IAC Inc. ($IAC)

All right. Good afternoon, everyone. Thanks for joining. Cory Carpenter, Internet Analyst at JPMorgan. Pleased to have IAC soon to be People Inc. with us today. Chris and Tim, thanks for joining.

Glad to be here.

Soon to be People Incorporated.

So Chris, maybe we'll start with you. So I see in the midst of a significant transformation. You're going from a holdco to people Incorporated. Maybe just to start, walk us through the changes you're making and why now?

Certainly. So we announced the consolidation of corporate and a number of actions we'll talk about, but it really is the continuation of the strategy that we publicly articulated since end of year '24 earnings, so February 25, where Barry was on the call and talked about, we were spinning Angi and our CEO, Joey Levin, went with it as Chairman. We said we were going to continue to sell noncore assets. We were going to rationalize corporate costs. And we cut them down significantly to get to a run rate of mid- to low 80s. And then we disclosed this quarter that we were fully consolidating IAC corporate at the holdco into the corporate operations of People Inc., where Tim has been CFO; and Neil and Tim, our CFO, and as we said on the earnings call, when you're down to one core operating business, a key step in this was selling care and closing that in March as well as winding down our search business and other things that simplified the drains on corporate, it made no sense to have 2 levels of corporate for 1 operating business plus our MGM stake plus some smaller sake. So it really is just a natural evolution of what we laid out as our go-forward strategy a year and change ago, also on the capital allocation front, buy back stock. We bought back 13% of the company and the intervening 15 months, own more MGM both through their buybacks and direct cash from us, we're up to 26% and then do M&A through people. So it just is further implementation and we think is the absolute right thing for shareholders.

So the 2 primary assets going forward are people and then the MGM equity stake, the 26% equity stake at MGM, you just mentioned, what's the benefit of keeping those 2 assets together? Why not separate them out, given there still seems to be a pretty big value disconnect with the stock price?

Certainly. The Barry is our Chairman and our Board view real value in both businesses. I think you could argue in the case of people and Tim can talk to it better than I can, their outperformance relative to peers and the thoughtfulness and innovation and execution quality of their strategy has enabled them to be in a differentiated position as a media company, although the market wouldn't probably acknowledge that right now. So they are our cash flow engine. It's a good thing to be inside IAC as they continue to execute and we'll talk through all their growth vectors and the inversion strategy. And then on MGM, we are real believers that the public markets are undervaluing the asset and a number of components there. And to be fair to the public markets, they tend to have a -- they can buy anything and they tend to have a shorter horizon. And so it makes sense to continue to support MGM drive it forward, see a number of these initiatives and macro dynamics come to fruition or resolve themselves respectively, and there will be a real re-rating there. And for now, the plan is to keep both of them together.

So you recently sold Care, you mentioned that earlier. What's the plan for the other noncore assets like Turo and Vivian?

We have -- if you think holistically, we've had a pretty focused liquidation plan across the portfolio going back a year. Now they tend to be private transactions, so they always take longer than, I think, public investors would hope are used to. Getting care done was key. Also, we are -- with closing down our Search business, we're going to be selling our URLs that underpin or domain names that underpin that business, and we have a lot of real value there. So that will be ongoing. We have a few other asset sales on Turo. Barry said on the call that he with the business doing better and them on a strong strategy of growth and execution. We sort of said, I don't expect the Turo to be part of IAC in 4 years, but he's not racing to sell it. It's also 32% sake in a private company. We think they're executing well. We talked about getting back to low double-digit growth in profitability and free cash flow in the first quarter, and they've got a whole strategy. So that one as well as Vivian, which is a great little business and a strategic asset in the health care staffing space, it's more around opportunistically the right time to sell their growth, their performance, which would, in certain cases, lead you to hold them longer versus the way we're trading and the fact that a number of these assets are valued at 0 seeking to shrink the discount as rapidly as possible or as reasonably as possible for our shareholders.

