Angi Inc. (ANGI) Earnings Call Transcript & Summary

All right. Great. We'll get started. Cory Carpenter, Internet analyst at JPMorgan. Joining me today is Oisin Hanrahan, the CEO of Angi. Thanks for joining.

Great to be here. Thanks. Do I have to depress this or do I...

You're live. We're live. So I think this time last year, this is your first conference as CEO, so it's been about a year now. Hoping you could just talk about the state of the business today, kind of to -- relative to where you started. What are you most excited about? Where do you still have the most work?

Sure. Happy to jump right in. So rewind a year ago, I think we were all still hanging out at home. This was a virtual setup. I think the macro environment has changed drastically, which I'm sure we're going to talk about. Within Angi, I think some of the biggest things that we've executed on are around core focus on making the leads and ads business better, so the raw investment in how we match consumers, how we match pros, how we think about pricing, how we think about data, how we think about just the raw mechanics that underline or underpin the ads and leads business. Continued investment in services. Obviously, we've continued to grow that business 6 straight quarters now of 100% year-over-year growth, including the Angi roofing acquisition, which again speaks to the doubling down that we've had on services, the change in that business from growth to making sure that we grow with the focus on profitability, focus on fulfillment, focus on contribution, all been super strong. And then the 2 other things are around memberships. So obviously, we've pushed a lot on memberships in the last year, up to 260,000-plus members. Again, that product is super early, very nascent but growing. And then the last thing is around the teams, so really changing the focus of how the team has thought about what they're doing, revising the mission, revising the values and really thinking about like making sure the culture was strong. So those are probably the 4 big things.

Let's jump into macro. Kind of a mixed message the past few weeks. I think you heard something from Target and Walmart, maybe a little more pessimistic, but then Home Depot, Lowe's sounded a little better on the home services side. Were you seeing -- are you seeing things -- how things evolved over the past month?

Things are softer, a lot softer. And I think one of the things that's probably not understood as well is how much Angi benefits from a softening macroeconomic environment and services. So the vast majority of our revenue, more than all of our EBITDA comes from the ads and leads business, which is effectively a performance marketing product where pros pay us to access homeowners. And in the last 2 months, as we've talked about, we've seen softening consumer demand versus this time last year. Obviously, this time last year was an insanely aggressive period of consumer demand, and we've seen the top of the funnel be softer in pretty much all our channels. We've seen consumer conversion rate be softer in all our channels, and that leads to pros needing us a lot more. And I think there's -- you talked about some of the results that are coming out. I think it's very important to unpack the headline numbers, units and price. So you think about something that's growing 2%, 3%, 4%. If inflation in the category is at 12%, 15%, then units are down 10%. And pros aren't busy on the basis of price. They're busy on the basis of units. And if units are down, pick a number, we can debate how much units are going to be down year-over-year. But if units are down, then pros have more capacity. And it's also -- you rewind at the very beginning of COVID, pros -- pro capacity went down, as some people said, "Hey, I just don't want to be a part of this market right now. I'm too afraid of COVID." Pro capacity went down because of labor shortage. Pro capacity went down because of material shortages. But in the last year, 1.5 years, pros actually invested to bring up their capacity because it was so lucrative because there was so much demand. Pros now need to fill that capacity. So we're actually exiting COVID probably with more pro capacity than we had before. And consumer demand is softening. It's unclear how much consumer demand is going to soften. We were seeing it first in discretionary tasks, which you think about those as the things that people are taking on voluntarily, whether it's decks or seasonal items. We haven't seen it yet in nondiscretionary. Typically, nondiscretionary, it takes a very large consumer correction to have any impact on nondiscretionary. But discretionary tasks are down. And then we see it on the other side of the equation, which is pro engagement is up. So pros are -- they're saying all the same things that they were saying before, but their engagement level is up. So their rate at which they're turning on their leads has gone up. The sales force productivity is a little higher, and there's 2 dimensions we think about in terms of the monetization. It's how many times we monetize a service request, and the pro's willingness to pay each time it gets monetized. Both of those are up. So the macro environment, the macro changes are very real. And we're fortunate to be in a place -- the last 2 years have definitely been tough to sell performance marketing products to pros. You think about the fact that the pros have had the largest order books they've, frankly, ever had in the history of -- certainly modern history. And it's a testament to the product that it maintained a position of $1 billion or so of revenue during that period when pros needed us the least they've ever needed us. And now that flipped between demand outweighing supply. It's not -- we're not going to get to a place where supply is outstripping demand. Like the structural constraints in how the industry is set up won't allow that. But just a normalization of supply and demand means pros will need us a lot more, and that puts us in a position to be very fortunate as the world evolves.

