IAC - Q2 2023

Transcript

Operator (participant)

Welcome to the IAC and Angi second quarter 2023 earnings conference 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 opening remarks, there will be an opportunity to ask questions. To ask a question, you may press Star, then 1 on your telephone keypad. To withdraw your question, please press Star, then 2. 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.

Christopher Halpin (EVP, CFO, and COO)

Thank you, and good morning, everyone. Christopher Halpin here, and welcome to the IAC and Angi Inc. second quarter earnings call. Joining me today is Joey Levin, CEO of IAC and CEO and Chairman of Angi Inc. Similar to last quarter, supplemental to our quarterly earnings releases, IAC has also published its quarterly shareholder letter, which is currently available on the Investor Relations section of IAC's website. We will not be reading the shareholder letter on this call. I will shortly turn the call over to Joey to make a few brief introductory remarks, and we'll then open it up to Q&A. Before we get to that, I'd like to remind you that during this presentation, we may discuss our outlook and future performance. These forward-looking statements typically may be preceded by words such as: we expect, we believe, we anticipate, or similar statements.

These forward-looking views are subject to risks and uncertainties, and our actual results could differ materially from the views expressed today. Some of these risks have been set forth in IAC's and Angi Inc.'s second quarter earnings 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 earnings releases, the IAC shareholder letter, our public filings with the SEC, and again, to the investor relations section of our respective websites for all comparable GAAP measures and full reconciliations for all material non-GAAP measures. Now, I will turn it over to Joey.

Joey Levin (CEO)

Thanks, Chris. I appreciate everyone taking the time with us this morning, and appreciate all the people across IAC companies who are working hard for our customers. I, I wanna share part of a note I shared with employees yesterday, which I think is apropos some of the decisions we made in Q2. We win by building exceptional, differentiated products that take the hard work off our customers' plates. We do it so they don't have to. Angi does the work to find the right pro to fix your garbage disposal while doing the work to help that pro grow its business.

Dotdash Meredith does the research so you can choose the right product, plan the right trip, or make a great meal. Dotdash Meredith also does the work to help advertisers find the right customers. That's what D/Cipher is. Care.com does the work to help families find caregivers and caregivers find jobs. Vivian does the work so burned-out clinicians can discover their dream opportunity, does the work for hospitals to get clinicians helping patients faster. The better, more efficient, and seamless we are at doing the heavy lifting across IAC, the more time we can give back to our customers and the more they appreciate and depend on us.

Every day, every quarter, every year, we have to set the bar higher for ourselves, we have to constantly do a better job for our customers. That's what this past quarter was about, and that's how we win. Let's go to questions. Operator, first question?

Operator (participant)

Thank you. To ask a question, you may press Star, then 1 on your telephone keypad. If you're using a speakerphone, please pick up your hands up before pressing the keys. To withdraw your question, please press Star, then 2. Our first question comes from Cory Carpenter with J.P. Morgan. Please go ahead.

Cory Carpenter (Executive Director and Senior Equity Research Analyst)

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

Joey Levin (CEO)

Yeah, I'll do the second one first quickly, and then I'll go to the first. As you know, we buy back stock periodically, we deploy capital periodically, and there's not, we haven't historically and aren't likely in the future to have a consistent pattern on that other than buying shares when we think it's the most attractive use of our cash in the period. We deployed a lot of cash in the first five months of the year, and we thought that that was an attractive time to do it. We took a breather this past few months and we'll continue to evaluate that, as we always do, on opportunities for deploying our cash, whether it's buying back shares in IAC or Angi or any other opportunities in front of us.

On the first question, I've been saying for a while that there were areas where I thought Angi had focused on optimizing for shorter term revenue over the longer term health of the business and our customer experience, and that we were going to make changes along those lines, and for the past few quarters, we've been doing that. In the second half of this past quarter, we saw a further opportunity to do that, and I made the call to make that change, which I have no doubt was the right call in the business. I think the impact of that call, which was really restructuring some demand channels, ramping down channels pretty quickly over the course of the quarter.

This was revenue in the quarter, and it was also profitable revenue in the quarter. We, we ramped that down pretty quickly, and the impact of that would be most pronounced in Q2. I think we were already seeing July-

... better on a, which I was better on a profit perspective, and I think we'll see the benefit of some of the changes we made in Q2 over the coming quarters. That impact was most pronounced. The substance of it was turning off channels of demand or reducing channels of demand that we thought didn't deliver the ideal customer experience, and that, in exchange for that, what we're going to drive is longer-term retention of pros and better homeowner experience on our platform. Operator, next question, please.

