Angi Inc. (ANGI) Earnings Call Transcript & Summary

Okay, great. So let's go ahead and get started. I'm Cory Carpenter, an Internet Analyst at JPMorgan. And joining me this morning is Brandon Ridenour from ANGI Homeservices. Brandon has been CEO since 2018. And prior to that, he served as ANGI Chief Product and Chief Technology Officer. Brandon, thanks for joining us today.

Thanks for having me, Cory.

So I'll kick off with questions, but if anyone in the audience would like to ask a question, click on the Q&A button and type in your question, and we'll get to as many as we can. So certainly, a lot to discuss given the current environment. But I think before we dig into that, I thought it would be helpful to kick off higher level with the recap of the state of the business and how ANGI has evolved over the past couple of years?

Yes, absolutely. The last 2, 2.5 years have just been a time of enormous change for the company. Obviously, the merger Angie's List, bringing HomeAdvisor and Angie's List together, and ultimately going public through that transaction was just an enormous change and then completing the integration of the 2 companies. I think what's most notable is we've gotten past that and beyond that integration and seen our plan there come to fruition largely as we expected it to, couple of things have happened. One is, I think the ambition of the company, what we're trying to accomplish has really been crystallized in a way that I think is very clear and frankly, differentiated from what anybody else is trying to do. And that is, quite simply, we are trying to transform and reinvent the way people care for their home, the way they find and get home services. And that is our sole drive and our sole purpose. We've got several thousand people that show up to work every day or now show up virtually. And all they're thinking about every day, day in day out, is how do we make the experience for homeowners radically better. As we all know, the status quo for home services is not good. It's an extremely challenging industry, which is why it's resisted change and innovation. But we firmly and fundamentally believe that we're on a path to change that. If you look at our business today, even from where it was a year ago, we've undergone enormous change. When we have this conversation a year from now, I think that, that will be even more clear, and the change will be even more dramatic. And I think as we look back 5 years from now, we will have made enormous change to the way people even buy and get service for their home. And there's just really no one else at scale -- at any meaningful scale who is trying to do this, who's doing it in the same focused manner. We get a lot of questions about competition, and without a doubt, there are companies we compete with in terms of getting ad dollars, if you will, from service providers. But in terms of what we're trying to do in-home services and transforming the experience for homeowners, there's really no one else focused in the way that we are. The second thing I would just mention is we really, for the moment, landed on kind of a 3-part combination from a business model and strategy standpoint, which is we have an advertising line of revenue. We have a leads or matching line of revenue. And then we have a transactional line of revenue that is really what we started last year, but which is growing quickly. And those are the 3 big sort of lines of business, if you will, monetization schemes that drive the growth of the business right now. We've got a lot more in the pipeline to come, but that's kind of the structure of the business today.

Okay. Great. So maybe fast forward to today, it's certainly been an extraordinary couple of months. What have been the biggest challenges? And could you talk about some of the changes you've made to adapt to the current environment?

Yes. It has been -- I mean, obviously, the situation, as we all know, is horrific. From a personal and business perspective, it's been incredibly volatile and unpredictable. We saw in mid-March, just the bottom fallout of consumer demand overnight and everywhere. We're in 400 markets. I don't think any single market for us is more than 1% or 2% of our business. So we're extremely diversified geographically. And it was clear that the overnight decline had nothing to do with contagion in these markets because most markets weren't affected. There was a moment of just shock and an audience that was very, very stunned by what was transpiring. And so for the latter half of March, that really continued. And we've said we saw initial declines in the 40% to 50% range relative to sort of our pre-COVID run rate. And I'm talking about, again, consumer demand, not necessarily revenue. Initially, it just looked like this is going to be a majorly impacted industry, but much to our surprise, we began to see by the end of March and throughout April, a steady recovery and a very steep recovery in consumer demand. And what was most shocking about that was it was concurrent with the lockdowns actually spreading to more and more states. So actually, as the lockdowns were spreading, we actually saw demand recover in spite of that. There's a lot of reasons for that. Obviously, we have -- we believe that home services, a very large chunk of it is just essential. You have to do it. You really don't have a choice. A lot of its outdoors, especially in the spring. But the other fact is people are in their homes more than they probably ever have been in at least in modern history. And alternatives for both spending your time and money are way more limited than they've ever been. And so I think we're seeing people put more focus on their home. In terms of operationally, the most challenging thing for us is we've got over 4,000 employees that are in office, employed. And so we had to scramble to do something we weren't sure could be done, which was to move every single employee into a remote work situation. We did that, in fact, before it was required in any of the markets we operate in because it was clear that -- well, it was clear to us that it was -- it had to happen, largely because of the fear on the part of employees and you could just see the writing on the wall. So we were able to pull that off. It's been remarkable in the sense that we actually see higher productivity. And again, maybe this is because there aren't a lot of alternatives in terms of ways to spend your time, but our employees have risen to the challenge. We've seen employee productivity actually higher than even we were before in office. So that's been the biggest challenge and really the -- probably at least one of the biggest surprises from an operating standpoint.