What about -- so a lot of counter-cyclicality in the ads, leads business. How should we think about the softening consumer impacting services? Is there any difference there?

Look, I think it's possible. I certainly can't sit here and say, "Hey, well, our ads and leads business is going to do great in a recession, but our services business is also going to have like an amazing tailwind." That doesn't make any sense. Those 2 things don't hang together. What I would say is it's one thing to say what's the impact -- well, let's just pick numbers. I'm not saying these are the numbers, but let's just pick the number of a 10% slowdown in consumer activity, maybe 15% slowdown in consumer activity. It's one thing to say if a business is growing 20% and the economy cools by 10 to 15 points, what happens? It's a whole other thing to say, if a business is growing at 100% year-on-year, if the economy cools 10% to 15%, what happens to that business? There's a secular shift happening in consumer behavior. And that secular shift is people going from wanting to search online, click a button and call a pro to wanting to search online, click a button, press the Apple Pay, put in their Amex and check out. And that shift, perhaps that shift towards convenience is perhaps the driver of this 100% growth that we've seen for 6 quarters straight in services. So even if we see a 10 to 15 point slowdown, perhaps it's okay that -- it certainly won't accelerate the growth in services. Let's say that. But what will be the impact in terms of a slowdown? It's not clear that it will be significant. The jury is still out. I would also say that in the current environment, obviously, growth rates are important. Revenue growth rates are important, and what's more important is gross profit and EBITDA growth rates. And it's clear that in an environment where we're buying hundreds of millions of dollars of services a year as we -- the same way we sell hundreds of millions of dollars of service a year, we're also going to be buying those services. Our ability to have pricing power as a large buyer of services goes up. Every job we sell to a homeowner is worth more to a pro in an environment where there's a contraction. So our margins, perhaps I think the last shareholder letter, we said we're somewhere around 15% to 35%. There's room for those to go up as the services business -- sorry, as the macro environment softens. And the last thing I'd point out is, yes, even if the services business does soften, we have the vast -- not the vast majority, more than all of our EBITDA comes from the ads and leads business because the services business loses EBITDA. So in an environment where the services business doesn't grow quite as fast and the ads business grows faster than we've expected, the business probably generates more EBITDA.

So let's talk about that on the profit side. So earnings a few weeks ago, you mentioned your past peak investment in services. Could you just talk a bit about what's driving this inflection? Are you just at a certain scale or level of efficiency? Or is this more of kind of a managed decision in the current environment?

So the journey until now has been a result of planning that we had back in end of Q3, early Q4 last year. We pulled out those plans. March was always the peak investment month. It was just a function of how we had set up the business, how we had invested in certain geography rollouts within roofing, how we had invested in some category rollouts, some engineering teams, the product teams, some operation teams we brought on. March was just the peak month of investment. And since then -- and sorry, the plan from that was that gross profit dollars coming from services. So the function of how fast services was growing, plus the take rates, plus operational efficiency on variable ops and CX costs would generate more dollars to cover the investment after March. We've seen that happen in April. So the shift down from March to April in terms of EBITDA loss and services, substantial, just as a function of those things. However, going forward, we are definitely taking a look and saying, okay, with the current macro environment, with more volatility than we expected, with more uncertainty on interest rates, with more uncertainty in terms of -- pick any dimension, there's uncertainty everywhere right now, with all that uncertainty, we are being more vigilant. We are being more cautious. We are pulling in some of our investment horizons. It's not to say it changes our long-term vision, not to say it changes the long-term direction we want to go. But we are being more cautious, and we are being more thoughtful about the plan for Q3 and Q4, and we're working through what that means at the moment. And it likely will pull profitability forward from where we had originally planned for the services business. So I think it makes sense. It doesn't mean that we can't dial things back up as things get -- as we see more positivity in other parts of the business. But in the current version of the plan we're building, yes, we are pulling in the profitability horizon.

Okay. One -- a couple more on services. So I think a few weeks ago, you talked about, I mean, certainly, the ads, leads business.