Operator (participant)

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

John Blackledge (Md and Senior Equity Research Analyst.)

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

Neil Vogel (CEO)

Thanks, John. I'll take those 1 at a time. Top line, just for us, in June, it was a key moment in the integration and the performance of the combined Dotdash and Meredith assets. We had said, since the beginning of the year, we were aiming to get to flat on digital revenues and on traffic. We achieved both. We actually had 1% digital growth in June, led by strong performance marketing, and we were able there to reach stability in sessions and in traffic during the month of June on digital across the portfolio. That was led by the Meredith the former Meredith assets broadly across the portfolio there. We feel good about the, where those assets are on the, the migration and, and, and growth plans. We can continue to optimize.

We're very focused on, on continuing the momentum behind InStyle and People we feel good about, but we'll always have more volatility just due to the entertainment category. It sets us up well for the second half. The third quarter, we, as we indicated in the letter, we, we expect, you know, at or around flat, maybe slightly negative. That's, that's due to a combination of ups and downs, continued growth in a lot of the Meredith properties, stability in certain Dotdash properties. We had a very strong Amazon Prime Day, but also we've seen some, some softer traffic trends in the entertainment category, as well as some partner sites. Q3, you know, we, we expect sequential growth, but year-over-year on the top line, flattish to slightly down, but we expect a very strong Q4.

The, the performance, the comps, the trends, we feel good about where we are, including the, you know, the tailwinds of performance marketing, which we really weren't able to fully roll out to the Meredith properties last holiday, as well as, support from D/Cipher. Performance marketing was a key theme of the acquisition and really rolling out the Dotdash e-commerce integrations to the best-in-class Meredith brands. 12% growth in the quarter was great to see. We are heads down, continuing to improve that and expect accelerating growth there on a forward basis, and there's a lot of opportunity. On margins, we said we expect incremental, you know, EBITDA margins, given how- where we have the cost structure and the efficiencies we've driven to be in the 80% plus range.

You can see in sequential digital revenue growth and in EBITDA improvement, that or better. We expect to continue to, you know, see improved margins year over year and, and also on a sequential basis in Q3. Q4, seasonally, is, is always a major quarter for Dotdash and Meredith, and both, both in terms of advertising and performance marketing revenues, but also margin scale. You know, we forecast, strong, in the fourth quarter. Operator, next question?

Operator (participant)

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

Eric Sheridan (Md and Senior Equity Research Analyst)

Thanks so much for taking the questions. Maybe two on Angi, if I could. First, following up on Cory's question from earlier, it really stuck out to us in the letter that you talked about lost revenue and used a phrase like, "good riddance." Can you talk a little bit about how much of it, this process of mix shift on revenue is inside your control versus outside your control, and where we might be in the evolution of getting the type of revenue you want in the Angi business? Then the second, along the same lines, it was interesting to see a paragraph on international and Angi in the letter. Can you talk about some of the key learnings from international?

I think you used the phrase that it's a good leading indicator for the trajectory the US might eventually take, and maybe give us a little bit of color on that trajectory. Thank you.

Joey Levin (CEO)

Yes, thanks, Eric. We, we, we did when, when making a lot of the changes at Angi, we did obviously the easiest stuff first, and maybe I'll, I'll break the revenue down in a few buckets.

... There is the revenue that came with either zero earnings or negative earnings, and that stuff is, is easy to get rid of, especially if it, it has a, a bad customer experience or not an ideal customer experience. And you saw a lot of that happen very early in Q4 and Q1. So things like managed projects, the more complex services which we discontinued, or other channels where we were doing unprofitable revenue. That's, that's relatively straightforward, and I think we've cleaned up all of that. The second bucket, and I think we're pretty far along in this second bucket, though not, not completely. The second bucket is where we were bringing Service Professionals onto the platform that weren't really well set up for the platform, and so really didn't end up covering their sales costs.

That meant they churned too quickly. We're far along through that. Those folks would have generated some revenue, but probably would not have generated profit over the lifetime relative to their sales costs, because they didn't stay long enough. The third bucket, which is probably the which was, what you saw happening in Q2, and where we do still have some work, is where we're bringing in demand, we're bringing in revenue, and that revenue, that demand can generate revenue in the period, but can drive higher retention, sorry, can drive higher churn among our service professionals or among our homeowners. Meaning that they're, that would be detrimental to the lifetime value of that customer experience.

