin to happen over the course of this year. You wanna add anything on either of those?

Christopher Halpin (EVP, CFO, and COO)

Look, I just think on, Joey said it well. In broader ad market trends, you know, this ties to the new product that Joey talked about that Dotdash Meredith is launching, where if you have a campaign management program that can target the segments you're looking for, give you real return path data and performance metrics, that's much easier to sell than a broad brand campaign. That's in the Dotdash DNA, and now through the integration, we can run it across all the Meredith properties and Dotdash together and take advantage of massive scale in our categories. In terms of the overall ad market, which was a bit in your question.

You know, it continues to be a story of different sectors or verticals finding strength or weakness as different times due to a lot of macro factors. Health pharma is excellent. Beauty and style has really come back. Travel is good. Retail is even, you know, pretty solid. We expect the comps to get easier in a number of these as you go. You've got real weakness in finance on a year-over-year basis, media, technology, streaming, those areas. You know, home may show signs of life, but has been soft. We'll continue to kind of manage through what's a choppy market, but we feel very good about our portfolio and where our offerings sit.

Jason Helfstein (Managing Director, Head of Internet Research)

Thanks, Chris.

Joey Levin (CEO and Chairman)

Any other question?

Operator (participant)

Next question comes from Eric Sheridan from Goldman Sachs. Please go ahead.

Eric Sheridan (Managing Director, Senior Equity Research Analyst)

Thanks so much for taking the questions. Two, if I could. First, going back to the capital allocation section of the letter. Joey, I'd love to get a little bit deeper on your perspective of capitalizing on what might be short duration mismatches around asset prices or opportunities that present themselves, and how you think about prioritizing capitalizing on those opportunities versus striking the right balance and continue to invest long duration against some of your larger addressable market goals in some of the businesses and striking the right balance from a capital allocation policy standpoint. Maybe number two, as a follow-up. You know, we've talked a lot about the four priorities you laid out for Angi going forward.

As you pivot from the second of the four services and cash flow towards the first two, customer experience and SEM, SEO, can you frame up how much of that are areas where you need to invest either at sustained higher levels or incrementally versus you think the dynamic of moving towards those first two initiatives is more about execution going forward than putting capital behind the problem? Thanks.

Joey Levin (CEO and Chairman)

Yeah. Thanks, Eric. On asset prices, I don't know the answer to that question. I would say that it's not like we're trying to, you know, buy or trade securities. That's not really in our wheelhouse. You know, Chris talked about the land purchase, that's something that sort of was due for a cleanup for a very long time. The, I guess, some events made that possible. You could call that asset prices, interest rates, a bunch of other things made that possible in a way that was much more attractive than it would have been one year or two years or four years ago, frankly. That was helpful for us. And we think unlocked the value for us, things like that.

We're not looking at, I don't think, trading securities. We look at companies, and we think there are many companies that are or have recently been attractively priced. The counter to that, in particular around public companies, as we've talked to some, is that there's not, like, probably transactions to be done at reasonable premiums to those companies right now. We haven't seen that happening. We haven't seen much appetite for that. Even though the public prices are lower, I don't think that. I still don't think that people have gotten comfortable selling to what would have been historical reasonable premiums to those things. I think people are looking for much, much more aggressive premiums. Then it gets to, you know, to be a relatively less attractive asset.

I mean, one of the things with buying our own stock or buying Turo stock or MGM buying its own stock is those things don't require premiums and, they're, you know, you can sort of take advantage of what we think is where things trade is relatively attractive. I hope that answers the first question, although I'm not sure whether it does. As far as the second question, the investment in customer experience and SEO and SEM is, I don't think there's more we need to do on the cost side. I do think there is more we can do on the revenue side in investing in those things. That's what we're going to be doing over the course of the rest of the year. It most certainly is execution.

We, we have the product team right now that we think can build the product and technology team that we think can build what we need built and improve what we need improved. You can't really do all that at once. Just adding more people to it, I don't think speeds us up. The things that we're doing right now is just trying to get things tested and launched as quickly as possible and improve that customer experience. Again, the, a component of that is going to be turning off certain elements of revenue that we think will lead to happier homeowners and happier service professionals over time, spending more with us and staying longer with us over time. We'll do those wherever we think they're good for the ecosystem.

All right. Next question.

