People Incorporated (IAC) Earnings Call Transcript & Summary

Okay. All right. We are running around here in San Francisco. So I'm going to try to kick this off and catch my breath for a minute, but it's my pleasure to have Chris Halpin, the CFO of IAC here. Chris, thanks so much for being part of the conference. We're so excited we're doing it here in person in San Fran, and thanks for making the time to come out here.

Thank you for having me.

So Chris, I think for those who don't know, I want to sort of level set, maybe start at a high level on 2 fronts. Number one, give a little of your own background, for those who don't know you, and you just recently joined IAC within the last year. And how should we be thinking about IAC as a broader company, some of the investment objectives of the company and how is the company organized? So maybe a big picture, 2-parter to kick us off.

Sure. Definitely. So my background, I joined IAC in January. Before that, I was at the NFL for 9 years, had a few different jobs there. The last, I guess, 4.5, oversaw strategy and growth, which was sort of half of the CFO role, long-term planning, FP&A, data and analytics as well as growth, which was international legalized sports betting, owner transactions, that type of stuff. I had a few other jobs before that, media strategy, business development for the U.S. And then before that, I was in private equity for 15 years, 13 of them with Providence Equity, which you guys may know, really grew up there from analyst to partner and worked across the industry. And so at IAC, for those who don't know, we are a holding company. There's about 160 employees at IAC Corporate. But across our collection of companies, there's 13,000 employees. So we own 85% of the Angi publicly listed company; 100% of Dotdash Meredith, Care, Vivian Health, Bluecrew, as well as our search business, Mosaic, others. We also own about 16% of MGM Resorts, the largest shareholder there; about 27% of Turo, the private company; and then some smaller assets. And our approach is, we are forever capital. Barry Diller, our Chairman and controlling shareholder, has built the company up from Silver King. Acquire businesses that have a digital element broadly, build them up, spin them off, have them be sister companies and full flexibility across the digital, with predominantly a consumer bet. We do some B2B, but a real focus on building the company.

And I want to get into each one of those companies maybe one by one. But just, obviously, top of mind for investors because it seems to be the topic du jour on a daily basis, it's just elements of the broader macro environment and what you're seeing in your collection of businesses. I thought it was really interesting -- and I asked Joey this on the earnings call this way as well. I thought it was interesting the way he characterized in the last investor letter how you have a range of exposures, the elements of consumer demand and enterprise demand. So how are you thinking about the broader macro environment and what you see in your businesses? And how should investors think about sort of the relative exposures the company has?

Yes. That was the goal in the last investor letter. I mean, in each one, there's different sections, but was to convey to our shareholders what we're seeing across our diversity of Digital businesses. And there really was -- is -- continues to be a significant dichotomy between enterprise and consumer. So in enterprise, you could see -- start, say, around mid-May, I keep connecting it to the Walmart, Target earnings. It's more art than science, but -- which was kind of May [ 6 through 9 ]. And I think a number of corporates probably were seeing similar things, but also said, wow, the 2 biggest retailers in the world basically got smacked considerably and put out totally different earnings. You can see mid-May, broadly, and in specific categories, ad spending, enterprise commitments, all those slowed down in some areas like retail, CPG, elements of finance, electronics, I think, TVs, cell phones, those types of things, just freeze in those categories. The other -- and then within enterprise, travel, beauty, which are parts of the Dotdash portfolio, parts of home, very strong, but broadly, a real freeze. Consumer remained and has remained strong, and honestly, surprisingly strong. Said to a few of you today, I would caveat that by -- across our portfolios, we are heavily consumer-oriented. But -- and we kind of -- as we're trying to figure out why things were strong, looked at it, and we are much, much lighter on lower-income consumer. And presence in our portfolio than the U.S. writ largely and a number of other brands. I mean, Dotdash Meredith skews high income. Care does. Angi is definitionally homeowners. MGM is high-end resorts. Turo is travelers. So we are not exposed to lower income, where you'd have the most stimulus withdrawal and also pressure from higher food, energy, rent. But consumers have hung in there, and that's continued. And one of the things we've been saying is, it's sort of this moment of -- I said this earlier today, but irresistible force versus immovable object of will consumers stick in there and cheer up corporates, especially in retail and CPG and consumer goods, to spend going into the holiday period? Or will you start to see significant job reductions, which would underpin consumer demand? But we've been positively surprised on it.

Okay. All right. Interesting. And last one over sort of the macro environment or maybe, call it, the short term. Obviously, the company put out monthly metrics last night. I know we're going to get into each line of business and talk a little bit about what each part of the business is. But any key takeaways that dovetail with some of the messages you just shared on the broader macro environment?