Sorry, just to finish that. And it's not unreasonable, frankly. Like it's a business that's out of the last quarter $110 million plus of revenue. It's a sizable business that growing 100% year-on-year. We can think about the trade-off at that point. It's generating sufficient gross profit dollars for us to think about like what investment can it support. It's not like it's itty-bitty $100 million a year business. It's a $0.5 billion a year business. It generates a reasonable chunk of gross profit that we can decide how to allocate them, what that looks like. And with large growth rates like that, you can decide whether, hey, I want to grow at 70% or 120% or what the growth rate is and what the corresponding EBITDA loss or EBITDA profit is from that. So it is -- we're fortunate to be -- I don't think it's a brilliant plan or anything on our part. But we are fortunate to be at a place where the services business is large enough now to be able to make those decisions. Like it takes a lot to get to $0.5 billion plus of revenue so that you can have the trade-off at $100 million of revenue. 20%, 30% take -- whatever the take rates are, you just don't have enough raw dollars to think about that trade-off. But we're very fortunate that we've gotten the services business to this scale that we can now have real trade-off decisions And it's not a huge compromise to say, "All right. Like we got to take it all the way down to a 20% growth rate." It's like, okay, well, we're in a range of growth that's reasonable, and it can support a lot of infrastructure because it's a sizable services business at this point.

Right. Okay. Just on kind of circling back, so ads, leads. You certainly talked about some of the tailwinds there. I think you also mentioned at earnings about a month ago now that you expected the organic services business to potentially accelerate through the year. If things change on the macro side to the extent that your view around that changes at all?

We haven't -- look, since earnings to now, nothing has changed in a negative way. Nothing has changed drastically in a positive way, except the things that we've said have largely come to fruition in that we've continued to see the same macro softness. We've continued to see the same engagement in the services business. And we've continued to work through the backlog that we have on the large jobs that we have. I don't think there's -- yes, I don't think there's a drastic adjustment that we expect on any given day or week. This will be -- if there are changes, it would likely be more gradual. But who knows?

Okay. I do want to talk about the backlog on the higher ticket, more like managed services type offerings you're doing. Can you just talk about what you're seeing in some of the bigger ticket items in the services business?

So the way that experience works is you come online, you express interest in getting a job done, so something like a roofing job. We then use a bunch of LiDAR and aerial photography and data to assess your roof without ever going to your house. And we come back to you very quickly, sometimes in minutes, sometimes hours with a quote to say, "Here's what your price for your roof is going to be." And we -- in some cases, we offer you financing right there at that point of sale as well. When the person signs, it can take anything from a couple of weeks all the way up to, if it's something custom, it could be 8, 9, 10 weeks for us to start that job. In addition to that, there's complexity, in some cases, around permits. If people want to do things that require local building permits, occupancy permits, street access permits, et cetera. That hasn't -- the flow from signing to completion hasn't really changed in the last 3 or 4 months. During COVID, there were periods when there was some material delays. Frankly, most of the materials we're using are not substantially delayed or even weren't substantially delayed during COVID. In the last 4 to 5 months, we haven't seen meaningful delays in materials. We haven't yet seen any significant changes in financing, which, again, is another area that we would track. It's like what are the financing acceptance rates, like what rates are people getting denied or accepted for credit. We haven't seen those come through yet. We haven't seen conversion rates from offer to sale to signature change yet, but they're all things we're tracking very closely. And it's unclear which part of the funnel -- when things do start to change, it's unclear which part of the funnel will have an impact for us. Where we're seeing it so far has been just the raw top of the funnel and the conversion to the service request actually being submitted. So that's where we see it so far.

Okay. I'll shift to the rebrand. And then if anyone in the audience has a question, feel free to raise your hand. I think we have a microphone as well. So just on the rebrand, could you give us a quick recap? What have you done so far? And what's still left to do?

Okay. So the ingoing hypothesis was that we had a bunch of brands, and we were not building the best consumer experience by having 3-plus brands in the market, and it was confusing. And what we wanted to do was get behind a single primary brand. It doesn't mean the other brands will go away completely. We obviously want to make sure we preserve the optionality, we preserve the shelf space, particularly on search. But the ingoing hypothesis was how do we make sure that we're putting most of our effort, most of our customers through one primary brand driving to a single mobile app and we're building loyalty in that brand. We started that process 1.5 years ago at this point. We made the first major shift in that in March of last year where we rebranded Angi's List to Angi and put Angi as the primary brand. We've made HomeAdvisor, HomeAdvisor Powered by Angi, and we directed everyone to the Angi mobile app. The other side of that equation is what do you do on the pro experience. So the pros also have to be rebranded. We've rebranded all of ads and leads to Angi Ads and Angi Leads. We still have some work to do to rebrand Handy to Angi Services on the pro side. That's a transition that will happen sometime later this year. And we have largely rebranded all the consumer activity at this point, and it's this one remaining pro side, and there is some stuff in retail as well. So services is sold in retail under both Handy and Angi. I think Angi is in Walmart. And the rest, I think, are still covered as Handy. Those will ultimately all flip over to Angi, I think, at some point in the next 6 to 12 months on the retail side. But the big -- the last remaining large thing is to flip the pro side from pro services from Handy to Angi.

