IAC Inc

F:4LRA

Earnings Call Transcript 2022-Q1

[Mark Schneider]

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 press releases and our respective filings with the SEC.

We’ll also discuss certain non-GAAP measures which, as a reminder, include adjusted EBITDA which we’ll refer today as EBITDA for simplicity during the call. Please also refer to our press releases, the AIC shareholder letter, and again to the Investor Relations section of our websites for all comparable GAAP measures and full reconciliations for all material non-GAAP measures.

[Christopher Halpin]

Good morning. I’m Chris Halpin, CFO of Interactive Corp, and I would like to welcome you to our first quarter earnings call. I’m joined here today by Joey Levin, CEO of IAC, by Oisin Hanrahan, CEO of Angi, and Neil Vogel, CEO of Dotdash Meredith.

With that, I will turn it over to Joey.

[Joey Levin, Chief Executive Officer, IAC]

Good morning everybody. Thank you for joining us in what is a very turbulent broader environment.

There’s a lot of talk right now around forces outside our control - inflation and war and the very volatile market. I want to focus today on forces that are inside our control, and the two biggest things impacting IAC inside our control are Dotdash Meredith, which is led by Neil Vogel, who you’ll hear from today, and Angi led by Oisin, who you’ll hear from today. I think what you’ll hear from both of them is a tremendous amount of confidence in where we are going in our business, and both are at pivotal proof points in the business. Dotdash Meredith is still new - I mean, we completed the acquisition only recently and deep in the midst of the integration, so there’s a lot to report on that front, and Angi, we’re coming off of a 15-month period where we really took on every project we could as an organization in terms of making changes to grow the business, and we have a lot to show for that and we’ll talk about that over the course of the call.

The last piece which is relevant in this environment is what we’re going to do at IAC with our cash and our liquidity position, and we talked about that a little bit in the letter. We view this as a tremendous opportunity for us and we’ve been waiting for opportunities like this for many, many years now, and hopefully we’ll be wise enough to take advantage of it while it lasts, so let’s go to questions.

[Mark Schneider]

Our first question is from Ross Sandler at Barclays.

[Ross Sandler, Barclays]

Hey guys, morning everybody. Neil, just wanted to start with your comments on Meredith and dig a little deeper. You mentioned in the letter that Health.com is going through its overhaul, and there was a statement about revenue getting back to normal after just one week - that’s a lot faster than the timeline that you guys have explained on kind of your legacy Dotdash vertical sites, when you did those overhauls. Can you just elaborate a little bit more on what’s going on with that and what’s making the revenue recovery much quicker at the Meredith properties?

The second question is just for Joey, kind of high level on what you just ended with, but it seems like you’ll have pick of the litter as far as private consumer internet companies to choose from in the coming quarters. Can you bring us under the hood and what are the internal groups at AIC getting ready for right now, which marketplace categories look the most attractive or are you the most focused on, or does it just kind of come down the valuations that you think might present themselves?

That’s it, guys.

[Neil Vogel, Chief Executive Officer, Dotdash Meredith]

I’ll go first. Thanks for the question.

As for Health.com, typically what we say is when we say we migrate something, it means we take something and we put it on our etch stack and our ad stack, and as you know and we’ve talked about this many, many times, we boast significantly faster sites, significantly fewer ads and significantly better content, and when we make this migration, we pretty much solve the first two problems. We make the sites much faster and we make the ads much more performant. I think we said in the letter the sites’ about five times faster and there are about 30% fewer ads, and a better type of ad.

What has typically happened in the past for us is it takes some time. It takes some time for the markets to realize that the site is better and that there’s fewer ads, and that these ads perform better. A few stats I’ll give you today - the click-through rate, which isn’t always the measure of ad performance but it’s an easy based on here the click-through rate on the ads on Health.com are up 60% since we did the migration, and ad rates in the programmatic [indiscernible] up 50%, and that’s a fixed rate on average - some of the ads are up more, some of the ads are up less. There’s lots of little differences, so it’s not a perfect comp.

But what we’ve seen is the combination of fewer ads, higher prices, faster sites has gotten us to a place where we’re willing to sacrifice revenue to make these changes. We have caught up in about a week, and that’s materially faster than what we’ve done on our other brands in the past.

I think there’s two real reasons why this works. The first one we’re just a lot better at this than we used to be - we sort of had to figure this thing out. This is our 14th, 15th, 16th--I’m not even sure, of migration, so we really know what we’re doing and how to set these things up, and it’s made it really performant. The key is really replicable - we set this up so we can do it again and again and again.

I think the second thing, which we had hoped, which is not a surprise but more of a confirmation, is Health.com is a really strong brand and a really known brand, and a really strong domain on the web, stronger than things we’ve dealt with in the past. We think that the markets have been much, much more responsive because the domain is much better than when we did [indiscernible] or something out of--about dot-com, which bodes very well for brands like Better Homes and Gardens and Southern Living, People, and the brands that are upcoming because, frankly, Health is better than many of the brands that we had at Dotdash but it’s not nearly as good as the brands we’ve got at Meredith, so we’re pretty excited about this.