All right, Tim, let's shift to you. So I think this is your first investor conference since the announcement that you're going to become the consolidated CFO shortly. So I thought it would be helpful just for investors to hear maybe a bit about your background to start.

Sure. Thanks, Cory. Yes, I started out after school as an investment banker, probably like a lot of people in this building today. I had 2 really important people there, my wife; and Neil Vogel, our CEO. And so I did that for a number of years. I then joined American Express. It was at in American Express for more than 10 years. running -- or operating out of their corporate development team. There were only 3 of us when we started. We had our pans and fingers and a little bit of everything, strategy, acquisitions, divestitures, minority investments and all that type of stuff. I left that after 10 or 11 years, there are about 35 of us, I think, at that point. So we really had gotten involved in the entirety of the global business there. I went on to be a CFO, my first CFO gig at a JV that we helped to create at American Express. And then Neil came calling about 4 years later and had an opportunity he had just been hired by IAC to operate about.com, which was the predecessor to dot Dash and now the predecessor to People Inc., and we'll get into that whole story today, but that's the 30 years to nutshell.

So shifting to the business. Maybe could you give us a brief overview of people's properties, the scale and just the state of the business today?

Yes. We are America's largest publisher by pretty much any measure. We are, as I said, we created out of the combination of Dotdash, which was formerly about dotcom, Time Inc. and Meredith. And so we have some of the best, most venerable brands out there. We own People Mag, Better Homes and Gardens, Food and Wine, Travel and Leisure, Southern Living, all recipes, a whole host of brands. Back in the day, those were -- many of those brands were rooted in magazines. They have 50, 75-year histories in magazines. Today, 70% of the business is -- the revenue of the business is actually digital media. 90% of the profitability is digital media. We still do have a magazine business, of course, but it's a smaller subset of the brands. And the brands really live across all mediums at this point. They live, again, in magazines, they live on our owned dot-coms. They live on Instagram, TikTok and Apple News and all these other distributed platforms that we'll talk about today.

So the financials have actually been pretty steady, kind of mid to high single-digit grower for the digital business at least in recent quarters, but a lot of moving parts under the surface. So I think investors are often surprised you've been able to grow at that rate, given just the traffic headwinds from AI overviews. So maybe talk a bit about how have you been able to grow through that headwind? How are you thinking about like traffic going forward?

Yes. It's a lot of different moves. The first thing we did is we set up our brands to be operated under one owner, one General Manager. And so those folks are -- they're managing all the distributed platforms, the content and the distributed platforms on which they reside. So I think that, that was an important move for us. AI overview has certainly been a challenge. It's something we saw early on. We kind of coined a phrase called Google Zero, which was an internal rallying cry to say if there's no traffic coming from Google, where do these brands live in the universe. That helped to sort of rally our troops and our thinking. And we've really sort of started to frame this out as the -- and 20 years ago, this was a magazine business. For the last 10 years, it's been a digital com business and we think the next 10 years are going to be all about the brands. And the brands can live anywhere in the real world across media, through AI, whatever that takes. And so we'll talk a little bit about the strategies that we've undertaken to get us there, but the fastest-growing part of our business today is non-session-based, we call it, meaning not on the dot-com digital revenue.

Could you talk more about that nonsession-based revenue? What is it Kind of what are some of the components under there?

Yes. Again, if you think about it, we're trying to get -- rather than force people to come to our brands, we're trying to bring our brands, our content, our offerings to people wherever they want to consume media. And so that's an important sort of mental distinction. When we do that, we are aggregating large brands and growth brands growth audiences across Apple News, which is I think we're one of the largest publishers within the Apple News ecosystem, again, on Instagram, TikTok and so on. The second piece of the puzzle is we have to be able to come and bring advertising solutions to those audiences for our advertisers on behalf of our advertisers to our audiences. On the dot-com, we own the ad experience, on Instagram, Meta, we own the ad experience. And so we've really gotten clever at adopting our models to those platforms and really delivering those value again to the advertisers. The third piece is D/Cipher. D/Cipher is I will talk about it a little bit today, but it's an ad targeting capability that we take sort of this great premium performance that we've had on our brands for many, many years. It's always been sort of a premium buy for advertisers and we can find that same great performance off platform. So that sort of addresses the traffic constraint challenge that we have and kind of uncapped the TAM or significantly expands the TAM. And then the final piece of that off-platform puzzle are these AI, license AI deals that we'll talk a little bit about today, which we think is -- we think we're well positioned for that to be a meaningful piece of our growth story going forward.

