People Incorporated (IAC) Earnings Call Transcript & Summary

Yes, it's very much a multiyear strategic partnership. Yes.

One more on DDM, the EBITDA, you beat in the quarter, maintained the full year. I think there is -- it's about 50% incremental EBITDA margins. Just how should we think about margin trajectory at DDM for the rest of the year?

Yes. So I mean, obviously, we have incremental upside from the OpenAI partnership, and we'll see continued progression this year. We maintain guidance of $280 million to $300 million of adjusted EBITDA, but did say we now feel confident at the high end of that range. But in terms of revising guidance or the like, given where -- when you look at the year it's roughly 1/3, 2/3 weighting of the front end to the second half. We just thought let's get through another quarter before we adapt guidance. On a profitability basis, we have -- there are a few elements there. So on the full year $280 million to $300 million, we've said that pretty much represents digital EBITDA as well. Print adjusted EBITDA and corporate will roughly offset, corporate was -- exceeded print adjusted EBITDA in Q1, as the year goes on corporate will stay pretty static and you can based on that interpolate that second half print adjusted EBITDA will exceed corporate. That's mainly driven by seasonality, just when revenue tends to fall on a fixed cost base -- a relatively fixed cost base in print. On the digital side, which is really the story -- we've guided towards about 30% incremental EBITDA margin -- adjusted EBITDA margins in Q2. That's a little bit -- we're making specific targeted investments in D/Cipher, in content, in performance marketing, where we see great growth opportunities long term. Also a year ago, cost structure was probably at its most efficient in Q2 of '23, and then we'd expect 50% incremental adjusted EBITDA margins in Q3 and Q4, and that gets us to our guidance. So pretty much as we thought at the beginning of the year and relative to full year guidance, as we get deeper into the year, get through the second quarter, see the trends through the summer, we'll revisit.

Yes. That's great. Maybe I'll switch gears over to Angi. Jeff Kip was elevated to CEO. We've known Jeff for a while, he's been there. He's been at IAC for first quite some time, CFO and then moved over to Angi International. How do you think Jeff will kind of put his stamp on the Angi business?

Certainly, he's been getting up to speed, he was President for a few months, and it's a credit to him of the -- how well he drove performance in the European business, international business. He took over -- he was CFO of IAC Corporate, before that knew the HomeAdvisor business well, before the Angi merger, but knew HomeAdvisor well, went over and took over HomeAdvisor and now Angi International. And he inherited a disparate set of businesses that have been acquired through consolidation, different platforms, different levels of penetration of digital home service acquisition by country and did a great job and also built a team, upgraded marketing, upgraded product, and consolidated them -- all of them on the same platform and did it through COVID and the Ukraine war and people can see in the results of international, both the growth and margins. He'll bring that experience. He also has awareness of what's different about Angi U.S. A lot of them are strengths of much greater scale, both on the pro side and the consumer side, multiple arrows in the quiver of ads, leads and services to offer consumers, large marketing budget. But also core things like continue to improve and build on a lot of the progress Joey made as CEO of improving the consumer experience, improve the pro experience, both of them -- those actions will drive in the first case, repeat rate, on the second rate -- on the second case, retention and deeper share of their ad spend and then continue to consolidate the platforms. We've really got 3 different platforms between ads leads and services. There is overlap between pros and some of those. There's overlap in -- we as a consumer will move between services, ads and leads depending on the nature of the job and the context. So driving greater back-end consolidation, a unified experience. And then a unified product and then improving both of those experiences. They're very core to what Joey was driving but Jeff's done it. On the flip side, he's very much taking a first 100 days approach. The good news is there's existing change management in place. But analyzing where things stand, opportunities on marketing, very focused on improving SEO and our SEM efficiency and other marketing channels, and he is just going to keep driving it forward.

Okay. I'm going to merge 2 questions together. This is a similar question that I had on the segments at DDM. Just we think about zeroing in on this year, the remainder of the year, top line expectations at Angi. And then also EBITDA, I think, despite top line, we have it down for the year. I think we -- at the midpoint of the range, it implies 3 points of margin expansion. You guys have done a great job of improving the margin profile at Angi. So how should we think about kind of the rest of the year at Angi top line and EBITDA?