Again, this is just a starting point. Getting back to neutral is not the goal. The goal is to this migration will drive audience growth, it will drive revenue per visit growth on the ad side, it will unlock commerce, it will unlock all the content tools that we have, so it’s really just the beginning. But for us, we’re celebrating this internally. This is a material proof point that our thesis for buying Meredith and we feel very good about it, and we definitely are on track.

[Joey Levin, Chief Executive Officer, IAC]

In terms of opportunities for IAC and where we’re prioritizing our capital, we--I’ll start with, I guess, the private markets. I don’t actually think there will be opportunities in the private markets, first. We have a list of public companies that we look at, that we think are compelling products in big markets with great brands that we think are interesting, and we’ll keep looking at those and that’s generally, I think, where there’s more opportunities.

Private markets, as you know, don’t--unless a business is out of capital, they don’t have to embrace what is the current market reality. They can take some time to do that, and I don’t think that those are likely to be the nearest opportunities, again unless a company has run out of cash. But one thing that a lot of these companies did over the last couple of years, which was very smart, was make sure they have enough cash so that they don’t have to confront the market that we’re in right now. Who knows - there could be private opportunities, there could be public opportunities. We just see generally there seems to be more opportunities in the public markets.

Then how we’re prioritizing that, I’m not going to talk about specific companies or even specific categories, although you’re right that we like marketplace businesses and we think we generally know how to evaluate and operate those businesses. When we talk about capital allocation, we always think about our existing businesses and new businesses, so I think for our two biggest existing businesses, Dotdash Meredith and Angi, there’s a lot going on right now. We have a big integration underway at Dotdash Meredith right now, and so I think that’s not likely to be a big use of acquisition currency. Angi, we’re also in the midst of big transformations, so I think that one’s also not likely. Again, anything’s possible - if we find an opportunity there, we’ll take it, but I think right now those are less likely.

We’ll do small stuff throughout with the smaller businesses, but probably the most likely thing right now for us to be looking at and prioritizing is new opportunities. Again, we mentioned this in the letter and it’s always true - we’re going to evaluate that against share repurchases and that’s a very clear map that we can do and that we do regularly and won’t stop doing.

[Mark Schneider]

Great. Our next question will be from John Blackledge at Cowen.

[John Blackledge, Cowen]

Great, thanks. Two questions, one for Joey. Joey, I thought the tone from the beginning of the shareholder letter for both Dotdash Meredith and Angi seemed pretty bullish in terms of profitability going forward. How confidence in kind of ramping profits at the two segments through the rest of the year, and should we think about $450 million in EBITDA at Dotdash Meredith for 2023 as a bogey that you guys still believe in?

Then secondly, and this can be for Joey or Chris, and Joey just kind of referenced it, but IAC has 8 million shares remaining in its buyback authorization, Angi has 15 million. Just given where the stocks are trading right now, how should we think about buyback for either IAC and/or Angi through the rest of the year? Thank you.

[Joey Levin, Chief Executive Officer, IAC]

Sure. On profitability, I’ll let Chris weigh on this too, we feel very confident in everything that we said. That doesn’t mean that we’re rushing back to feed profits at Angi right now, but it does mean that we are improving from here and we’re past peak investment. Dotdash Meredith, we’ve learned enough things in the few months that we’ve owned it that we feel good about the adjusted EBITDA that we think we can deliver this year.

Same is true for the $450 million - the progress that we’ve made over the course of 2022 so far, and we expect to make over the rest of 2022, gives us a lot of confidence in what we said we think we can do by 2023. I think that there is really sort of, like any business, two factors: price and volume. I think at Dotdash Meredith, I think on price we’ve made the progress. We have the evidence of the progress that we need on price. Macro headwinds could impact us on price, but I think that we have the pieces in place to deliver on price, and I think that the [indiscernible] on traffic is also compelling, but traffic is somewhat outside of our control. We’re going to create great content, we’re going to create the best content in the category, we’re going to have the freshest content, the fastest sites, the fewest ads, and that ought to lead to traffic, but that’s the one that is somewhat outside of our control because a lot of that traffic comes from third parties. That’s the one area that probably is left to prove, but as we say, the early evidence in terms of things we’ve done with our traffic, things we’ve done with the sites and how traffic has responded to that has been very, very encouraging.

Oh yes, buyback - thank you. Do you want to add anything on profitability?

[Christopher Halpin]

No, go ahead.

[Joey Levin, Chief Executive Officer, IAC]

Okay, on share repurchases, look - as we’ve said, we always consider share repurchases. It is--throughout every market, it’s something that we evaluate. When we look right now, it’s a pretty interesting situation, one that we haven’t seen in a long time, which is I think yesterday, IAC’s market cap was around $6 billion and we have about $3.5 billion of public securities between Angi and MGM that leaves $2.5 billion or $3 billion for Dotdash Meredith, Care, Turo, and everything else that generates cash. That is a--well, let’s just do it on Dotdash Meredith alone, if we [indiscernible], say, $2.5 billion or $3 billion for everything else and that business generates $300 million of EBITDA this year, that’s a multiple that we’re very comfortable with, and Care, which is doing great and is a phenomenal brand in a very large category, and Turo, which is doing unbelievably well for free, and let’s say everything else offsets, that’s a really compelling equation and that’s one that we are looking at.