So in terms of business impact from COVID-19, I think many investors were surprised by the recovery -- the fast recovery last week. Revenue down 2% year-over-year in April, even though most of the country was sheltering during that time. How do you think about the sustainability of the recovery in April versus perhaps pent-up demand? And is there anything you're seeing in parts of the country that are starting to reopen, that may be interesting?

Yes. Obviously, we've been cautious on our outlook and feel it's difficult to give any guidance because there are so many factors at play. Without a doubt, some of the initial decline in demand in March, that demand gets -- doesn't get destroyed, it's pushed out. So we do feel like there was perhaps some pent-up demand that we were the beneficiary of towards the latter half of April, concurrent with good weather, which always drives our business. So you've got that. You've got a looming economic recession that I don't think is being fully felt, and we just don't know how to predict the impact of that somewhere in the future. But then offsetting these facts, you've got this, one, you've got local markets opening back up, which while that hasn't really -- we haven't felt that has harmed us that much. Without a doubt, certain categories and certain businesses have had a hard time operating, either because they felt they were in a category that was deemed or would be considered nonessential or more commonly, we're seeing a lot of companies are having a hard time getting their employees to actually to come in. And so we do expect -- while that's been a relatively modest impact, we think that hopefully does normalize. And then lastly, and this is speculative, but is there really going to be a structural sort of tailwind behind home services because of more pronounced focus on the home and more time in the home. This is up for all of us to predict. But I guess my view is I don't really see -- irrespective of whether local economies open up or so-called open up, I don't think consumer behavior is going to radically change, meaning I think people are just going to continue to see their habits to be a little bit different, spend more time in the home, less time dining out, less time traveling, to be sure, until the situation is fully resolved. So it's hard to say how all these things play together. I'm optimistic because I do believe the trends we're seeing are driven by the structural nature of people being in their home and the fact that the exposure risk of getting somebody to do work around your home, particularly outside, even inside where you can keep socially distance is not really that high relative to getting on an airplane or going out to a restaurant or a bar. So I'm optimistic, but clearly, you got a lot of countervailing factors here.

Okay. So one thing you said last week that stood out to me was more SPs joined the platform in April than any month in your history. Could you -- 20-year history. Could you expand a bit on what you're seeing on the supply side? How sustainable is this surge in SP interest? And where are these SPs coming from?

Yes. So obviously, it was remarkable. April was our biggest sales month for service providers in the history of the company. It was bigger than the next biggest month by 20% and 38% higher than the April prior year. So an extraordinary performance by the sales force. Sales force was of roughly the same size. So this is all, generally speaking, productivity gains-driven in terms of rep performance. There's a combination of things going on. One is, service providers do need our platform more than they did before because they need to find customers. It's a little more difficult to find customers than it was before. One of the things that's a little difficult to understand is we did see a big recovery in demand, but we're continuing to see service provider receptivity from a sales standpoint in spite of that recovery. So whether or not the macro environment has recovered as much as maybe our business has, it's hard to tell. We continue to see that the sales force performed really well even though demand is bouncing back. In terms of where it is, it's everywhere. We're finding providers in every category and every part of the country. It's really global. We're definitely hearing from them the need for our service and to grow a more profound or pronounced need to find new customers. But the other thing that's driving this, as we've talked about since last Q3, Q4 that we've been undergoing a pretty large effort to optimize our sales force. We've been the beneficiary of a really simple model for almost 20 years. That was a one-size-fits-all model to home services where we could go out with the same product, any business and any category. And that's really how our business worked up to last year. We began testing segmented offers and product configurations that were different by category or different by size of business. And that's taken a long -- these things take a long time to test to really understand, but we're seeing the fruits of that effort pay off. We have essentially just found that the right offering tailored to the right business is producing better sales throughput from a rep standpoint. And we believe we're in the early stages of seeing that because while we have put some time into it, there's -- it's a very segmentation and understanding all these other segments and tailoring offers is something that we can spend probably the next few years optimizing now that we're started down that path. So we're seeing very early returns on it, but we also think that it's got a long way to go.