That was really what the focus was of the change in the second half of Q2. Ultimately, what drives all these decisions is, are we delivering a great customer experience? Are we delivering a sustainable, durable customer experience, meaning one that is economically viable? And are we able to grow the platform, grow the pros, grow the homeowners, and grow the revenues? That's what drives us from here. I think we are much closer to a healthy place right now. I think it's not impossible that we consider other things we might change or restructure in the context of revenue or demand channels that come in.

I think, the, the first bucket is, is, as I say, the sort of negative earnings revenue is done and, or, or zero earnings revenue is done, and, and the second bucket is pretty far along, and the third bucket, I think, is also pretty far along, but that may be where we still have, a little bit of work to do. As far as international, one of the great things about international is, is we were able to try a lot of different models and able to try that with relatively little, sort of outside attention. Each country that we were in, and our main countries are UK, France, Germany, and Netherlands.

In each one of those countries, we started with a different model and a different technology platform, and we learned a lot about each of those models and picked the sort of best parts of each. The things that we were able to get working in Europe, which we have not yet gotten working in the US, but give us great hope, is, 1, something much closer to self-enroll on the Service Professional side. Not, not a 100% self-enroll, but much closer to self-enroll on the Service Professional side, so, a meaningfully lower sales cost. 2, we, we made big changes to some demand channels pretty quickly and, and got past those demand issues, in, in particular, in France, where we were, were heavily dependent on the affiliate channel. We really completely redid that.

The last thing from the homeowner experience is double opt-in. Meaning we're, we're at a customer experience where the, the homeowner chooses the pro, and the pro chooses the homeowner. When those two things both come together is the billing event. That seems to be working from a product perspective. I don't know yet whether we'll go all the way there in the US on a product, but that, that product does work, is working in, in Europe, and it's impressive. The other thing is, is just getting the hard work done of integration. We've now got, as we said in the letter, three of the four platforms are integrated, and we're gonna integrate the fourth platform soon.

That, that allows us to operate a lot more efficiently with, with lower costs and easier platform to innovate on. The only thing I'd, I'd, you know, add on top of that is the second quarter last year was sort of peak for, for, as we mentioned, for. Empty calories.Yeah, either low-calorie revenues or, you know, regretful revenues in terms of poor pro experience or higher pro churn. You can see some of that in the graphs on SP retention, where coming out of that period, you had some of the real drops in SP retention. You also have roofing, which had its peak revenue in the second quarter 2023, which the business still isn't where we want it, but has an oversized impact on Angi revenue declines in aggregate year-over-year. Thank you, operator. Next question.

Operator (participant)

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

Jason Helfstein (Managing Director and Head of Internet Research)

Thanks. Everybody now knows how to spell Oppenheimer. Two questions. First, just a little more color on Dotdash, Meredith Dotdash. Are you seeing any competition for engagement, given the massive increase in short video, you know, Reels, TikTok, YouTube Shorts, et cetera? You did kind of talk about your outlook, but maybe go into some detail on categories, what you're seeing in the 2nd quarter and what you're, you're looking at the 3rd. 2nd question, just on MGM. Obviously, a very timely investment there. I think there were thoughts originally behind it to get exposure to online sports betting and iGaming. While it, it's, you know, obviously participated in the rebound in Vegas, is there a way to parlay that into a more direct play on online sports betting or iGaming? Thanks.

Joey Levin (CEO)

I'll go first, and I'll turn it to Chris. Just quickly on the social media side, look, we compete for attention with any other form of media, and we compete for advertisers with any other form of media. I'm not sure that the we could attribute anything that we're seeing directly to things like TikTok or, or taking share from the, the content consumption that we drive, the sort of content consumption that we drive. But as I say, we, we compete with all media in that context. On MGM, we actually spent quite a bit of time looking at opportunities in the space. Came close on one, but we've learned a lot in our investment with MGM in terms of, gaming, gambling, and opportunities there and what's working.

Christopher Halpin (EVP, CFO, and COO)

I think that, that that's an area that is interesting, but nothing immediately on the horizon there. Continue to be excited about the progress that MGM and BetMGM is making, which is, is, is very impressive. Yeah, and going back, you know, relative to building on Joey's point, the demos we have and where we excel, we don't, we don't see losing any traffic to those sites. In fact, they are revenue and, and, you know, reader lead generation opportunities, given many of these top Meredith brands have limited social media presence. Neil Vogel and team have been very focused on building the social media integrations as a channel for a lot of these brands. Also expanding our, our own video presence there.