The good news is we have a lot of securities to evaluate, so there’s IAC, there’s Angi, there’s MGM - all of these things are in the consideration set and all of these things are businesses we understand, of course, exceptionally well, and all these things are ones we’re going to evaluate as things progress from here.

[Neil Vogel, Chief Executive Officer, Dotdash Meredith]

Thank you Joey. With respect to Dotdash Meredith profit scale, there are a number of factors that throughout the year come together to explain the step up north of $300 million of EBITDA. The first is, and we messaged this in the last call, the first quarter was going to be an extremely tough comp. That was driven by COVID factors a year ago when everyone was locked down pre-vaccines, as well as a variety of movements within the Dotdash Meredith portfolio and demand shifts. You can see in the April numbers on the digital revenue side that we have already come out of the year, of March, and that builds confidence for the rest of the year.

The other point, and Neil referenced the Health.com migration, we’ll talk about a few different green shoots from the combination and the status of the business. That was a major one, was what happens the first time that we move a Meredith property over to the Dotdash platform, so that we can do the Dotdash playbook on it. The positivity we’ve seen there gives us considerable confidence for where we go from here, both in terms of advertising performance, site speeds, traffic, ecommerce. All of those growth engines are available once we get the property onto the Dotdash platform, and that will drive performance through the rest of the year.

The other factor that is important is the marginal profit on a digital dollar is quite high, and that’s the nature of gross margin and profitability scaling in the fixed costs on the digital side, and then finally what you’ll hear some discussion from Neil on sales force performance and growth there.

When you look across, it is a back-end weighted plan, we’ve always said that, but the margin scale on digital will happen throughout the year. We expect print and corporate costs to be in the same neighborhood, and that’s how we have confidence to get above $300 million for the year on the EBITDA side of DDM.

[John Blackledge, Cowen]

Thank you.

[Mark Schneider]

Our next question will be from Cory Carpenter at JP Morgan.

[Cory Carpenter, JP Morgan]

Thanks for the question. Oisin, would be great to start off just with a recap of how the quarter went versus your expectations, and then looking forward, is there any change to how you’re thinking about the growth opportunity for the rest of the year?

Then Chris, maybe two questions for you. Angi moving past peak investment, is this happening naturally or is this more of a decision that you guys are proactively making to pull back on spend, and anything to call out on the April comps? Thanks.

[Oisin Hanrahan, Chief Executive Officer, Angi]

Thanks Cory. In terms of the performance in Q1, we started Q1 obviously with a tough situation with omicron and then the comps were particularly challenging with last year, which we knew was going to be the case. Recall last year, we had incredible consumer demand across pretty much every category with the stimulus checks and everything else going on.

As we look back on Q1, we’re very happy to be coming out of it with a really strong position in April. The overall ads and leads business becomes much better from here. As we think about the services business, we’ve got--as we pointed out in the letter, we’ve got the good fortune of being past peak investment. That was by design - when we created the plan in Q4 of last year, March was always the high point of investment in Angi services. As we go forward from here, we see significant increases in gross profit dollars coming from services, which helps to reduce the drag that services has on the overall business, and ultimately services gets to profitability.

The growth that we see in gross profit dollars coming from services comes from a combo of the increase in take rate, better optimization on variable costs, particularly around supporting the bookings, and then in addition to that, what we see is an increase in engagement from pros in the ad business, so the growth that we see in the ad business for the back half of the year, we expect that to accelerate and that’s driven by some of the macro factors that we’ve got.

The overall ads and leads business benefits from reduced consumer demand. If you think about the logic there, it’s pretty simple - there’s a natural hedge built into that business where as pros have less and less work, as their order book runs down--we know that they’ve had the most work that, frankly, they’ve ever had over the last year. As the order book runs down slightly, those pros are more engaged with the platform. We see that in terms of new pros signing levels, in terms of sales force productivity, we see it in terms of pro spend, we see it in terms of the monetization of the transactions that we have in the platform, so we feel very good about organic growth in services accelerating. We feel very good about our highest margin business, ads and leads, growing through the back half of the year, and we feel very good about growing profitability overall.

[Christopher Halpin]

Then Cory, just building on Oisin’s point, I think this was always the plan that peak investment would be in March. Fixed costs scale up--from an EBITDA perspective, fixed costs scale up seasonally, the first quarter is lower on a revenue basis, and as the services revenue grow organically and seasonally throughout the year, gross profit drops down on a relatively static fixed cost base and that reverses the EBITDA losses.

I’d say one other point, we have made a point in the letter and will do going forward to talk more about gross profit at the services business and provide more insight to investors on relative profitability and over time how ads and leads profits will flow through, and also how services profits will roll through, as Joey said in the letter, lower margin product but growing rapidly and bigger projects, so larger whole dollar gross profits.

[Cory Carpenter, JP Morgan]

Thanks so much.

[Christopher Halpin]

Then in the April metrics, a few points we would point. First off, there’s nothing we’d flag right now to think about in the May and June timeframe. Pretty smooth comparables like-to-like, year-over-year, different than March and April. Two things we’d point out, though, which tie to the narrative and to our message of greater confidence. Our two largest profit generators across the portfolio at IAC, ads and leads at Angi and digital revenue at Dotdash, both showed stability in April off of really March bottoms. That confirms what we messaged in the prior call that it was--you know, it’s a tough March comp for both businesses, fairly COVID related in both circumstances, and that we are on the other side of that.