So maybe shifting to fixed price, a big priority for you heading into the year. Last week, you said April had the biggest weeks ever in fixed price, bookings and revenue. Could you remind us of where you are in the fixed price rollout? And how, if at all, your investment plans change in the current environment?

Yes. So we are -- we rolled out -- we kind of divide our projects into a low consideration, low cost and then medium and high cost. We rolled out essentially all the low-cost project types last year and made them available for purchase. And that was around this time last year when we started that process. So as we've gone into the spring, we're seeing just huge growth in consumer engagement in those project types. A lot of them are seasonally based and seasonally strong as you get into the spring months. So we're seeing the growth we expected there. It was initially affected by just the top of funnel decline from consumer demand, but that's recovered, we've been able to see fixed price largely get back where we expected it to be. I think the focus there is twofold. One is continuing to scale those low-priced projects and just get more and more consumers engaged with that experience. It's different. It's different than any way than anybody has ever really purchased home services. You got -- pull out your credit card, you don't talk to anybody and you have the entire experience of digital. And with most of services like this, getting people to go through the effort to put their credit card in the first place is sort of the big hump to get over. And once you've done that, you've got a credit card on file, you've got much lower friction. And we expect to see -- and are seeing through the data, higher repeat use and have better customer loyalty. I think what we're also focused on now, which is very exciting, is taking this model to the next set of higher-value projects. We've been testing this for about 6 months. These are mid-single-digit thousand dollar size projects. They're more complicated. They're not getting done in a couple of hours. They're largely taking a few days. And what we've proven out to date that gives me a tremendous amount of confidence that this is going to be a significant business for us is that consumers are willing -- they're willing to buy these types of projects at this size through the marketplace, completely digitally, seeing the price upfront and without a conversation with anybody. And knowing that consumers -- it's one thing to spend $200 to get a handyman out for the day, it's another thing to spend $5,000 on a new deck without talking to somebody. And so knowing that the consumer engagement's there, that consumer is willing to do this was the proof point we need to know there's a market for this type of service. What we're working on now and which I expect to take the remainder of the year, but which I also expect us to prove out during this year, is our ability to meaningfully fulfill these projects, to get them done, to get providers signed on and completing the projects as they come in from consumers. That's just a process of scale and optimizing logistics around this. We'll use humans at first, but then obviously, as we sort of perfect the approach, we will automate a lot of the steps and that's really the path for the remainder of 2020. From an investment standpoint, most of the investment is tied to scale. And where we sit today, I would say the investment levels are going to be right about where we thought they would be, given that the demand levels are right about where we thought they would be. Should something happen and the demand levels were to drop then the investment dollars scale down because a lot of it is associated with each unit we deliver.

And then maybe still early, a lot of runway. But could you help frame for us, how big are your ambitions? What does success look like if we're talking 3 years from now?