Neil Vogel (CEO)

We've got good infrastructure to do it, but increasing the, the short form and medium form video that is produced off our properties for YouTube, for TikTok, and Instagram and other channels. We don't view it as much of a threat and more of an opportunity. Macro, we'd say the market is still soft from a premium demand side in brands, but it is second derivative positive, where if the programmatic market is down 5%-10%, as we said in the letter, that's definitely an improvement over what it looked like in Q1 and parts of Q2. Categories that are strong: retail, beauty and style, travel and auto, as we said in the letter. Some of that is due to just straight, absolute growth in those categories.

Some of it is due to how soft the second quarter was for them last year, whether be it supply chain or, or retailer backup. Weakness. Finance continues to be weak. I think that the category is trying to find its footing in a higher interest rate environment and lapping comps that were very aggressive a year ago. Telecom, we don't see much spend outside of, you know, 1 or 2 players, big players are trying to figure out how they want to position themselves. Entertainment and streaming, we think that is both a category that is, you know, streaming, the operators are focused on their model going forward and profitability.

Entertainment and streaming, we're concerned about the strikes and ongoing strikes there, leading to reduced advertising for new shows and fighting churn. That's it. We, we expect the comps to get easier, even if the absolute strength in it does, in the market does not improve. It's, you know, it's one step at a time in the ad market today.

Joey Levin (CEO)

Thanks, operator. Next question.

Operator (participant)

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

Stephen Ju (Md and Senior Equity Research Analyst)

Okay, great. Thank you. Joey, I have a question on D/Cipher. I guess, versus the environment in which we were still using cookies, how do you think advertiser ROIs compare the before and after? You know, wondering if there's an opportunity for you to capture more wallet share, as a result of this move. And looking a bit longer term, I think Google has been working to also move to a cookieless world, with an implementation target, I guess, sometime next year. Should we be thinking that this potentially shields you from, potential sort of external risk? Thanks.

Joey Levin (CEO)

Yeah. Thanks, Stephen. That, that's exactly the, the goal with D/Cipher. Dotdash Meredith has data now that, that says intent outperforms cookies like to like, and it's not, not surprising to us. I mean, we've been as an advertiser for across billions of dollars, across many of products. We, we see the same thing. Google has historically Google, which, which delivers intent, has historically outperformed every other channel for us, demographic, targeted channels, cookie-targeted channels, et cetera. Intent is a very meaningful signal, D/Cipher really mapped intent successfully, so we're now proving that for advertisers. Key for us is just getting advertisers to give it a try, then, then we can move the ROI.

Neil Vogel (CEO)

Yeah, that also is very important right now on the cookieless platforms like iOS and Google said in 2024, they're going cookieless, so we should be well positioned for that. We're going to keep building the kind of content that shows intent, keep mapping that content, and then proving that content with the ROI for advertisers.

Stephen Ju (Md and Senior Equity Research Analyst)

Okay. I guess, secondarily on Angi, you know, reading between the lines, on the shareholder letter, it sounds like you're looking to play a little bit more offense in 2024. You know, you've cleaned up and shed some empty calories there, so, you know, what do you think still needs to be done from a product perspective? Thank you.

Joey Levin (CEO)

Yeah. We talked about a lot of the work we've done on the Pro side. Obviously, the work is, is never done on either side in terms of product, but we're very encouraged by the progress we've seen on the work we've done on the Pro side, improving the Pro experience, and that progress is most evident in Pro retention, which we showed in the letter. The second half of the year is really focused on the homeowner side. Again, we're, we're constantly doing both, but we're looking to launch more innovation from the product experience on the homeowner side over the, of course, the second half of this year to, to set us up for, for offense in 2024.

There's, there's a bunch of things that we're working on there, but probably the most noteworthy change is something I mentioned, not this quarter, but I think the last quarter or the quarter before, where we start to surface the directory earlier, meaning that, that homeowners can come to our platform and find and interact with Pros more quickly on our platform. We think that has a, a great opportunity for the Pros on our platform. We think that has a great opportunity for homeowners to drive engagement. We think that has the opportunity to drive conversion. Ultimately, what will matter on the, the homeowner side, similar to, to what we've done on the Pro side, is driving retention and repeat rates. That's what we're aiming to do and, and get to a healthy place to, to really start rocking in 2024.