So a few more on -- actually, I want to go deeper on to D/Cipher and then also on the licensing deal. So maybe on the D/Cipher, you kind of said what it was I still think people are fairly unfamiliar with it. It's a fairly nascent product. So maybe give us an overview of why you're excited about it. How big is it? How big do you think it can be?

Yes. So D/Cipher is an ad-targeting capability. It is borne out of our is proprietary to us, and that is our own first-party data. And it basically allows us to map the performance that we see on our sites, the ad performance that we see on our sites using AI and other tools off platform. And so we can buy that same and extend the buy for the audience, for the advertiser to audiences that are not necessarily resident on a People Inc. brand. What that allows us to do, again, is uncapped sort of the TAM, but it also allows us to take these solutions and apply them to CTV, to social and to everything else. I think one part of the story that resonates for folks helps to bring it home is we tend to sell all of this as a package, right? We go to an advertiser, we go to the agency on behalf of the advertiser, and we're selling the combination of on-platform, off-platform with D/Cipher and our events, sponsorship and other sort of capabilities. And we think that, that's, again, unique to us. When you think about a world of platforms where so many advertising dollars are going through Google and Amazon and Facebook. There's a place in the ecosystem for branded advertising solutions with a high degree of service that can be customized to what the advertiser wants and needs. And we think we're doing that and we've seen really great growth as a result. So we think to answer your question on size, it's still relatively early in the D/Cipher+, that's sort of the off-platform application, but growing. And we've said publicly, we think it will add 2 to 3 basis points to our growth in the back half of this year. So meaningful. 100 basis points

And then on licensing. So you've entered a number of deals, OpenAI, obviously, one of them, maybe there's others you have not entered into yet. So I think 2 questions on licensing is, first, what's the monetization model that the industry is kind of coalescing or models that the industry is coalescing around? And then how do you think about the longer-term revenue opportunity?

Yes. We're optimistic about the revenue opportunity. There's 2 models that have emerged. The first generation of this was a couple of years ago, foundational models came into being, OpenAI and others Google. And we were able to cut a deal with OpenAI that was effectively what we call all-you-can-eat, meaning they can train on our content, they can display our content. They can use our content. We -- then about a year ago, we actually started to block the AI crawlers that we didn't have a deal with. We did that through Cloudflare and some of the other CDNs. And so that really sort of changed the leverage point a little bit for us where as a couple of years ago, everyone was saying, do I have to pay for this? Why don't you start blocking folks from being able to actually access your content in real time, especially as these models have evolved and emerged, I think that's really brought people back to the table. So the second model that has evolved is a more of a pay-per-use model. Microsoft announced something with us and some other publishers late last year that was sort of on the forefront of that. I think there are other models or other business models like that, that are emerging. I think the way to think about it is as the applications and products start to get built on top of the AI layer, they are going to need access to content. If that content is inaccessible or blocked or whatever, they will be willing to pay for it. And I think where we are now is we're obviously all waiting for that application product layer to find some legs and grow. And we're now in the conversations with folks really talking more about price than whether or not they're going to do it, but what -- at what price is our content going to clear. And so we're excited about it. We think that the AI at this point -- from this point forward, again, it's more of an opportunity than a threat for our business.

So I think Barry introduced this concept of inversion, a couple of quarters ago, clearly something you guys were excited about projects underway across the company. What are these? Why is that a strategy you're going after?