Operator (participant)

Next question comes from Stephen Ju from Credit Suisse. Please go ahead.

Stephen Ju (Equity Research Analyst)

Thank you. Joey, I wanted to follow up on the services line for Angi. You know, taking a step back, you know, even before the pandemic, I think there was always a thought process around how difficult it is going to be for the business to scale for certain categories and geographies. You know, now that we've come through the supply and demand imbalances of the pandemic, and now that you've also spent some more time on the operations on a day-to-day basis.

Do you think the overall opportunity here is smaller and, you know, conversely, are there certain product advancements you were able to achieve that now make what you thought was impossible previously, now possible? Thanks.

Joey Levin (CEO and Chairman)

Yeah, thanks for the question, Stephen. It is. I absolutely believe in the services business as a critical component of Angi's future. Is it bigger or smaller than previously? I guess it depends whose thought and which parts of it or when. It is, I'll just say, a big part of Angi's future. That's for a few reasons. One, where we can deliver the services well, and I think in the areas where we're focused today, which is the lower consideration areas, where we can deliver the services well, it is a great customer experience. It's not just the revenue that we generate in that customer experience, but one of the things that we're thinking about for Angi and aggregate is the whole customer journey.

Offering services on our platform is actually good for the entire ecosystem of Angi, meaning ads and leads, too. A homeowner who comes to our platform now who can see services can get a lot of information that's very helpful to them, which is when they can get a job done, a price at which they can get a job done. Doing that part of the journey is actually helpful regardless of whether they transact via services in that moment. They may come back and transact again later. They may come back and find a service professional to do the job through ads and leads. They may. There's a number of things that they can do in that, but us offering that service on our platform, I think, is very important to the aggregate customer experience.

What we'd like to do is start to grow it again, but to grow it again smartly, sort of one category at a time where we think we can deliver that customer experience that you need, which is, which means price the service remotely, and have a very high confidence level that we can fill it with a very high customer satisfaction rate. When we can do those things, we'll expand into other categories, and we'll do that economically, rationally. The current state of services, which is smaller, is a result of coming out of some categories that weren't working for us, and where we couldn't de-deliver the economic experience and the customer experience that we wanted to do and getting back to the one that does.

Now that we have that, I think services have a very bright future. Again, in services, less focused on growth, 2023 over 2022. You know, 2023 was a meaningful pullback relative to 2022, so we're not gonna see growth in that business. We see declines in that business over the course of 2023. Getting to a healthy base that we can grow from, I think is essential. The other piece I'll say is we've reduced exposure of the services business over recent history to our customers, and we're now experimenting with ways where we can increase that exposure, but again, in ways which we think are overall more compelling for the ecosystem. We'll see how those go over the course of this year. Next question, operator.

Operator (participant)

Next question comes from Ygal Arounian from Citigroup. Please go ahead.

Ygal Arounian (Managing Director, Internet Equity Research)

Hey, good morning, guys. I guess Joey, on the MGM and, you know, in the letter you talked about nearly $3 billion of public shares there. You know, we kinda think about where you are here and, you know, just maybe refresh us on how you're thinking about the MGM opportunity, the plans there. Is that a potential source of, you know, cash or assets to get into something else if it's not a longer-term strategic fit? On Dotdash Meredith, the strength in the affiliate commerce was really great and interesting to see given, you know, still some weakness around the consumer and consumer spending. Can you just spend a little bit more time talking about what's been working there?

Is that a result of the integration with Meredith or, is the integration or the benefits from the integration, more still to come? Thanks.

Joey Levin (CEO and Chairman)

Thanks, Ygal. I think the second question was mostly... It was hard to hear, but it was e-commerce at DDM, which I hope what Chris said. In terms of MGM, look, obviously we're very happy with that investment and how that's worked out over time. It's a phenomenal business. It's a category leader. It has a phenomenal management team that's winning competitively in a phenomenal market, which is primarily Las Vegas, where it's just the entertainment capital of the world, and it's growing. It's getting every major sport there. It's getting all kinds of new fun things to happen there. MGM is a very clear leader participating in all of that. The other great thing is the business has a ton of cash right now.

The OpCo, PropCo thing, where they put a lot of cash on the balance sheet, has worked out very well in terms of share repurchases. You know, we're happy to see our ownership stake increase, but also to see the business with such a healthy balance sheet right now and continuing to generate great free cash flow. They're using that free cash flow on some smart capital projects and some share repurchases, which also improves the yield for a shareholder like us.