Stephen Ju (Md and Senior Equity Research Analyst)

Thank you.

Joey Levin (CEO)

thanks, Stephen. operator, next question.

Operator (participant)

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

Brad Erickson (Md and Senior Equity Research Analyst)

Yeah, thanks. Just two follow-ups on Angi. Talking a lot about the Pros this morning, I guess, and some of the pruning you're doing there. You know, Angi, I guess, always also had a tough time on fulfillment rates for the demand that was coming into, you know, HomeAdvisor, for example. How do you kind of balance this prune on Pros or reconcile it strategically longer term as you look to have the right SPs, but also having enough to support growth? That's the first question. Then second, on Angi Services, where are you there from a category perspective?

Do you feel like you're kind of fully baked in terms of the range of services you offer, and now you just need to get the, the demand going that you're talking about, or is there still work here to bring on new categories that can be kind of a further vector of growth there over time? Thanks.

Joey Levin (CEO)

Thanks, Brad. It's a great question and something that both are things we're very focused on. On fulfillment, we've been improving on fulfillment, notwithstanding the lower nominal Service Professional count. We look at something which is a horrible internal acronym, but ZACBR, which is Zero Accept Contact or Booking Rate. It's looking at how often we offer no solution. We've been shrinking the extent to which we offer no solution, and that's a good segue into Services. One of the things we'll offer is matching with a lead Pro or an ad Pro, and one of the things we'll offer is the opportunity to get a project done through our Services platform.

Not everyone will convert into services, but offering people services can be a significant value add and can drive repeat rates, in the sense that sometimes customers are looking for pricing, and they can find pricing there. Sometimes customers aren't ready to make up their mind, but they want to see what the options are. Giving them a fulfilling experience, meaning they know they at least have the option to get something done, and they know what the price would be to get something done, can drive customers back to the platform. We think services is enormously valuable in that context, and we think services is a significant competitive advantage. That gets to your second question, which is: How do we expand services? We absolutely believe we can expand services.

Obviously, we shrank services over the course of 2023 because I think we, we grew it too quickly. We absolutely believe we can. Right now, we're in services that we can price accurately, remotely, and where we can generate a margin. That's a good, healthy place to be. The way we expand from here is figuring out the next categories where we can, the first step being priced accurately, remotely. We have tools for doing that. We have, we have.

... specific categories, which we think are the, the likely next candidates for that. We're not rolling that out this year. That's something that we'll do in the future, but we do absolutely have the potential to expand that and, and do intend to expand that when we're in a place where we feel comfortable.

Brad Erickson (Md and Senior Equity Research Analyst)

Got it. Thanks.

Joey Levin (CEO)

Thank you. operator, next question.

Operator (participant)

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

Ross Sandler (Md and Senior Internet Analyst)

Hey, guys. On Dotdash Meredith, as, as we look into 2024, what are the puts and takes that would allow the business to grow faster or slower than the overall digital ad market? How, how do we think about that? Then, on the SEO impact from, from these new AI search pages, one of your peers recently said that SEO traffic to their premium properties, which many of which are like the Meredith sites, are, are seeing a, a nice benefit actually from, from Bing's changes since earlier this year with, you know, SEO traffic growing a couple orders of magnitude faster than the baseline. So what are you guys seeing as Google now adds hyperlinks to these new Search Generative Experience pages? What are you expecting to see, if, if anything, from, from that, that SEO downstream traffic? Thanks a lot.

Joey Levin (CEO)

You want to do the first one and I'll-

Christopher Halpin (EVP, CFO, and COO)

Yeah, sure.

Neil Vogel (CEO)

Thanks, Ross. Thanks, Ross. In terms of 2024, or to think about the rest of 2023, there's three main digital revenue streams: advertising, both premium and programmatic sales; performance marketing, e-commerce, and services execution there; and then licensing. There's good reason to project both for all three going into 2024. On the advertising side, we've worked through the toughest of the pandemic, elevated comps, feel like we've got the sales force in a good, structured, unified way, executing across categories. With Decipher, we think we can take share in both premium and programmatic over time at attractive monetization rates. The performance marketing has really been moving from strength to strength.

We expect to continue to do that and create more content, more integrations, and fine-tune them in a better way. There's, there's, you know, no reason why it, it shouldn't continue to be a strong source of growth in 2024. Similarly, licensing has passed some of its tougher comps, working through things at Apple News and other markets, and we should see growth there. On the audience side, we expect both the historic Dotdash and Meredith sites to be increasing traffic.