You saw basically flatness in ads and leads revenue year-over-year and in digital revenue, and we expect Q2 Dotdash will still be flattish - that’s our guidance as we work through the re-platformings and these other specific factors to what we’re doing in the integration, but sets us up for back end growth and returning to that 15% to 20% digital target at Dotdash, and then Angi, as we have stability in ads and leads, that is the profit engine as Oisin said, and then organic services growth in the back end driving gross profit dollars there. Those would be the main things we’d flag in the April metrics.

[Mark Schneider]

Our next question will be from Justin Patterson at Keybanc.

[Justin Patterson, Keybanc]

Great, thank you very much. Two, if I can.

Neil, as you’ve executed on the integration and engaged with advertisers, how has the tone of your conversations changed and how should we think about that, just building up in sales force productivity the back half of the year?

Then for Oisin, how do you think about rising interest rates impacting your business? Could this actually be a tailwind as consumers deal with affordability issues and start doing more projects at home? Thank you.

[Neil Vogel, Chief Executive Officer, Dotdash Meredith]

Thanks Justin. On the sales side, we talked a little bit in the letter and I can talk a little bit more about the integration of the two teams, which is essentially complete. We have the teams structured vertically, brand focused, feel really great. But I think the word I would describe it with is there’s a lot of excitement. There’s excitement internally and there’s a lot of excitement from advertisers because we, for the first time, can now bring them something that hasn’t been brought to them before, which is intent-based targeting, contextual targeting at a scale that’s never been able to be done before.

People really like Dotdash, they like our historical hustle, they really like all the Meredith brands, and the combination is proving really powerful. I’ve been in a lot of these meetings myself with some of the biggest agencies, some of our biggest clients, and I can say almost without exception the going forward commitments, some of them are hard commitments, some of them are softer commitments, one plus one is more than two and that is probably the most exciting thing. I think we’re going to see some real growth from the biggest agencies and the biggest partners when we bring our energy, our performance, we can start showing what our performance looks like as we migrate, and you combine that with some of the Meredith brands that are frankly at a level we haven’t had before, when you can do it at Better Homes & Gardens, when you can do it at People, when you can do at Allrecipes, you can do it at Food & Wine, people get very, very, very excited.

We are exclusively focused on brands and selling brands and selling performance, and the thing that we keep hearing - again, I’ll say it again, people are rooting for us, and I think we can [indiscernible] we’re not there but we can be, we have the scale and performance to be a viable alternative to some of the platforms people have been putting money that they may or not want to do that anymore. All of our content is safe, we’ve created it all, we’re not news, we’re not feeds, we’re not UGC with the exception of [indiscernible] recipes at a few of our sites, so it’s a whole new thing and educating the market and bringing--[indiscernible] excitement is our job now, so we feel really good, kind of exceptionally good with where we are.

Now, this is hard, bringing it together is hard. It’s going to take a little bit of time, but in the medium to long term, I think we feel really good about where we are.

[Oisin Hanrahan, Chief Executive Officer, Angi]

In terms of interest rates and the macro environment, the biggest advantage or the biggest positive from what’s going on is a less dislocated relationship between supply and demand. The last two years where COVID drove exceptional demand for home services, created an incredibly challenging environment to sell advertising products, performance marketing products to SPs, our average plumber-painter-carpenter-remodeler had more work than they could handle, and throughout that period we kept the Angi performance marketing business, the ads and leads business relatively stable.

The biggest macro impact is as consumer demand normalizes, as the labor market perhaps normalizes even just a little bit, we expect to see that relationship between supply and demand give us significant tailwind for the ads and leads business. We’re already starting to see that in terms of softening consumer demand. We’re already starting to see that in terms of higher sales force productivity, and we’re already starting to see it in terms of pro engagement. You put that together with the challenging comps from last year and we expect to see the ads and leads business become more relevant in the current macroeconomic environment.

You add on top of that as pros need us more, we do have pricing optimization as that relationship between demand and supply becomes a little more normal, so overall we think the macroeconomic environment is more favorable to the ads and leads business than the incredible dislocation we’ve had over the last 24 months.

[Mark Schneider]

Our next question is from Jason Helfstein at Oppenheimer.

[Jason Helfstein, Oppenheimer]

Thanks. Joey, I’ll ask you about gaming. Obviously you highlighted a very prescient investment in MGM. I think some of that investment had to do with your views on interactivity and sports betting and some of the other emerging areas in gaming. Just maybe talk--we’ve seen values really depressed now within online sports betting, so maybe talk about would any investments in that area be done through MGM, or other ways you’re thinking about perhaps investments outside of MGM, or just broad thoughts on gaming right now. Thanks.

[Joey Levin, Chief Executive Officer, IAC]

Both inside of MGM and outside of MGM is interesting for us. We’ve learned a lot since we’ve been there. I’d say that the gaming business, both the online gaming business overall, which is about sports betting, and i-gaming has outperformed our expectations relative to when we came in. It’s grown really tremendously, and that growth is going to continue for a long time.