I also think the business is still fundamentally undervalued. You can look at it in terms of what you get in free cash flow as a shareholder, but you can also look at it in terms of all the things on the horizon for MGM, which I think, you know, aren't really reflective. Number one, digital. MGM's a one of three meaningful players in digital or has a 50% interest in one of three meaningful players in digital. That continues to go well, both in terms of revenue growth and in terms of a sight line to profitability. There's Macau that has come back in a meaningful way. You had more people with more money, sort of held back for longer.

When you look at what's happened in Las Vegas in the U.S., or when you look at what's happened in travel in the U.S., that sort of pent-up demand is now just completely unleashing, and I think in a more powerful way, in Macau, which is really exciting there. You have Japan, where MGM is really going to be looks like the only player in that market, or at least the only player for a while in that market, and that could be a very attractive market. You have New York opening. You have a pretty wide or potential to open.

You have a pretty wide range of things that can unlock real value at MGM. We're still excited to be a part of that business and excited about everything the team is doing to capitalize on the opportunity in front of them.

Christopher Halpin (EVP, CFO, and COO)

Thanks, Joey. On performance marketing at Dotdash Meredith, there are two key elements. We talked about this in the last few letters. One is e-commerce for goods, and the other is performance marketing for services. To take a step back, Dotdash has always been excellent at integrating performance marketing for partners, goods and services really natively into the content or in context. So if it's a review of kitchen items, having links right there or having the relevant product in an Investopedia article, have quick links to a variety of savings accounts or money market funds when someone's already searching for that information.

The key part of the combination of the companies was bringing those tools to the Meredith sites that have tremendous brands and a lot of content. A, having more highly germane integrations of links to execute e-commerce and services activities, but also increasing the amount of content that is produced on the Meredith sites related to those commerce opportunities. We call that the evergreen commerce content, and management has been actively building those across the sites. You know, we said e-commerce for goods across the DDM portfolio was up over 30% in Q1 and really increased every month sequentially on a year-over-year basis. We expect to have just continued momentum there.

E-commerce for or performance marketing for services is predominantly for financial services, which was, as we've said, brokerage, crypto, insurance-heavy a year ago. Those markets are struggling. The good news is, they declined steadily across 2022, they will be, you know, the comps only get easier there. We are cautiously optimistic products, interest rate products will drive some growth. We are very bullish on continuing to grow that performance marketing line, and it really is bringing the Dotdash approach to a lot of the Meredith sites. Thank you. Operator, next question.

Operator (participant)

Operator, next question. Next question comes from Youssef Squali from Truist. Please go ahead.

Youssef Squali (Managing Director, Head of Internet & Digital Media Research)

Great. Thank you. A couple questions. Going back, Joe, going back to Angi. Over the last, you know, three+ years, we've made a few pivots from a business model perspective. Now to refocus on maybe LTV, going through the letter, it seems like you guys have thought through it pretty well, but it seems very intuitive to us what you're doing. I guess practically, what gives you the confidence that doing less is more, that acquiring fewer customers, sending them fewer emails will ultimately drive revenues? Just trying to get a sense of whether you can share maybe some proof points with that, some A/B testing that maybe you guys have done that could, you know, give investors more confidence. Then Chris, on roofing, looks like that business turned profitable.

Can you speak to the sustainability of profitability in that segment going forward? Thank you.

Christopher Halpin (EVP, CFO, and COO)

Was the second... Youssef, was the second question on roofing?

Joey Levin (CEO and Chairman)

Yeah.

Christopher Halpin (EVP, CFO, and COO)

Yeah. Okay.

Joey Levin (CEO and Chairman)

I'll do both. On, yes, turned the corner on profitability and roofing. Whether it's sustainable, I don't know. It's a very small business. I think it is. We've learned a lot in the roofing process. I'm happy we've learned a lot, but it probably wasn't the smartest move we ever made, and we gotta figure out what to do with that from here. It's not a huge area of focus in terms of what that does. I think it is breakeven, give or take a little bit in every quarter. I'm confident in that. I'm confident we're not losing money like we did last year in that business. I think we gotta figure out what the plan is for that business.