Yes. It's -- that's a great question. I honestly feel like we are following a path that is somewhat like the path Amazon followed in e-commerce. We're simply doing it for services rather than shippable products. And we've been at this for 20 years. I think that over the next 5 years, we are on the cusp of delivering experiences that will change the way people actually get service for their home. Just to give you an example, a simple example. First, obviously, we've introduced the ability to see pricing upfront and digitally order an individual service. So for example, you can go on the site today and quickly within 90 seconds or 2 minutes order gutter cleaning service. But next, you'll be able to just order that service on a recurring basis so that your gutters are cleaned twice a year, whatever your preference is, and you don't even have to think about it anymore. We just send somebody out, let you know it's about to happen, complete the service and then let you know that it was completed successfully and obviously, bill you. We've now taken gutter cleaning off of your headache list for forever. Quickly following that, you'll be able to actually customize a full bespoke subscription offering of services that are -- those sort of similar maintenance services that you know you're going to have to do once or twice or maybe more often per year. Ultimately, we think these can all be packaged up and offered in a recurring subscription-based format that is customized to what you prefer. Maybe you like to do your own gutters. You don't have to include that in your package, you can customize your own package, you can select which services are included. Fixed price services are an atomic building block of being able to deliver this sort of higher-value function. Through this type of -- obviously, not everything goes into the known maintenance services you're going to have to do. But as we get more and more customers into this type of relationship, when that ad hoc project comes up, it's unexpected, whether it's AC repair or AC replacement, a roof repair, a roof replacement or something you want to do like a kitchen remodel, we're top of mind. We've got the strong relationship with you with monthly touch points. And hopefully, you're using the app to manage the service. So our ambitions are really transformational in the sense that we really believe that we're going -- we are on a path to provide the type of service and an ability to manage your home in a way that just has never ever existed in the history of humanity. And I think that it is convergent with where consumer preferences are going. And I -- generally speaking, people doing home services, generally speaking, because they have to, not necessarily because they want to and the more we can make that frictionless and painless and take a lot of this load off of people's plate and do so at a high level of quality and at fair pricing, I think we're going to find people gravitate toward that strongly.

So sticking with product, lastly, you talked about contactless payments and video calling. How are you think -- beyond fixed price, how are you thinking about the product pipeline and priorities for the year? And then specifically, could you talk more about your payments feature and how you're thinking about that opportunity?

Yes. So obviously, we love fixed price. We think that represents sort of the ideal consumer experience. But we also know that the reality is consumers -- we give homeowners an option. They can buy the service through us with an upfront price or they can connect with a local professional. We've introduced contactless payment, which enables a consumer, a homeowner to pay for any project whatsoever that they submit through our marketplace, they can pay through us, pay through our app and directly to the pro. Pro can request payment where the consumer can initiate the payment. And our goal is to deepen our relationship with consumers, get their credit card on file and provide more value to them in the relationship rather than them just getting matched and taking the experience off-line directly with the pro. We also want to deepen our relationship with the pro and to the degree they're receiving payment for jobs through us, I think that's a net positive in terms of the strength of those relationships. It enables us to close the transaction even for nonfixed price services so that we know that the job happened and we know the value of the job that occurred. It provides us a framework to deliver incentives. We can deliver incentives to the service provider to use the payment feature by giving them rates perhaps that are better than any alternative payment processing rates. We can leverage that same framework to incentivize behavior on the homeowner side. We can offer them -- in the fixed price services, we can of course go, offer a 20% discount today on any given job. But what if now, we say you can save $10 on any project as long as you use the HomeAdvisor app and download it to pay your professional. We can incentivize homeowners using the same framework to go out and drive a referral program. There's a multitude of ways that we can use this payment ecosystem that covers everything we do instead of just a smaller slice of the projects as fixed price does to effectively deepen relationships and then drive an incent behavior that ultimately goes toward our goal of developing a very loyal relationship with customers that makes us the direct brand they go to. So we're extremely excited about it. I think payments is a foundation, excited to have it in place. We will spend the back half of the year really exercising some of this muscle to figure out what the right recipe and what the right formulas are to drive to drive behaviors. One thing that's really fascinating, which -- I'm not sure if it's in the back half of this year or not, but once you're in the payment flow, the invoice is coming through you, you know how much the project is going to cost and the consumer is about to make a payment. You have a tremendous opportunity to be there at the right point in time to offer financing and lending. But it's something we've always been interested in, but we were essentially too far top of funnel historically. And you've got to be there at the moment when somebody is getting invoiced or when they're about to make a payment. And payments will be there, and we'll have the opportunity to at least offer the opportunity for financing to consumers for projects where it makes sense. So I think we're just scratching the surface, but it's an exciting foundation to build on in a number of different ways.