On the top line front, we've guided for Q2 revenue to be down at or around Q4 of '23 in Q1, so mid-teens. We haven't given guidance for revenue for the rest of the year at Angi, partly because we just want to let Jeff get in there. We don't want to put the onus on him as he's getting up to speed at a deeper level. What I'd highlight, we've had these revenue declines. You've highlighted the margin improvement and the profitability and cash flow improvement. The confluence of that speaks to how many, as Joey would say, empty calories there were in the revenue stream. There was a lot of marketing spent inefficiently. And some of it were derived from activities that were done 5, 6 years ago that the world had moved on and the margin was no longer there, but were still occurring. Others were driven by lack of full loading of expenses associated with a given marketing activity. So your ROAS was off. And then others were just contributing to a poor pro consumer experience, which we took the pain on eliminating. We also highlighted something like our CraftJack business that we'd acquired over a decade ago was a good little business. The reality is the market had moved away from it, and it was actually unprofitable, but people hadn't really run the ruler over it until Joey and Rusty, the CFO at Angi, refocused on it. So we shut that down as well. We feel good about what we're doing and the long-term value that it will create for the business and shareholders. The -- clearly, you can't cut your way to Shangri-La. So we're going to have to start growing revenue at some point. We'll be coming back to the market with guidance on when that's likely to be and what the cadence of that will be, as Jeff gets in there and flushes out his plan, but not ready to put that forward today.

That makes sense. I have some other questions here about 4 minutes left, try to get through them. Google -- just going back to the whole generative AI area. Google on May 14 released their AI overviews. How are you guys thinking about that as it relates to engagement at Dotdash Meredith, at Angi, any -- just any color?

Yes. So IAC has tremendous history of seeing Google changes and algorithmic changes, product changes, et cetera, and seen some that have significant impact, some that don't. We've been following the generative AI elements, including their SGE product experience, which they announced a year ago closely. On these AI overviews, we're definitely intrigued, monitoring it. They've said it net increases clicks, we're happy to explore that, and verify it. There's -- we're definitely going to protect the value of our content and have had those discussions with a number of LLMs and Google, if they're ingesting and putting out answers, we want to make sure that our IP is protected as it should be and as others are acknowledging. We haven't seen any real trends yet. You can also see it's -- as far as this more me as a consumer, but also talking to others, sort of an opt-in experience right now, you have to be logged in. There's the whole blitz of responses on Twitter and others over the weekend of inaccurate answers, and we would highlight that's a function of the quality of data that you're putting into and content that you're putting into your LLM will produce when it is synthesized in making a generative answer will influence what you see. So if you use a lot of unverified user gen content that is just being fed in, you are going to be exposed to trolls, bad actors or people who are just wrong. If you have best-in-class brands that are trusted that actually do all the work, a lot of the things that Google has focused on in their search algorithms to date that you actually tested the product that you actually bake the pizza that you've gotten incredibly positive references that you've done, you have experts verifying your health advice that should be rewarded as it has been historically and shoot in synthesized answers. And we think that's an acknowledgment by OpenAI of the value of our content and the importance of that in producing generative AI answers.

Yes. That's super helpful. Maybe just we have less than a minute left. On capital allocation, MGM is, you guys have, at this point, I think, a 20% stake in the company, it's about 60% of the equity value of IAC. How should we think about the duration of the holding from here? And if IAC were to exit, could it -- and we've gotten this question from investors a bunch, could you do it in a tax-efficient way?

On the second question, we have over $1 billion of NOLs, which can be used to offset a gain on those -- on MGM. And then there are other structures we could pursue and have analyzed that would not even utilize those NOLs. So we feel good about that. On the relative to term of holding, we view MGM as a strategic asset of IAC, Barry and Joey are active on the Board, active in the finance committee and elsewhere. And then we view it as an important holding. But also, as Joey has said repeatedly, the -- we are capital allocators as new opportunities come along.

Okay. I think we're over time. Thank you so much.

Thank you.