So when -- if we're here this time next year, are we still talking about the rebrand? Or is it over?

No, I hope not. I really -- look, I think the economic impact of the rebrand should largely start to wane this year to the point where, yes, there will still be things happening, but the economics really shouldn't matter past this year. So although there may be still things going on with rebranding activity next year, it shouldn't impact the economics. The biggest economic driver of the rebrand, if you think about the last year, 2 things happened. Consumer demand continued to stay super high. Pros started to grow their capacity somewhat. But because we did the rebrand, Angi's share of consumer demand actually went down, which is like the worst of every world, where consumer demand being super high and growing, but Angi's share of it shrinking because we hurt ourselves by doing the domain transition. That put us in a really tricky spot. And that's one of the reasons why, obviously, EBITDA was compressed substantially was because pros didn't need us as much as we would have liked. And because we didn't have all the consumer demand we needed, we had to go to market and buy more of it as opposed to having it come to us organically. So as we lap this period and get out of it, we can expect to have less or fewer and fewer conversations about this wonderful rebrand.

Any questions in the audience? Okay. I got a lot more, so perfect. Sorry.

I'm curious, do you guys see overlap between pros on the ads and leads side and pros on the services side? And do you want it to be? Do you care? How do you think about that?

So the way we think about it is you've got the ads experience, which is typically pros who are very able to nurture a lead. So they're making a 12-month commitment to invest in Angi. They're signed up, super low churn, always on. And if they don't have availability at that point in time, they're still going to take that person's consumer information. They're going to put them on a CRM program. They're going to do outreach, and they're going to develop a warm relationship with the homeowner over a long period of time. The leads experience is performance marketing. It's on or off. And as a result, those are people who are ready to take that job right now, and they want the person to be ready to hire, and they want to go out and like sell them. And you got to be able to sell the person but not like warm them but just effectively sell the pro -- or sorry, sell the homeowner. The services experience is presold for you, so you don't have to sell anything. All you need to do is show up, do the work. We've already taken the deposit from the homeowner. We've set the price. You just need to show up and actually do a great job. What we see is overlap between ads and leads where large pros want to buy both. They want some homeowners that are ready to buy. They want some that are going to develop a longer-term relationship with, and we've made it easy for people to buy both of those products. We have not yet made it easy for pros to buy the services product and ads and leads. So we still need to have 2 accounts. This is the HandyPro rebrand that needs to happen, where ultimately that will become easier for people to do -- or for pros to buy all the products. It's not obvious to us yet how pros are going to behave when we make it easier for them to do that. What seems apparent right now is that pros largely want to self-select into each one. We think that the products, when we put them all together, it will be a lot easier to take pros that aren't successful on leads and move them to services. It's a very logical thing. You've started buying leads. You weren't able to get the homeowner over the hump and sell them, but you still could be a great pro, and we could move you into the services product. Similarly, some pros get frustrated with services where they're saying, "Hey, I actually want to be able to price this more. I want to be able to upsell the homeowner. I want to be able to do more," and we'll be able to move you over to ads and leads. There's nobody else with these offerings. Obviously, there's other people who are in market offering, performance marketing and offering an ad branding products to pros, but there's nobody else with all 3 products in market where they have this breadth and they have the scale. And it definitely gives us -- and we think a lot about it. It gives us a very meaningful, competitive advantage when we think about what we're bringing to market for pros. We effectively have an offering if you're a single person with a truck who's never able to take a phone call and never able to sell, all the way up to you've got 100 people in a call center and you've got 1,000 pros on the road all day long. We have an offering for you, and we have pros that span all across those different segments. And one of the fastest-growing parts within Angi of the leads business is our enterprise solution offering, which is the part that deals with these large pros that have a dedicated account manager who spend 6, 7, 8 figures a year with us, and they are -- they have dedicated support to help them manage the interplay between ads and leads and some services.

So on the ads, leads business, there's been a lot of volatility, certainly with the pandemic. How do you think about like the growth? And you're doing a pretty big shift to services as well, but this is still your biggest business. So how do you think about like the normalized growth in that business going forward? What type of growth do you think is still -- opportunity still available on the ads, leads side?

Look, I'd challenge the word shift. I don't think it's so much a shift to services. I think it's about balancing the businesses. I think it's about making sure that they work really, really well together. I think it's really hard to know what the long-term growth rate is in ads and leads right now. It's entirely possible. It's 15% to 20%. It's been the most challenging 2, 3-plus years. Even rewind before the pandemic, it was one of the longest bull runs we've ever had, where consumer demand and consumer sentiment was just the highest it's ever been, frankly. And that's a really hard environment to sell performance marketing products to pros. So that relationship between that relationship between the macro environment and the profitability and the growth rate of that business, it's hard to know what it looks like in a more normalized environment. Certainly, we would be very happy to get it back over 10% consistently, but it's entirely possible that it could grow at 15% to 20%. We frankly don't know right now because we don't know what it looks like in what we would hope would be a normal environment.