Yes. So we talked about this off-platform revenue growth, right? And just to frame this up for a little bit for folks who are less familiar with the story. 40% of our revenue, 41% of our revenue is non-session-based meeting does not come to our dot-com that piece of our revenue grew 24% in Q1, and that's a continuation of strong growth we saw in Q4. 60% of our revenue still comes through a session, a visit to our owned and operated websites that piece of the business was flat, right? And so if you think about that sort of 60-40 dynamic and the math involved, that sort of generated the 8% revenue growth that we generated in Q1. . Inversion is sort of the next layer of growth, the layer of growth that's not captured in that 8% that we think can ride and live on top of it. It's Barry's way of sort of saying and challenging us to think completely differently about our business models. And we, our group, as stewards of these sort of iconic brands, like how do we bring these brands into the next 10 years of media? What does that look like? And we've debated different business models. As Chris said, Barry has gotten more involved in our business, more familiar with our business, and he sort of challenging us again, think differently and say, why would you take 1% on a license deal for a licensed product or a small percent on an international deal when you could own the whole thing. Now in some cases, it makes sense to take the 1%. But in other cases, we can build and build upon and start to build businesses off of these new models that we're envisioning. So I'll give you something to make it a little bit more concrete as examples. And I think some of the things that we're going to build in fairness are going to be a little bit more adjacent than completely revolutionary, and that's where a little bit of the confusion comes in. But as an adjacency, as an example of an adjacency, we launched a product called, MyRecipes a year ago, a little over a year ago. is think of it as a digital cookbook. You can say any recipe across the web to this digital cookbook and sort organize, find other recipes like it. and so on. We'll be launching a kind of a version 2.0 of the product later this summer that has a lot more capabilities when incorporate AI will allow you to save recipes across Instagram and TikTok and so forth. In the first year, as the sort of version 1.0 product, we signed up over 3 million customers, 3 million registered customers for this product. All 100% on our owned and operated properties, right? And so if you think about sort of how this is going to evolve in our minds is, first, we build products, we won't bet 1,000. We won't shoot 100% of our free throws, but we'll hit more than we won't. And we can use our assets, our distribution channels, our marketing channels, whether that's e-mail or magazine page or a digital ad or D/Cipher to seed those businesses with customers. And then we will grow those customer bases and those revenue models off of them. And so the inversion is sort of -- has come to embody all of that, that kind of concept of how do we bring these brands into the next generation of media? How do we create new sustainable durable business models that are not disintermediatible by Google or AI or anyone else. So that's what we're working on now. Yes. And it's nice to be able to say, look, I think that's the growth that's sort of on top of the growth we're already delivering.

[Operator Instructions] So let's see. How should we think about -- so one question on margins, and I want to get back to capital allocation, [indiscernible], going to other topics. But for people, digital margins, 45% incremental margins last quarter, 60% of your revenue, I mean, 40% of your revenue, how are the margin profile different for the sessions versus non-session-based revenue? And how much investment is required in some of these inversion initiatives?

Yes. I mean we had really strong margins in Q1, 200 basis points of margin improvement year-over-year. We expect that to continue in Q2. It's coming because the -- each of the revenue models in the non-session-based bucket, the ones that are growing have very attractive margins. Definitionally, in other words, we wouldn't be able to do it. Certainly, licensing, as everyone knows, is very, very high margin. and that's been growing, helpful. Most folks think the fastest-growing bit of that is the AI licensing. It's actually not. It's the content syndication, the content licensing that we're doing, again, across Apple News and other syndication partners, although the AI is certainly high margin and helpful. The other key point is these non-session-based ad the ad side of it, meaning decipher and these sponsorships and the social extensions, all these events, all these things that we do for advertisers also very high margin. It's a very premium product against premium brands that we're able to charge for. So the margin profile is strong. We are definitionally and always have been very cost disciplined about all of this, all of our endeavors, all of our ventures. We do think that AI is benefiting us. We're getting more efficient, particularly a product development targeting at kind of testing and creating ad copy. So there certainly are some efficiencies coming from all of that. So we think that margins will continue to be strong. As we think about inversion, the inversions that -- inversion projects, these new projects Again, we're using -- that's the key point. We're using our assets, our owned and operated assets to see these businesses. Once we see success, then we invest behind them, then we can start to really accelerate them. And so there's not a big capital outlay today. We're reallocating resources from slowing parts of the business to growth parts of the business. We're investing in our -- using our owned and operated assets to grow. And then once we find success, then we can hit the accelerator and go. So I think we can continue to deliver strong margins while we make these -- navigate all these currents.