It will not, I can say with very high confidence, it will not be a meaningful needle mover in any direction from here. As it relates to the rest on Angi, you said it's totally the right question and one that we ask ourselves every day. I'll give you some of the things that we look at. One, just like a really fast one, is bad debt rates and credit rates among service professionals. When we are delivering a better experience with a better ROI for service professionals, we see lower bad debt, and we see lower credit rates. When I talk about each of these things, I'm talking about kind of where we are relative to the worst, which was probably Q2, Q3 of 2022. All that has improved meaningfully sequentially from there.

We look at retention, and we look at retention by cohort. We look at pros who have been with us 28 days, 56 days, 91 days, 180 days, and we look at that relative to the ads product. We look at that relative to the leads product, and we've been steadily improving those and crossed those lines really across all of that in March, and then again in April after generally heading in the right direction for a little while. Now, these things do take time, so like we're talking about very small increments in this, but the key for us has been changing the direction of the slope. That's really important, so we've seen that. The other thing is repeat rate.

Repeat rate on the homeowner is one of the toughest, most stubborn things that exists in the business. We had that declining, and we now have that, we've arrested that decline. The question is, can we get it to grow? That remains to be proven. I think that some of the other things we've done are, first of all, arresting the decline and other things we've done in other areas, intuitively treating the customer well, leads to better outcomes. We have to see that one prove out over time. You know, I generally have the belief that this is no leap of faith that you deliver a better customer experience, you have better customers, they stay with you longer, you have a better business.

There is a question in there which is, well, can that work economically? The answer, I think we've proven that that can work economically. Now, it's continuing to get those things better to continue to turn those methods. And, and those are a handful of them. There are, there are more. Actually, I'll give you one more, which is price. One of the things that we're doing on price is we've generally been more reducing price for pros. What we've seen is that pros are actually spending in aggregate generally the same. We sort of had a double whammy of injuring ourselves, which is we were charging more, which is burning the pros out faster, which is leading to worse matches over time between homeowners and pros.

Now we can charge less. The pro spends the same. The pro gets more out of that spend. They match with more homeowners, and the homeowner gets more out of that spend because the homeowner matches with more eager pros. That's like a great thing for the flywheel and a great thing for the ecosystem, and we're just looking for things like that and generally finding things like that that are overall improving the system. I do have a lot of confidence in what we're doing, and I do have absolute confidence that doing the right thing by your customers is going to yield good things for the business over time.

Youssef Squali (Managing Director, Head of Internet & Digital Media Research)

Thanks.

Joey Levin (CEO and Chairman)

Thank you. operator, one last question.

Operator (participant)

Next question comes from Justin Patterson from KeyBanc. Please go ahead.

Justin Patterson (Managing Director and Senior Research Analyst)

Great. Thank you. Perhaps to build on just those final points around Angi, could you talk a little bit just around how SP satisfaction has changed with this new versus old cohort? And then perhaps just comment on some of the spending and retention differences you're seeing with them. Thank you.

Joey Levin (CEO and Chairman)

Sure. Again, one big indicator of satisfaction is bad debt rates and credit rates, which have been improving steadily and meaningfully relative to where we were in Q3. In terms of retention, I guess important to think about, I'll focus on the lead side for a second. About 60% of the pros have been with us greater than a year. That's great. A fantastic stat, I think. Those pros, the system, they figure out how to make the system work for their business, and we've figured out how to make the system work for our business, and that's working. I think that where we've seen the most change is in the other 40%, so which break down some have been with us a month, some have been with us three months, et cetera.

that's where we've had most of the volatility, and that's where most of the challenges in what we've done throughout the business have shown up. What we're starting to see in that area is the younger pros are retaining better, and we measure that just on. Sorry. Well, you can measure retention, but you have to measure just cash collected in the first 28 days or 56 days or 90 days and those things improving. When you see those things improving, those folks will make up a bigger portion of that, call that 40%, that's not the greater than a year, and the other folks and will build over time, and the other folks will make up a smaller portion of that.

We get to a overall healthier ecosystem of service professionals in the network. I'm not gonna go through specific churn numbers or specific retention numbers, but they are generally in that area, heading in the right direction. The better young ones, new ones, I should say, are replacing the more challenged older ones. Thank you. Well, we will wrap up the earnings call now. We thank all of you for joining, and wish you a good day. Thank you. Thanks, everybody.

Operator (participant)

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