The hard part, I’m sure as you know, has been the margins, and it’s a wildly competitive space. There’s a lot of people who feel like they--there’s a lot of companies who feel like they need to win there and own that, so it’s a category where you have multiple players losing half a billion dollars a year, or somewhere in that neighborhood, which is a very hard thing to do.

One thing that’s a clear learning in that is that i-gaming certainly right now at least, is a much better business than sports betting, even though sports betting is in a much bigger market. We take those learnings and hopefully we can do more within--hopefully there’s more to do within MGM, and you saw MGM just made an announcement about buying a global gaming company in Europe, and we’re also going to look and see what we can find. But MGM--everything we do, we’ll first consider through MGM, and we have a very open dialog with them on everything that MGM is looking at and everything that we’re looking at, and we’re highly coordinated there. The ideal move, generally, would be to do things through MGM, but there very well may be opportunities for us outside there to leverage some of the leanings we’ve had there, where it makes sense for us to do something on our own. Again, if we did that, it would only be with MGM’s blessing.

[Jason Helfstein, Oppenheimer]

Thanks.

[Mark Schneider]

Our next question is from Brian Fitzgerald at Wells Fargo.

[Brian Fitzgerald, Wells Fargo]

Thanks guys. Two quick follow-ups. On Dotdash Meredith and the recovery speed there and the trajectory at Health.com, what are the drivers by which advertisers kind of pick up on the benefits of reduced clutter? Does that come through in the click through conversions, brand lift studies, or is it partly a matter of sales force communications?

Second one was a follow-up on Angi. The zero match SR rate has been ticking down over the past few quarters as you continue to scale services and perhaps as pros have more available capacity, like you talked about. Any thoughts on where you think that zero match rate can go, and as you continue to make improvements and effectively fulfill demand, do you expect SEM SEO benefits from that closure?

[Joey Levin, Chief Executive Officer, IAC]

[Indiscernible] real quick. Thanks Brian.

It’s sort of the clients see this in a phased way. The minute you make the change, you’re sending very different signals into programmatic marketplaces, and as you can see by what happened at Health.com, those responded nearly immediately, and again in a week we’ve seen great improvement and we would expect as we refine this for that to continually improve.

Now, those signals get back to clients and then start to reflect in the premium deals that are running on the sites, and those take a little bit longer, there’s a little lag, there’s less instant, and then ultimately they are reflected in things like brand lift studies. When a page has three highly performing ads for a client that does creativity and creative things that we know that work on our sites, that results in pretty much any metric you want to measure your advertising on is going to be better, and we’ve seen this at Dotdash repeatedly.

If your metric is a brand hook metric because you’re launching a new car line and you want to drive the new brand or you want to drive test drives, that’s one thing. If you’re metric is CTR, that’s another thing. We are going to hit on all of them. They don’t all happen immediately, sort of the mass marketplace stuff happens immediately and then the rest of it trickles out over time, and a lot of it is educating clients, our sales team going out and educating clients how much better we perform than others and how our performance is. A little bit is for clients to understand that these units and our ad offerings are actually more valuable and something that they should pay more for. That takes a little bit longer, but we feel very strongly that we are on the path.

The number one proof point is once we start to perform and the programmatic markets move, we know exactly what happens next because we’ve seen it 14 or 15 times.

[Oisin Hanrahan, Chief Executive Officer, Angi]

On the zero match rate at Angi, or the accept rate at Angi and how it impacts SEM and SEO, you’re absolutely right - we now have the richest product portfolio out there between ads, leads and services. There is nobody with a product portfolio that looks anything like this, so we are more attractive than ever on Angi SDO in particular and we see that coming through in terms of the performance of SEO on Angi, which the growth there is incredibly strong on a year-over-year basis and we feel really, really good about the direction that’s taking.

So you’re absolutely right that having the combo of those things gives us an advantage on SEO. On SEM, it also gives us an advantage because by having ads lead services to monetize particular services requests, particular services in particular geos, it makes it more predictable for our SEM bidders to know when and where and for which categories to bid. What you will ultimately see is us buying fewer service requests where we are unable to monetize, so the more predictable our supply is, the more predictable our offerings are because we have more offerings, the easier it is for our algorithms to decide yes, it’s worth bidding on this particular click, so that would reduce our long term tendency to buy service requests that we’re unable to monetize and you should be able to see our transactions that we are monetizing start to increase.

One call-out on that is that our monetized transactions don’t take account of the ad monetization yet, but it is something that we need to look at.

[Brian Fitzgerald, Wells Fargo]

Thanks guys.

[Mark Schneider]

Our next question will be from Eric Sheridan at Goldman Sachs.

[Eric Sheridan, Goldman Sachs]

Thanks so much for taking the question. Guys, if I could just take a step back and think about the capital allocation inside the firm, you’ve got these opportunities at Dotdash Meredith and Angi and then emerging opportunities, is there any different sense of where you could accelerate some of your efforts over the medium or longer term, where you’re trying to go for the business against allocating capital behind it or is it purely down to execution, and then could we expand that conversation into areas like Care, how you see operations versus the application of capital to speed up the opportunity set? Thanks.

[Joey Levin, Chief Executive Officer, IAC]

Sure, there’s a lot in that one. I’ll try and take it maybe piece by piece.