I'll turn it over to Joey, but relative to Generative AI and be it Google or Bing, we have not seen any loss of traffic so far in our properties, and they're having active discussions about, you know, how we can be a partner. I'll turn it over to Joey.

Joey Levin (CEO)

Yeah, the only thing I'd add to that is it those platforms are built on a healthy internet ecosystem and sending traffic. Their fundamental business model is sending traffic out to the rest of the internet. What they've said, and what I believe they intend to continue, is that doing exactly that and doing more of that every year. I think it is very easy to imagine a scenario, although we really don't know how this is going to play out, and I'm not sure they know how this is going to play out. It is very easy to imagine a scenario where they figure out how to use these tools to send more traffic out to the rest of the internet.

Christopher Halpin (EVP, CFO, and COO)

There's, again, that's fundamental to their business model, but there's also a real value in that, in the sense that we've talked about the fact that these platforms say, and that this technology is not yet reliable and not yet accurate. So it can provide information or snippets or answers that users will look to platforms and brands like ours to, for validation, and which we think that the platforms can send to us for validation. And we view that as the, the... That certainly has the potential to be a positive. Again, I don't think the, the user interfaces are hardened yet in a way where, where we know exactly what's going to happen there.

Joey Levin (CEO)

Thank you. Operator, next question.

Operator (participant)

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

Brian Fitzgerald (Md and Senior Equity Research Analyst)

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

Christopher Halpin (EVP, CFO, and COO)

Yeah, thanks, Brian. No, I don't think that, that changes anything along those lines. I think that Brad is very much focused, I think, on a continuation of the existing strategy and-... Meaning execution against Instant Book and getting that product working, and fundamentally growing the care caregiver base and family base in ways that, that delight both sides. I don't think there's any fundamental shift in, in either the core business strategy, nor from IAC's perspective, capital allocation up or down from there.

Joey Levin (CEO)

Yeah.

Brian Fitzgerald (Md and Senior Equity Research Analyst)

Okay.

Christopher Halpin (EVP, CFO, and COO)

You know, we, we like the margins at that business. It's scaled well, as, as it's grown, and the incremental margins, gross margins are, are very solid. We look to drive organic growth, and then, as always, with IAC, if there are M&A or inorganic opportunities, you know, we'll pursue them as they, as they arise and make sense.

Brian Fitzgerald (Md and Senior Equity Research Analyst)

Okay. Thanks, Chris. Thanks, Joey.

Joey Levin (CEO)

Of course. Thanks, Brian. operator, next question.

Operator (participant)

Our next question comes from Youssef Squali with Truist Securities. Please go ahead.

Youssef Squali (Md and Head of Internet and Digital Media Research.)

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

Joey Levin (CEO)

Yeah, I don't think we'll, we'll disclose specific breakdown of revenue at Care, but the one thing I want to sort of correct in, in your question or how you're thinking about it, is I, I actually view transactions long-term as a driver of subscriptions. We can offer user transaction on booking, but really the goal in that is to show the value of transactions, so show the value of the platform, and ultimately show the value of subscriptions to the product. I think if, if we're successful on that, I'd like to see transactions actually ultimately drive more subscriptions through the platform and drive more retention through the platform on the existing subscriptions. You want to do the-

Christopher Halpin (EVP, CFO, and COO)

The only other thing I'd, I'd add on, on Instant Book is it, it really opens up... There's so much traffic that comes through that doesn't sign up to a subscription, so allowing them at a higher rate to, to pursue a transaction prior to a subscription, increases the engagement on the property, increases the experience, and may lead to transaction-only customers, or may lead them to, to execute a subscription, but very much increases the, the, the, the breadth of offerings to the traffic we get. With respect to the properties that, you know, we characterize as laggards in the Meredith portfolio, it is pretty idiosyncratic of, of why. The InStyle is a good property that was, was struggling when we bought it.

Neil Vogel (CEO)

It also, in the theme of empty calorie revenues, they, they would have had, you know, the most empty or low-calorie impressions, and, and, sort of off-spec things that, that were driving, you know, clickbait-type activities. The management team has really looked to clean that out. We've also. We're excited by a new editor we brought on there and just repositioning it. We feel good about the property and where it'll end up. It's just, you know, it's behind the curve relative to some of the others, but we feel good about the prospects there.