Okay, great. So shifting a bit, I guess, away from products. So last week, you mentioned an expectation for demand to be down for the year, but with increased monetization of that demand. I guess the 2 competing forces. Could you expand on this? And why are you cautious on the demand recovery? And just talk about your ability to offset that with monetization.

Yes. It's a great question. We've always said that we have a very recession-resilient business. And it's been a long time since we've had the opportunity to see that proven out, obviously. The reason that's recession-resilient is that at HomeAdvisor, the more consumer demand goes down, the more there's a pullback in consumer demand, the more we see service providers engage. They match to more requests, our monetization per request goes up. Our sales tend to go up. Just really put simply service providers need us more and we're paid by service providers. So generally speaking, pullback in consumer demand is offset, maybe not completely, but substantially by the provider engagement. Angie's List, which is obviously one of our other largest businesses from an advertising line item standpoint, is resilient. The providers there have a 12-month contractual obligation. So they tend -- that business tends to react very slowly to demand changes for different reasons based on its model. But I think the underlying premise in both is that if demand levels go down, providers do need us more. When you talk about the outlook for the year, it's hard to guess. What we do know with certainty is that demand stays subdued or is subdued relative to last year relative to where we thought it would be, then we know that the provider side and the monetization side of our business will offset a lot of that. And we feel really, really confident. We've been -- we saw that proven out in an extreme way in late March, where with this 40% or 50% decline in demand, we saw a decline in revenue that was nowhere near that deep. So we saw that in a way that we never anticipated because we, of course, never expect to see demand go down that much. But if demand stays subdued, then we know we've got a business that reacts in a way that's resilient to that. On the other hand, perhaps we see a stronger recovery and perhaps we see home services, in particular, buck the trends because people are spending so much time in their home. And I just think -- we only had a few weeks to really observe this. So I think by the time we meet again for earnings in Q3, we'll -- or sorry, in August, we'll have a really strong view on that.

And given the demand constraint, how are you thinking about the right level of marketing in the current environment? And what are you seeing today in terms of marketing efficiency?

Yes. So we always manage our marketing on a margin requirement ROI basis. And certainly, we pulled back during the initial demand collapse because -- particularly in channels like TV, the demand wasn't there to justify the rates. I think since then, a couple of things have happened is that largely, ad rates have gone down in just about every ecosystem, while for home services, demand has bounced back and that's a favorable mix for the moment. We'll see how long it lasts, but it's a favorable mix for the moment for us. So TV ad rates, I think, broadly speaking, are down as much as 30% or 40%, while the consumer demand levels are -- you saw that April numbers are not too bad. So that's a pretty favorable environment for us to actually lean in. And you'll see us lean in for the balance of Q2, and we'll be reactive in terms of what we see with consumer demand. But right now, we're -- our mindset is to take advantage of a pretty favorable environment from an advertising rate standpoint, while consumer demand is looking pretty strong.

Okay. So one -- another interesting stat you gave last week, you're seeing a shift towards new customers. Could you explain on this a bit? Any thought on where these customers are coming from? Are they coming from off-line? Are they coming from competing platforms? And some of the ways you're working to retain them?

Yes. It's a great question. We do feel like, overall, that we've been able to perhaps take a little more share during this period, whether that's for other advertisers pulling back, we're not really sure exactly what the reason is. But I think we're getting more demand than perhaps the macro economy at large is seeing. Part of this, and certainly, we have seen the growth rate of new customers, customers we've never seen before in our 20-year history, is higher than it is for returning customers. And that definitely started in the midst of this crisis and it's continued. What's driving it is hard to say. It's a pretty pervasive thing that's happening in the sense that we're seeing it from all of our marketing channels. It's a behavioral change, and we're seeing people that hadn't engaged with our platforms before find us and use us. And I think some other businesses are seeing this as well. And I'm not sure why it's accelerating that off-line to online trend, but that's definitely what we're seeing. And obviously, that's another thing we want to lean into because with home services, in particular, you're tied a little bit to demographic changes to see behavioral change happen, meaning we know that millennials, as they become homeowners who are the dominant buyers of home services, are going to drive material change in the way people conduct this business. But what we're seeing here is an acceleration of that trend and it's happening a little faster than obviously we expected. So we'll enjoy those benefits while they last, but not sure exactly what the driver is other than it's the situation at large, for sure.