The businesses where we are--we like to be investing in every business, I’d say that’s probably true everywhere except Search, where for a while now we’ve been in more profit maximization mode than we have been in growth mode, and I think that continues there. Everywhere else, it’s our responsibility to balance the short term and the long term, which means we’re reinvesting some portion for growth and some portion to profit - as one of our colleagues used to say, eat while you dream. It’s easy to just do one or the other, focus on long term or short term, and our job is to balance both.

I think at Angi, you’ve seen over the last little while, we probably went to the most extreme we’ve gone historically in terms of long term investing, and you’ll see that now we’re past the peak period, that balances out, comes to a more natural balance. But in every one of our businesses, we want to be doing both. We are not at profit maximization mode in anything, really, besides Search. Of course in emerging and others, some of those businesses are losing money so we’re obviously investing, trying to build the business there, but Care, profitable but we are definitely reinvesting a portion of the profits in that business to drive growth and expect to continue that for a while, and again I think you’ll find that’s true across most of our businesses.

Do you want to add to that?

[Christopher Halpin]

Just to agree and to build on it. In our capital allocation, to Joey’s point, every dollar whether invested in a transaction in the form of M&A or follow-on investment, or invested in incremental operating expense or capital for a growth initiative or incremental marketing, it is--that is a capital allocation decision at the end of the day. IAC has a pool of capital that flows across it and into new opportunities to maximize value for shareholders, so in this environment where there are higher discount rates, it’s good because the valuations come down, capital is dearer. Our strong balance sheet is that much more of a competitive advantage, and at the same time you continue to optimize your portfolio of investments within the operating side of companies for the right return in this environment.

We’ve talked about growing opportunities at Care in the letter. We believe those new initiatives will be highly accretive. Dotdash and Angi have large operational elements, one coming out of a large transaction that was done last fall in Meredith, but there are major operational activities that are generating value for shareholders and that the predominance of the focus, and then we look at, as Joey led off, we look at our own share price and Angi’s and others and think about capital allocation opportunities there. It is a full analysis really across the potential home of any dollar.

[Mark Schneider]

Our next question will be from Tom Champion at Piper Sandler.

[Tom Champion, Piper Sandler]

Great, good morning. Oisin, I was wondering if you could talk a little bit about the monthly metrics and the service requests down double digits last three months, what’s driving this dynamic here. Maybe you could tie this to the comments on ads and leads revenue that suggests stabilization.

Then maybe a question for Chris, just to follow up on Care.com. The letter refers to some longer term--or some newer opportunities outside of the longer term legacy opportunities in nanny care and in long term care that have emerged post-pandemic, was curious if you could flesh those out a little bit. What are you seeing more recently?

[Oisin Hanrahan, Chief Executive Officer, Angi]

Sure, thanks for the question. In terms of the service requests being down, the two primary drivers of that, the first is just as we’ve talked about, the incredibly tough comps from this time last year when service requests and overall activity on the home was at all-time highs, perhaps irrational highs as people were stuck at home. That created an incredibly tough comp.

Then the second is the Angi rebrand and the shift away from Angi’s List to Angi, which we’ve largely recovered from on Angi and are back to very strong growth in the Angi domain. However, we do also have the fact that we shifted from our legacy home advisor domain and something we were putting consumer marketing dollars behind, and by reducing our marketing in that, it has led to a drag in service requests.

Overall, we are seeing greater monetization benefit from the service requests that we do have. This means that we’re more likely to match the service requests that do come in than we’ve ever been, so our likelihood to match you with a pro and make money from that transaction is the highest it’s ever been, and on the one hand you could say, well, don’t you want every service request, on the other hand we want service requests that we’re actually going to be able to fulfill. Of course, in an ideal world, yes, we would want every service request forever; however, if we’re going to have service requests where we’re not going to deliver a great experience for the homeowner, then--and we’re going to pay for that, then we’re going to be in a double whammy situation where we pay for a service request and we disappoint a homeowner.

We are being more diligent and more responsible than ever before in terms of thinking about how we buy service requests, how we market, and making sure that when we are marketing and you see that in the zero accept rate, you see it in the rate of monetization, we are more likely to monetize these transactions. That’s how we’re thinking about it.

Obviously over the long term, we do need to make sure that we get back to service request growth, and ultimately we do expect that to happen as we lap all these things and we get to a place where we’re monetizing a greater percentage than ever before and we will ultimately get back to service request growth.

[Christopher Halpin]

Thanks Oisin, and then Tom, thanks for the question on Care. I would--I’d highlight two main elements that were reflected in Joey’s letter. One, our areas that are--that we’ve had inbound demand to our platform but we currently aren’t able to satisfy those services, things like out-of-home daycare, senior care, pet services, those types of activities where I think we said 40% of the inbounds were not able to meet the request, so that’s a matter of we’ve got the demand, now let’s build up the supply and have a healthy two-sided marketplace, so the expansion there is adding that provider supply, the matching element, and going from there.