Certainly. So just going down, for those who are used to, we do produce monthly metrics. So usually, this time, it's an active point of discussion. Dotdash, improvement -- sequential improvement from down -- a sharp 18% in Digital ad revenues in June, continued sequential improvement. We actually feel like August is even better than it showed. And back-to-school, Joey was just on Yahoo! Finance talking about this, but advertisers are cautious. But we saw -- we've seen advertisers return in the back-to-school period who are totally out of the market. So that -- it's too early to declare victory, but that is a necessary but not sufficient condition for overall ad market to strengthen and stabilize. But confident on sort of improvement at Dotdash. Angi, the metrics -- say, Ads and Leads revenue was up 6%. There's a footnote we should pay attention to. We reversed out-of-period revenue in that segment, which, if you -- if it were true apples-to-apples, like-for-like period growth was 9%. That's high single digits. We feel good about Ads and Leads. Services, again, in the low teens. That's consistent with last quarter. Softness at roofing, which we are working to reverse. Overall, pro forma, Angi would be 10%. We'll look to get that up, but solid continuation of where we were. Search is down, but it's a lot of low-margin activities. So we're focused much more on profitability there, but nothing to highlight really there. And then it was a strong quarter -- a strong month in Care, which you'll see in growth in Emerging. There's a little bit of IAC Films. If you haven't, you should go see Everything Everywhere All The Time (sic) [ Everything Everywhere All At Once ]. Great movie. It also helped the month a little bit on revenue. But far more germane if you are an equity holder was -- Care had a good month.

Good. Okay. Understood on all those messages. Let's now take a step back. Dotdash Meredith, you guys decided to put these 2 companies together. Last year, Neil Vogel, who runs that organization, is sort of executing against a playbook of integration. That could be followed by growth over the medium to long term. Maybe take a step back and give us why that combination made a lot of sense to IAC as an organization? And where we are on the integration plan and Neil and his team executing against it?

Certainly. So Dotdash is -- their expertise is taking sites, significantly improving performance, speed, user experience, decluttering advertisements, eliminating basically dead or stale content, improving content, and then through that, driving both better algorithmic performance as well as more direct NAV. They've run the playbook, as it's called, across a number of acquired sites, I think 15 -- depending on how you do the math -- 15 to 18 previous acquisitions. They're masters. Now they have never had a premium site before. They have been this scrappy, upstart, turning the Spruce and others into -- Spruce is the #1 home improvement site on the Internet, which is shocking, which they took from basically nothing. Meredith was the sleepy -- I don't want to be disparaging, but 800-pound gorilla in terms of premium sites. And as Joey has said, it was a Digital business obscured by Print. And so the thesis was to take the Meredith properties, move them onto the Dotdash platform, significantly improve site speeds, reduce ad clutter, improve ad performance, upgrade content, integrate e-commerce, which we should emphasize more. You have, within context of somebody on a home site or on a cooking site, an investing site, all these special-interest categories, travel. You don't need a cookie to retarget. You don't need user data. You know by the content they're looking at what they're interested in, and the e-commerce integrations are there. Dotdash are masters at it. Meredith was well behind. So that was the core of it. It was also the print titles, which have been this anchor around Meredith from a public investor side. Essentially, it was we could start with as a digital company. We could massively rationalize those, get rid of essentially the marginless subscribers that were done to increase circ, to just be able to drive advertising revenues, rationalize Print to where it should be and then drive significant cost savings. That is the Dotdash playbook and one we've looked to drive.

So maybe 2 follow-ups. In terms of aligning the properties to be digital-first, where are we in -- it's always the baseball analogy with the way this question gets asked, but sort of where are we in terms of the realignment of the combined properties with the digital-first mindset?