It's been a while since it's normal.

It's been a while since things have been normal, right? Yes, that's probably the best way to think about it. And even now, are things normal? I don't know if they're normal, but they're certainly a hell of a lot more favorable for us than the normal over the last 2 years.

What about -- for the Angi business overall, you've kind of targeted this 15% to 20% growth range roughly for a while now. And you've been around there. You got a lot going on. You're lapping the rebrand. The macro environment has leads coming back. So just kind of tying it all together, could you just talk about your expectations for growth kind of through the year for Angi through the rest of the year? And then anything upcoming in the next few months maybe that you're lapping for us to be aware of?

Look, you've got this 15% to 20% range that we've put out there for a while. We've been in it. We've flirted with the bottom of it. We've fallen out of the bottom of it. We're very happy, I think, with that range as something that we want to be in or above. Lapping the rebrand makes it a lot easier to be in it, clearly. The growth of services makes it a lot easier to be in it, just the raw mechanics of that, and it makes it super important that we drive gross profit in that category. We are -- we've got an acquisition that we lapped -- or sorry, we will lap at the end of Q2, which is also important. However, that acquisition itself is growing incredibly quickly. So that will -- there'll be a net -- a challenge of it falling off, but also it grows very quickly. So it will help and continues to be an ever larger part of the business. And then there's just the raw mechanics of what happens in the macro environment, our ability to continue to monetize service requests better. Like the -- there is a real like challenge that's happened in the last 2 years where our ability to adjust price has been really challenged, and some of that has gone away in the last couple of months. So both the rate at which we are selling service requests to pros, so the number of pros we can match with each service request has gone up, and our rate at which we can monetize that has gone up. So both of those things together definitely help us and give us confidence. You put it all together, 15% to 20%. I still hope that we break the top of it, and we're at the upper end of it -- or sorry, or on the other side of it. But I think the first step is to make sure that we're consistently in it for a number of quarters and at the same time expanding EBITDA. I think it's really important in the current environment to make sure that we're incredibly vigilant in cost, incredibly vigilant on payback of the investments we're making. And I think you can expect to see, we've said this already, with services being past peak investment, the loss from that diminishing, us pulling in the profitability time line on that. You can expect to see us focus more and making sure that we are above where we've been talking about on EBITDA.

Right. Above 2022, above 2021? No change obviously?

I guess we've said 2022 will be above 2021, and that's -- I think that's the last statement we made on it. I don't think we're going to change that today.

Yes. So last one, we have 2 minutes left, and then I want to leave 30 seconds for our game.

We're playing a game?

Of course. Just real quick, so I mean, a lot of product things going on. You've mentioned payments, Angi Key is out there. Where are you most -- like what do you think has the most upside? What are you most excited about?

The enormous -- and I'm reminded of this in most conversations I have with our largest shareholder at IAC. The enormous investment that we have made in 2021 has put us in an incredibly strong position. So the leads business product is the best product it's ever been. It is also best matched with pros in that, yes, the number of transacting SPs has come down, but they're the right SPs. They're more right than they've ever been. There's fewer of the cleaning, handyman. SPs just weren't a great product fit for that specific product. There's fewer of those SPs. The pricing is more accurate, more targeted. The ads product has continued to evolve and become more sophisticated. The ancillary benefits we have with payments and financing and the number of pros using them, best they've ever been, and you layer on services on top. The package that we have today is the strongest product offering we've ever had for pros. Similarly, for homeowners, we're matching homeowners with more pros than ever before. The number of what we would think of as presentation rate, so the percentage of the time that we have a customer come in that we give them an offering is the highest it's ever been. Rewind to 2, 3 years ago, it was 30%, 40% of the time we just didn't have anything to offer you. So the experience was not as good as it could be. So the consumer and pro offering are the strongest they've ever been. You put that together with some macro favorability, I'm just generally like happy we're here now.

Now for our game. So word association. We're out of time, so we'll be quick. I'll say a word, and you say the first word that comes to mind. Ideally, one word. But if you need to expand, that's okay.

This is the scariest thing that's happened today.

Angi Services.

Amazing.

Angi Roofing.

Growing.

Google.

Next.

Angi rebrand.

Interesting.

Profit.

Now.

HomeAdvisor.

Next.

IAC.

Great.

Handy.

Happy.

All right. Thank you.

There you go. Thank you very much.