The other, which we are very excited about and Joey actually referenced in the last earnings call, is the instant book process. Any of us as a parent, you can quickly see the value in this service, which is a much faster matching of the need for a babysitter or any sort of home care, as they say, instant book, measured in hours to get the provider to your home or apartment. That is an element of developing product and then developing the liquidity on both sides of the marketplace to meet much faster turnaround times. We are beta-ing that product and Tim and team are actively ramping it up. We are excited, but that’s going to be a rollout we want to make sure, as you would in any new marketplace innovation, that the product is there but also you have liquidity on both sides.

We view this as really phase two of Care after remediating the historical issues and really building up the core Care and enterprise foundation. These are the extensions to grow from here.

[Mark Schneider]

Our next question will be from Ygal Arounian at Wedbush.

[Ygal Arounian, Wedbush]

Hey, good morning guys. I’ll start with just the comments on past peak investment in services and plans to expand into new categories there. Where are you with those plans on the new categories, and how does that align with the discussions about being past peak investment?

Then for Joey, you hit on Bluecrew and Vivian in the investor letter. We didn’t talk about it today - it’s clearly one of the strongest areas of the business right now. Can you just expand on where things are there, where your vision is for where those businesses go in the coming months and years? Thanks.

[Oisin Hanrahan, Chief Executive Officer, Angi]

Sure, I can hit services first. From my perspective, we have had four straight quarters of 100% year-over-year plus growth in services, and that includes obviously the Angi roofing THR acquisition. Below that, we have incredibly strong organic growth in services and we expect that organic growth in services to accelerate through the rest of this year. We’ve got an incredibly strong backlog particularly in larger projects where we are selling those at a far faster rate, as you’d expect in a growth environment, than we are delivering them, so our backlog is the biggest it’s ever been in large projects and roofing and in other remodel categories. We feel really good about the ongoing growth that we expect to see in services for the back half of the year just based on that alone.

In addition to that, we also have still more places within the product that we can continue to expose services, and we do have optimization in terms of the product flow, in terms of the Q&A flow, in terms of conversion, in terms of job allocation and how we make that more efficient.

In terms of the margin for services, as we said, we hit peak investment in services in March. That is largely driven by increases in gross profit dollars coming from services, and we saw a significant increase in gross profit dollars even March to April, which again helps us with our drive towards profitability in services.

We know that we have significant levers across take rate. We’ve been doing some of these categories for six, seven, eight years within handy, so we have very high confidence levels and I have very high confidence levels in the take rate that we know that we can get to in some of these categories. We know the path to optimize some of the variable costs in customer service and operations, refunds, credits, and redo’s and refunds, etc., so we’re very aware of the path that we go on to optimize each of these categories and we will balance--as has been pointed out, we’ll balance this with observation and being incredibly vigilant of what’s going on overall in the marketplace.

We’re clearly in a more volatile time than we have been historically. Things are less predictable, so we will be incredibly responsive and incredibly diligent in terms of selecting categories and investing more behind categories where we do have gross profit contribution margin, contribution dollars coming off those categories and off those verticals, and we will be more judicious about reducing investment in categories where we’re not having that success.

Overall, we feel incredibly positive, incredibly confident in the growth rate and the organic growth rate of services accelerating for the rest of the year, and confident in the path to profitability on it.

[Christopher Halpin]

Thank you Oisin. The only thing I’d add is relative to just the question, category expansion is not a key element of services going forward and relative to being past peak investment. If anything, to Oisin’s point, we’ve identified the job types and categories where margins and momentum are strongest, so it will be more around perhaps placing greater prioritization on those, but we are in a broad set of categories as it is. Thank you.

[Joey Levin, Chief Executive Officer, IAC]

On Bluecrew and Vivian, Ygal, thanks for that question, it is--so they’re actually very different business models but there’s a fundamental thing that they share and take advantage of. Vivian is in the matching business, which means matching employees with employers, in particular in nursing but eventually we hope in all healthcare, and Bluecrew is an agency model, which means we’re actually employing the workers in that business model. But what they both share is a significant evolution, which is where we see the future going, from sort of job listings, static job listings and a very inefficient matching process to a much more dynamic engagement between employer and candidate.

It’s probably easiest to understand, although I think it goes well beyond this, it’s probably easiest to understand when the job qualifications are binary, so either you are certified as a nurse for the necessary certifications for that particular job or you’re not, or in the case of Bluecrew, either you can lift this amount of weight or you can show up to this place and you can respond to the 20 minutes of training, or whatever it might be in that example. When those qualifications are binary, the reality is that all the other stuff that surrounds the hiring process, we’ve found to be largely inefficient or sometimes bordering on useless, meaning people aren’t as good at interviews as they think and the process that people put around there just slows it down and doesn’t actually yield better results.

What you find with the platform, and we now are building this data at both Vivian and Bluecrew, is you can know in fact with data who can perform jobs well, what their on-time rate is, what their employment history is, what their certifications are, things like that. You can make that process much more efficient for both the candidate and the employer, and what you can also do is allow much more flexibility for both sides of that marketplace so it need not fit necessarily in the typical 9-to-5 or 40-hour workweek, or whatever it was historically. You can customize that using our tools and people can indicate what they’re interested in and match with employers in that way.

When we look at--you know, Vivian started in about a $10 billion TAM, which is the travel nurse market, has now expanded beyond that, and when you get to total healthcare, it becomes multiples of that in terms of healthcare staffing. On the Bluecrew side, starting about a $30 billion TAM, but again that can become multiples bigger if we can expand into other categories as we hope. The key for us is just using that technology, absorbing the data, getting the customers on both sides of that to input the data in ways that are--that yield real benefits to them because it can be extended across multiple employers or multiple jobs.