Sure. So there are 4 key prongs to the combination: Digital, Print, sales force, Corporate/cost savings. Digital, key to being able to exploit the opportunities from the Meredith properties is moving them onto the Dotdash platform. The -- that commenced. There's planning. Transaction closed in December 1, 2021. It really got going in March of 2021 as we scoped it out. First property transferred over was Health, followed by Parents. The game plan was to get them done by August of '22. In retrospect, that was a very aggressive time frame. We have said it'll be done by the end of -- say, beginning of Q4. We are very confident sitting here today. In the next earnings call in November, we will be able to tell you it's fully transitioned. And by moving the site over -- it's hard to exaggerate. I didn't realize sites were as slow as Meredith sites were until I started and someone explained it, but the sites are 8x faster. We're reducing ad load by 30% within -- depending on the site, a week to 2 weeks. Because of immediate ad performance, PPMs are rising such on a programmatic basis that were -- despite reducing ad load by 30%, were equivalent in basically 2 weeks -- a week to 2 weeks across the sites. And then looking to have traffic uplift by better user experience, better reduced ad serving and better algorithmic performance. We'll be reporting on that -- on the time lines. Management thinks about 4, 8, 12, 18 months. So that is, in the sense of time, a 2-month delay is immaterial, and we will be charging into -- having all of it on one platform into '23. Print, full credit to Neil and team. They just went straight in. We announced February 9, shutting down about 1/3 of the Meredith titles entirely, reducing frequency in about 1/3 and then a core portfolio of 7 titles investing in. These are Southern Living, probably under -- this room under indexes for consumption of these. But Better Homes & Gardens, others, they are performing extremely well and actually growing ad sales in those through investment. But that portfolio is in a good spot. Sales force, I said earlier, I gave us about a B- overall on that integration. We've integrated -- we gave -- we sort of had a split of Dotdash and Meredith leadership there. Meredith had been a very brand-oriented advertising mentality, a lot of that to support Print, Dotdash's pure performance, transparent ROI, e-commerce integration, performance marketing. Elements of the Meredith team made it over, which was a bigger team, but some of it was trying to teach our fish to fly. So we are continuing to churn leadership. We feel good about where we are there and going into next year. The response from advertisers and the leading media agencies has been excellent to the combination, where they say, "I can buy a large amount of endemic traffic in categories, the breadth of the portfolio where I have the Dotdash performance metrics, the e-commerce integrations and can do it in a brand-safe environment without, honestly, big tech connections." Very positive. So we feel good about the momentum. And then cost savings have exceeded expectations. The big thing now is just to drive Digital revenue. So we see the margins scale from those. So we're getting through it. We feel even better about the brands we bought and the industrial logic of the combination and the opportunity, but it's been a lot of effort this year.

Understood. Maybe just last one on this. Can you remind folks sort of the way you're thinking about what the long-term business performance or structure looks like for Dotdash Meredith against some of the targets you've laid out longer term that investors should be thinking about?

Sure. So we -- the [indiscernible] team think about the steady-state growth of their business is 15% to 20% a year. And that is borne out -- that is through both traffic uplifts as well as some pricing increases. This year, given the ad slowdown in May, June, July, we are not going to hit that. And so that has led us to bring down the overall profitability guidance. We said in the last earnings -- last shareholder letter, we expect total adjusted EBITDA, excluding onetime restructuring costs related to the acquisition, to be at or around $300 million. If you then say that's roughly Print and -- there's 3 segments of -- within the business: Digital, Print, Corporate. We think of Print and Corporate, on an EBITDA basis, is offsetting each other. So we'll probably be a little less than $300 million in Digital this year. But if you just say that Digital is $300 million at about a 30% margin, which the analysts like yourselves are getting to, and about $1 billion of revenue, feel very solid about -- with ad market stability, 15% to 20% growth. If you say 15% in -- if it was 2 years at 15%, you're at about $1.33 billion of revenue on Digital. Very clear incremental margin economics in Dotdash on Digital of 50% to 60%. So as you roll that forward, you get to about 38% margin over that period, and that's the $450 million of EBITDA -- $450 million of Digital EBITDA that had been a prior '23 guidance. Losing the -- basically losing a year of the revenue growth on Digital this year, say, 2 years, 18 months, 24, we'll get there, but very confident in the profitability scale, and it is a free cash flow machine.

Got it. Okay. The other big piece that I wanted to talk about is obviously Angi. Business has been through a lot of different transitions over the last couple of years. Now you've got Oisin running the company. Maybe talk about just looking back what Angi has been going through as it's gone through a couple of these transitions and how you see the business now set up for a mixture of growth and margin looking out over the next few years?

Certainly. So I'm the new guy, and Mark Schneider is not here, so I can be fully open. I said to someone today, if you think about March of 2021, the patient in Angi was on the -- was in the hospital dealing with a virus, which was COVID, that totally inverted supply-demand dynamics to the negative. When you think about it, it is a 2-sided marketplace where supply pays. So my old, old job, we owned Autotrader. The ideal environment for Autotrader was less demand than supply. And both growing similarly in Angi, about 60% of their demand is nondiscretionary, but the 40% discretionary. The more supply exceeds demand, the more value they are to the pros who pay you, the better you do. COVID completely flipped that on its head. And the value of the marketplace and Angi's traffic was diminished because the fish were jumping into the boat for the pros off-line, so they didn't really need the platform as [ much ].