Christopher Halpin (EVP, CFO, and COO)

Parents is, is, again, in a category, with the family and, and a bit of mental health that weaves into it, where, very high traffic patterns a year ago, but there's an action plan there to improve. Shape is tiny. Neil and team would love us to remove Shape because it's non-core and, and small, but, we keep it on there just to, for completeness. Each of them has their own, situation, and, and, definitely two of them, we feel good about the opportunities in, in those brands. We just got to keep executing.

Youssef Squali (Md and Head of Internet and Digital Media Research.)

Thank you.

Joey Levin (CEO)

Operator, next question.

Operator (participant)

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

Brent Thill (Md and Senior Equity Research Analyst)

Joey and Angi, when do you believe, it can return to a growth asset? And ultimately, you know, what's it gonna take? What are the pieces to make that recovery?

Joey Levin (CEO)

Yeah, we, we've said we, we think we'll get back to growth in 2024. The, there's a bunch of pieces to that. I think the margin part is easier. I mean, we're already back to growth on margins and profitability. Year to date, we've generated $55 million of cash flow. That's up $110 million per year. I don't want that to get lost in all of this narrative in terms of what's happening there. I assume your question is mostly focused on revenue growth, which is fair and certainly a focus of ours, which, as I said, I think is in 2024. There's a few elements to that. One is SEO or traffic or top-of-funnel audience.

We still have the reality that the Angi brand, angi.com, is growing healthily, and the, the HomeAdvisor.com legacy site is declining. The magnitude of that continues to in a sense, get better over time, and that HomeAdvisor is a smaller and smaller piece of the total. We're still dealing with that drag, as we get into 2024, that becomes easier. The other piece is, we talked a lot about, and we'll continue to talk a lot about retention on Pros. We're bringing a Pro base into 2024 that is healthier, retaining longer, spends more, and I think that'll be a help there. The other piece is driving conversion and repeat rate on the homeowner side.

That's the focus of the second half of this year. I think that can be a real driver to, to growth if we deliver on the things that, that we're working on right now. The other thing that I, that I wanna mention, we talked about a little bit on this call, is services. I think services is a meaningful competitive differentiator. I think it's a great product with very high customer satisfaction, very high repeat rate. We have to figure out how to start feeding more demand into that product, because we're, we're starving it a bit for demand right now. If we can figure out how to feed more demand into that product and, and get that product exposed to more customers in a healthy way, then I think that can also be a driver of growth, going forward.

Brent Thill (Md and Senior Equity Research Analyst)

Thank you.

Joey Levin (CEO)

Brent. operator, next question.

Operator (participant)

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

Ygal Arounian (Director of Internet Equity Research)

Good morning, guys. I wanna go back to the Gen AI question for a second. Two points on that. First, in terms of like internally on your content creation, you guys utilizing Gen AI, has it been a benefit at all? Kind of what are your thoughts around that? Then, you know, following up on the kind of search and LLM training piece, there's been a lot of discussions that, you know, there's gonna be pushback from publishers and News Media Alliance around how they use your content or publisher content to inform their AI. Any thoughts around that and how you guys are approaching that?

Joey Levin (CEO)

Sure, I'll, I'll start, and Chris can add. We're using Gen AI in a bunch of places at Dotdash Meredith, actually, across all the businesses. At Dotdash Meredith, specifically, we're doing things that are sort of back-of-house with Gen AI, meaning, content briefs. Starting to put together outlines to do that part of our production process more efficiently. We're seeing increased productivity from doing things like that. We also think we're experimenting with some things on the user experience personalization side. We've done, I think, historically, a very good job of getting users at the top of funnel and sort of answering their fundamental questions. We haven't done as good a job on keeping them, retaining them, and sort of rotating them through our system.

I think that Gen AI offers us a lot of tools to do that. Which is figuring out what the related questions are, and then figuring out how to use our content specifically to answer those related questions. We're starting to experiment around things like that and are optimistic about what that can deliver. The other piece is on the ad side, you know, we can start to customize ads and, and really expand creative infinitely and test creative infinitely for our advertisers, both to, to find better ad copy and find better targeting. I think that can work very well. On the training side of the LLMs, look, I think our position on this is clear. Ultimately, this will be sorted out one way or another.

Fair use is a, a sort of very clear standard. I think we probably have a different interpretation of fair use than, than, the folks with the LLMs do. We don't think that our content can be repurposed for the same commercial use we use it for, by others. We're going to protect our intellectual property rights along those lines. I do think there are productive conversations with everybody in the ecosystem, because even if you want to argue fair use, and even if you want to argue with intellectual property rights and things like that, the owners and operators of the LLMs know and understand that if they remove the economic incentive for creating the content upon which these things are based, that that is not a sustainable, ecosystem for everybody.