So I want to spend a little time on Angie's List. It's a business you returned to growth pre-COVID-19 in the model that's certainly been more resilient in the current environment as well. Could you just talk about where you are today with the Angie's List business and how you think about the growth opportunity for Angie's List longer term?

Yes. Angie's List provides a really unique service in the world, which is they provide an exhaustive insight into every service provider that exists. Very different than HomeAdvisor, which has a curated network that's been screened and approved. With Angie's List, you can go rate any provider you've ever had an experience with or you can go research any provider that you have -- that you are considering using or that maybe has been referred to you. So it's a very exhaustive service from that standpoint. We've been able to turn that business around. Obviously, it's growing, which is a big change in trend from the last few years. We believe that the audience size there, and this is the primary determinant of the size of the advertising business you can have, we believe that the size of the audience that Angie's List continues to possess, allows for several years at minimum of advertising growth. So I don't think this is going to be a stratospheric growth company in the sense that it's not going to grow 25%, 30%, 35%. But I think it can be a very continuous and steady grower over the coming years, and it's doing so at a very high margin and a very strong profitability profile. So that's really the, I guess, the path at this point from a financial standpoint, we see -- what we see for the future of Angie's List.

And then the international is an area you've committed to investing in this year as well. Could you talk about your broader ambitions in Europe? Where is your offering today and what are some of the initiatives that you're investing in?

Yes. The timing has been unfortunate in Europe. It was a very large investment year for us, particularly in the first quarter as we've been converging France, which is our biggest business there on to a new platform that is shared by most of the other countries. And the timing of this crisis has been very unfortunate in terms of seeing that through and understanding the performance of it. Europe, more broadly speaking, has seen an earlier and deeper impact from the crisis than the United States or than our U.S. businesses. And it has recovered a little more slowly, although it is recovering. We have a platform in the U.K. and the Netherlands and in Germany that we really like and that we are seeing very strong performance in. And I think we believe obviously from an addressable market size standpoint, Europe is -- Western Europe is pretty close to the size of the United States. So the opportunity is really large. Obviously, Europe is complicated for a lot of reasons, cultural and language and regulatory. But the businesses there on our most modern platform are doing really well. We want to get France over and completed. And hopefully, as this crisis resolves itself, we'll see that return to growth. I don't expect to see us -- I think this is kind of a one-off investment year in terms of the size of the investment that we're making there. Of course, if we see Europe take off like a rocket ship, then we'll always reserve the right to invest more aggressively. But right now, we knew this would be kind of a one-off large investment year to kind of get everybody on to the same platform where we're seeing good performance. And hopefully, we see that growth then start to really snowball next year and beyond.

So I think we have time for one more. I think one, a good one to end on. Just as the world hopefully starts to normalize in the coming months, what are some of the lasting impacts you think the current environment has had on the industry more broadly? And what does ANGI look like on the other side of this?

Well, that's a great question, and I guess into predicting the future, I mean my base case is that consumer behavior has changed for the next 1 to 2 years in a pretty profound way. I know a lot of people are predicting it well beyond that, but I think it's a pretty safe bet that people aren't going back to complete normal for a year or 2 at best. And I do think that means more time spent in the home. I think it accelerates, I think it increases the focus on improving the home. I think it increases wear and tear on the home. And I think people's ability to use discretionary income for other purposes is limited or further limited from where it was before. So that seems to suggest a structurally favorable environment for the service we provide. And our focus will continue to be the same, which is to lean into what could be an era of strong demand from a homeowner standpoint, and push the envelope as fast as we can on delivering transformational service that just makes that experience radically better than the status quo. That's a big opportunity for us. And I guess, in sum, we are looking at this, as of the moment, as an opportunity to lean in and really drive the agenda for our goals more ambitiously than even we were at the beginning of the year, which was already pretty aggressive. So that's kind of where our mindset is, and that's where I really think the next year to 2 years plays out.

Okay, great. Well, Brandon, I appreciate your time, and thanks for joining us today.

Thanks for having me, Cory.