I think this is the longest we've ever gone in the IAC fireside without asking about capital allocation. So I do, Chris, have a question for you on that. I mean, look, obviously, IAC has historically been very acquisitive, but you're transitioning from a holdco to away from a holdco, I guess. So how should we think about your capital allocation priorities and how they're going to change going forward?

Sure. So Barry touched on this directly on the earnings call. really 3 priorities he said. He said the M&A market is not that interesting to him. He said that for a while. Also as part of our consolidation, we're going to have less resources running around looking at deals. Our prioritization on capital allocation is our own stock at IAC, MGM shares. The former we bought back 13% of the company over $400 million over the last 15 months, the latter. We bought about 1 million shares each of the last 2 quarters. And then the third would be strategic M&A through People Inc. And so that's how we've articulated it. That's how he's thinking about it. And it is a cleaner, clearer capital allocation strategy that we've had in some time.

I think that is a natural segue to you, Tim. So third one was M&A in People Inc. So what would be of interest to you?

Anything that would further our ambitions to have direct relationships with the end consumer is the #1 priority for us right now. Anything that can get us there faster or scaled already would be amazing where we can bring our channels to bear and really accelerate. We are always in the market for brands, new brands. It would only be for A+ brands. That's the future of this segment. We have many good quality brands that are not A+ brands that while we have a nice kind of cash annuity, cash flow annuity coming off of them. They're not the future. So A+ brands, of which there are a few direct connections to advertisers or consumers, consumers first and advertiser second, maybe a little bit of ad tech would be areas. I'd say we're more active than we've been in years, but there's nothing imminent yet that we've really found that, that sort of hits all the -- checks all the boxes.

I want to come back to MGM just for a little bit and maybe we'll wrap on one on People. So 26% stake, you're well in the green since your 2020 investment. What's -- you've kind of given your rationale, I think, for holding MGM shares, but is there anything -- what could lead you to divest over time, would you ever consider divesting? And how big of a stake would you be willing? How high can you go from an ownership perspective?

Sure. So there are a few elements in there. would we ever divest? I mean, really is up to our Chairman and the Board on that. Nothing has been part of IAC forever, except maybe the Daily Beast. But that -- so there is an opportunism, but there is a real commitment to MGM and real belief in it, and Barry has called it a forever asset. In terms of a natural or targeted ceiling to our stake, I wouldn't articulate any such level. We did agree to a voting agreement with MGM and between Barry and the Board, which really caps our voting interest at 25.7%, I think. Any voting interest we have over that will just be voted proportionally with the shareholder base. So I think it's going to be more around as MGM allocates capital -- continues to allocate capital to their own stock and such where our voting interest would go -- our ownership would go. Look, when you think about MGM, there are a number of factors that will create growth or clarity in the valuation story that are either midstream right now or are uncertain. Uncertain would be the forward environment in Las Vegas. Clearly, we're in a K-shaped economy where the high end is doing extremely well, and the low end is under pressure. You can see that manifest in Las Vegas across a variety of earnings. I think when there's clarity around that, given the quality and positioning of their facilities, we think there will be a rerating there. Secondly, their digital assets between BetMGM whether it's 50-50 JV with and [indiscernible], they flipped from money cash flow losing to cash flow generative. They dividended out last year and have given public guidance for this year. I feel good about their position and the solidity of their iGaming business as one of the leaders there. The wholly owned digital assets at MGM internationally, Leo Vegas, the JV in Brazil, we think that will show real growth in profitability improvement over time as they execute on their business. China, which is a very large holding in MGM China. And then the Japan project, which was an unusually large and long-dated capital project. But as we get closer to its opening date, investors, we think will be as excited about that likely as they were about Macau opening up in Singapore and the other monopoly or close to MONOPOLY Asian gaming assets that have been out there. So we are believers in MGM and the management team and the strategy and part of the goal is to continue to simplify the story to make clear the value that's inherent in the assets. Any questions in the audience?