So, you know, you've seen some deals get done, and, and I think there's conversations happening that, that hopefully will be productive for everybody in the ecosystem.

Christopher Halpin (EVP, CFO, and COO)

Thanks, Joey. The only thing I'd add is, in terms of real-time, we're having a two-day AI CTOs going on right now, and when you've got the, the collection of companies we have, it's, it's interesting to see the diversity of applications. Very much, as Joey said, things like application development, coding, customer service, and onboarding functions, where you can apply GAI and create new interfaces to engage with, whether it's a nurse being onboarded or a potential customer, et cetera, and really access the depth of your database. Clearly, anything where there's optimization-oriented. To be fair, you know, many of our businesses have been using AI and machine learning for years, but that's continuing to evolve.

Then generative AI, presents even more applications and intentions across advertising, matching, tools for content development, to your question, et cetera. I think broadly, you know, with the CFO hat on, you can see the line of sight on both productivity enhancements and in many cases, what should be, you know, fairly deflationary cost impacts to businesses, be it customer service, or people-intensive activities such as advertising, versioning, testing, those types of things. It, it is obviously such a cliché, but evolving rapidly. Just seeing our summit and the number of different applications across our companies has been, you know, definitely exciting for all of us.

Joey Levin (CEO)

Thank you. Operator, next question.

Operator (participant)

Our next question comes from Tom Champion with Piper Sandler. Please go ahead.

Tom Champion (Director and Senior Research Analyst)

Good morning. Thank you. Joey and Angi, how important is getting SPs back to growth? It was flattish, sequentially this quarter, and it sounds like better retention, but how are you thinking about the gross add side of the equation?

Joey Levin (CEO)

Look, we're, we're definitely gonna need to get to gross adds at some point. It hasn't been the focus recently, but ultimately, we, we, we need to get gross adds going, too. There's a lot going through just the, the service professionals, Matt. Remember, we, we lost a lot in, on the services side, in moving out of the more complex services. There's, there's, there's a lot happening there. Still, dollar value is more important than nominal count, but we ultimately, we're gonna need nominal count to grow, too. I believe that's possible, in, in 2024, probably more like late 2024, but I believe that's possible.

Tom Champion (Director and Senior Research Analyst)

Thank you.

Joey Levin (CEO)

Thanks, Tom. Then, one last question, operator.

Operator (participant)

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

Kunal Madhukar (Senior Equity Research Analyst)

Hi, thanks for taking my question. A couple, if I could. One more on the housekeeping side, which is, based on the Q and the shares that you reported in the Q, you had about 85 and change in terms of number of shares. In the press release, where you talked about shares outstanding as of August 4th, that was 82 point something. Have you bought back more shares since the quarter ended? That's the housekeeping one. One on Gen AI in terms of trying to understand how Bing and Bard may be kind of behaving, is for their content, they probably don't need to learn from multiple different sites.

If they choose a specific partner or maybe a couple of partners, to, to learn from and maybe to pay, you know, for, for the copyright and for the learning experience, where does that place your properties, in, within, within that grand scheme of things? Thank you.

Christopher Halpin (EVP, CFO, and COO)

Okay, I, I can take both and, and Joey, quickly jump in. The, the delta is the, the share- between that share count is the shares associated with our CEO grant to Joey, and not counted because of performance triggers related to the, to those shares. That is a. That's the delta between the 85 and the 82. With respect to your question, there's an inherent philosophical question, which is focused on having the best of the internet or a subset of the internet in terms of what they're learning and their models learn at.

One of the key elements of search and the internet to date has been identifying the best, as Joey likes to say, and surfacing incredibly rapidly for individuals and doing that in a constantly evolving way that is ideally in a fair and meritocratic manner, produce the best of the internet. If they choose a subset of content to train these models, they will have inferior results. They will have a narrower and less expansive body of information from which they are providing answers to consumers. As evidenced by the inaccuracy of answers to date and hallucination, as they call it, a greater risk of that. That seems to be reversing many of the best things of the internet and, you know, decades of progress in information provisioning.

Kunal Madhukar (Senior Equity Research Analyst)

I think that's well said.

Joey Levin (CEO)

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

Christopher Halpin (EVP, CFO, and COO)

Thanks, everybody. So long.

Operator (participant)

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