As we ingest that data, we can do a better job with matching and we can grow those businesses, and both of those businesses continue to grow very nicely and we’re pretty optimistic on where we think they can go.

[Mark Schneider]

Our next question will be from Brent Thill at Jefferies.

[Brent Thill, Jefferies]

Joey, many investors are asking if the macro headwinds get even stiffer, how you think the rest of the portfolio fares and what gives a defensive element in a tougher macro take over the next year?

[Joey Levin, Chief Executive Officer, IAC]

Sure. Again, we’re probably have to do it business by business, but in--we’ll start with Dotdash Meredith. We look at what’s the last dollars to get cut in a tough environment, and generally for us as advertisers across all of our businesses and all of our history, the last stuff to go is the performance, where you can very clearly tie a dollar of spend to a dollar of results. What we know from our Dotdash history is that performance can be measured very clearly, and we’re now in the process of migrating all of Meredith onto the Dotdash platform, where we can measure and prove or show that performance, and so we think that that is--ought to be reasonably well protected.

Of course, the harder the environment gets, things start to change; but where we are in that food chain, I think is a very, very strong place simply because our ads perform, which we see in the data and we see in the advertiser retention.

We’ve talked a little bit--Oisin already talked a little bit about Angi in that regard, which is the natural hedge on the ads and leads business, which is as demand softens on the consumer side, then interest among service professionals increases almost in direct opposite. You can see that in our numbers throughout our history, which is the revenue per service requests or accepts per service requests go up as the consumer demand goes down, so we like that hedge.

Remember, we’ve talked about this in a few different environments, in our history with Angi a substantial portion, I want to say 60% but somebody here will correct me, are non-discretionary jobs, and so those happen in any environment - that’s fixing a broken toilet or a broken HVAC or a locksmith, whatever. It doesn’t matter what the economy is doing, you’ve got to get those things fixed, and so we’re somewhat protected in those.

In the other, I think Care, we haven’t really been through a cycle like that with Care, when it held up fine during the pandemic but that was--there was all kinds of dynamics unique to that, that would have impacted Care. We’ll see in that environment, but again I think it’s sort of a fundamental need, which is people go out, people need childcare, people go to work, people need childcare, and so I think that that’s going to--that ought to be reasonably well protected. Those are really the big ones that we think about.

[Mark Schneider]

Our next question will be from Brad Erickson at RBC.

[Brad Erickson, RBC Capital Markets]

Hi, thanks. Just a couple follow-ups on ads and leads within Angi. You mentioned traffic still coming back there post [indiscernible].

[Mark Schneider]

Sorry Brad, you’re coming in and out.

[Brad Erickson, RBC Capital Markets]

You can’t hear me? How about now? All good?

[Mark Schneider]

Now we can, yes.

[Brad Erickson, RBC Capital Markets]

All right, so on ads and leads, Oisin, you talked about SEO and SEM, and obviously traffic is still coming back. As we look at results for today, would you say that you’re over-earning right now there or under-earning? How aggressively would you look to spend on marketing on Angil.com once traffic more fully recovers?

Then second, historically you’ve said that roofing could be sort of like a blueprint for other category expansion - you know, you acquire, you get a company’s supplier network, labor network, etc. Are you saying--just curious, relative to--you mentioned maybe some acquisitions not being on the table there as much. Are you saying that you’re not really exploring those anymore and you just don’t need to because you have the capacity you need? Maybe you could just reconcile that a little bit more.

[Oisin Hanrahan, Chief Executive Officer, Angi]

Sure, so in terms of where we are with ads and leads and the relative demand and supply, we are still--obviously this is category by category and vertical by vertical, but in aggregate we still have more consumer demand than pro supply, so yes, there are certain categories where we would monetize more if we had more consumer demand, however in aggregate across everything, we still have more consumer demand than pro supply, which is why an increase in pro supply or a reduction in consumer demand would be net-net positive.

We are not yet back to--you take our peak media spend or broad reach media spend on our legacy brands, Home Advisor at its peak, we are not back to that level of broad media spend yet. As the environment evolves, changes, as we continue to see progress on the Angi brand and it continues to make sense for us, we will obviously lean in where it makes sense.

In terms of roofing, we’re very happy with the roofing investment that we’ve made. It has allowed us to accelerate into that category. It’s growing quite rapidly, and we expect the growth in that to continue for the rest of the year. All M&A is, you know, within IAC and everyone here has spoken to it, is opportunistic, and as we think about the rest of the year, as we think about where the macro environment shakes out, we’re going to be more judicious and more vigilant on how we make those decisions, but it certainly doesn’t rule out us identifying a category where we’re making great progress and where we identify an asset that makes sense to add to the business.

[Joey Levin, Chief Executive Officer, IAC]

Last question?

[Mark Schneider]

No, we’re done.

[Joey Levin, Chief Executive Officer, IAC]

Okay, so with that, we thank you for joining us this morning and look forward to discussing more. Have a great day.

[Mark Schneider]

Thank you.