Perfect. What are you guys doing in international markets with the traffic, with the content.

We've never -- we're about -- 85% of our traffic is U.S.-based. So internationally, we rely predominantly on programmatic markets to clear our inventory. We certainly have a lot of -- or several magazine additions throughout Europe and the Middle East that we're excited about and are good partners for us.

You guys have a lot of iconic brands that touch on the same areas that you're seeing creator economy. How do you think about that going forward as something that you are going to co-op or something that you're going to compete with. But specifically around a lot of your premium brands, there are people getting that same kind of guidance and interaction outside of that ecosystem. .

Yes. Good question. We did -- we actually did a little acquisition last year called Feedfeed, which is a creator economy sort of influencer network around the food space, it was something we kind of easily could plug into our premium sales team, has a lot of resonance with the advertisers. That's one model. The other is, I mean, we think that we can create those same capabilities, products, personalities ourselves, either resident inside our 4 walls and we've done -- we have examples of that where what formerly would have been, I don't know, a junior editor or somebody who was like a star is now really a social media star sensation or creating products. And so a little bit of coopting and I guess, in that sense, has really been the model. We have brands like InStyle, which some of you are probably familiar with, which was a thick magazine 20 years ago, doesn't even publish a magazine anymore, has virtually no traffic from Google is our fastest-growing property, is creating original video content, is creating sort of influencer-like characteristics. And so I think for some brands, particularly a brand like that in the beauty fashion space is really kind of creating its own space in the -- within that kind of the context of the creator economy.

Chris, I'm going to give you your last question, I think. So you've been doing this for 5 years, coming to all these conferences, meeting with investors. So you've had a lot of IAC questions in talk. I'd be curious, what do you think from the inside, like what are the biggest investor misperceptions around the business? Or what surprised you the most over the last 5 years?

Well, I mean, look, we've clearly underperformed for investors when I came in and the portfolio was in more challenging shape than I realized, but more importantly than Barry and Joey realized at the time. And the mandate when I was coming in was to help rebuild IAC with the cash balance that was there at the time post match and Vimeo spin and then it honestly rapidly move to triage given the state of Angi and the Meredith.Dash integration and a few other things. I think we've gotten it to a clear place and these guys have done a great job getting People Inc. integrated and executing and really leading the category. I think things that are underappreciated is how hungry and focused Barry is how active is intellectually curious he is and just his engagement on People Inc. and MGM. The -- I think the performance of People Inc., I think, is underappreciated. And then we've been focused on executing in a disciplined way and that will likely continue under Neil and Tim's management.

And then maybe, Tim, for you in our final minute as you kind of step into the consolidated CFO role, CFO of People. What are you most excited about? What do you think can be most transformative to the business in the years ahead?

Yes. I mean we're obviously excited to take over from the good work that Chris and Joey before him and others have done and step into that seat, that will be an experience for us. Notably, about People Inc., as Chris said also, it's been a journey since the merger. We put the former Dotdash Meredith together about 4 years ago now 5 years ago and going on 5 years ago, we had to get through the integration, which is always harder than you expect. There was an ad recession, which is never great for an advertising-supported business and then AI emerged right? And so we think we've sort of largely shook off all of those challenges, outperformed all of our competitors have grown now for 10 straight quarters solidly expanded margins. And so I'm excited to get sort of that story out there and that narrative past and get past the AI overhang narrative and really start to get People focused on in the future what this business can be.

Great. Thank you, both.

Thanks, Cory.