Q3 2019 Earnings Call

See shareholder letter and again to the Investor Relations section of our web sites for all comparable GAAP and full reconciliation for all material non-GAAP measures now, let's jump right into it Joey.

Thanks.

Thanks, everybody for joining.

We entered this year with plans to accelerate revenue growth and really invest through RPM now in the form of higher margins descending window for the first time in a really long time to accomplish that.

And.

We did that for a few reasons.

We saw opportunities and continue to see big opportunities in our addressable markets.

We have fantastic leaders and fantastic categories, and we wanted to pass those competitive leads.

And we really like the price of internal investment more and then the price of external investment opportunities and as we're nearing the end of the year, we feel very good about that decision. We're seeing the accelerating revenue growth we are looking for.

We like our position as we end the year starts and the air going going into next year.

And.

We are high confidence in the business in including at AMG, where we had a bit of a bumpy quarter last quarter and we're feeling good about our outlook now from here.

Obviously, we're on the in the middle of discussion with special committee of matching that that to the extent that happens could be a big transformation for our business and it's a really exciting time for us at IC because the extent, we can pull that off if we go back to the period of rebuilding.

Which is a phase that.

We love that we I think we can do well in and so.

Starting to focus on some new and interesting things, we can pull that off.

I'm sure you have a lot of question so less transition that to questions starting with the first now.

Yes.

Operator, Thank you ladies and gentlemen, if you would like to ask a question. Please signal by pressing star one on your telephone keypad now if you are using a speaker phone. Please make sure that your mute function is turned off to allow your signal to reach our equipment again press star one to ask a question, we'll pause for just a moment to allow everyone an opportunity.

It's a signal for questions.

Our first question will come from Dan Salmon with BMO capital markets.

Hi, good morning, everyone. Thanks for taking the questions.

Sure, we maybe if I could just start with which as you noted in the letter the process will take longer maybe just any color you could add to us as the process changes. It just didn't a little longer than expected would just love to a little color on that.

And then maybe Brandon just obviously your search business stabilized if you could just catch us up on that but a big picture question I'd Love to ask you is.

You know how do you view fixed services as a what his success for you in that business one of the metrics. We noted here in the letter was the 133 tasks on the platform is that something we should be thinking about do you think about it as a sort of what it makes up at the total business I'd love to hear more about that thanks.

Thanks, Dan So just one little correctly I didn't say longer than we expected I said longer than we would like.

Process as I will take longer than we would like once we start to have a point of view, we like to just.

Mark forward job, but that's how it works in this case, if it is going to take a little longer than we'd like.

And in terms of how long that takes I think.

We don't have an update on that in the past.

And this is different for various reasons, but thats taken a few quarters and then.

That is ER don't don't know this one will be the same but that isn't what things have taken into Pat.

And we're in as I said active discussions with a special committee. So I would hope that we will have an update relatively soon on or whether we can.

Reach an agreement on something there or not I don't expect that phase to take a meaningfully longer but oh, well see it's hard to predict how these things go.

Yeah. This is Brendan on search the team did make really great progress, particularly around paid search.

We saw the I think I alluded to this last quarter, where we were testing employing some new technologies and tactics, particularly around bidding.

We made really good progress throughout Q3 in that area and.

We're seeing good results, we expect to more or less complete our conversion to this new platform. If you will over the next two quarters I really think paid search there's a lot of opportunity there and I expect that to be more of a tailwind next year.

Within the organic search arena I would call. It stable I don't think we made up lost ground, we do have a.

A plan going forward that we're optimistic about but as a as we all know that that environment works a little differently in a little different pace overall, though we're pleased with the progress we made around search generally speaking.

With this free services.

In terms of how we think about this and what we've used success.

One thing I was just remind us all we actually started down this path in 2017. So this is this has been a longtime formation.

Accelerate the the acquisition handy has allowed us to materially accelerate our efforts in this area and really governed by.

But what we're seeing as we as we put it in the hands of customers.

There are two way to look at you know what success means first of all just in terms of the experience. We're looking at the purchase rate conversion rate by homeowners. We're looking at their satisfaction levels and we're looking at repeat use what does is deeper richer experienced mean went for consumers in terms of their their frequency of use of our service under long term loyalty.

Right now all the early data all the data while early it looks really really positive on all of those fronts exceptionally positive which is why we leaned into it so heavily and gone so much quicker than what we communicated last quarter.

In terms of what does it look like.

In terms of the impact of on our business 133, Tas already represents about 35% of the you know the total volume of service request, we got let's not by value with the but in terms of the frequency and just pure volume of those requests.

Why that's important is is that we're able to offer this experience to a pretty large percentage of our customers and we simply think it's going to be a superior superior experience both for them and ultimately in terms of their relationship it creates with us.

What do we wanted to do for our business.

Those those 133 past cover billions and billions and and GMB.

The Green question here is how much of that GMB can we get processed through through this experience.

Talk last quarter about having 40% of our request that.

We're unable to fulfill and unable to monetize that's obviously, the clear and clear and obvious opportunity those amount to a tremendous a portion of the those billions and GMB and.

We don't know the answer yet, but our goal is to scale. This is as big as it can possibly get into process as much.

Mhm.

In the top five when you look at.

Audience in health.

And there are some very very big players ahead of US there in terms of both revenue and profitability and we've been very focused on innovating and product in this area. We've been as we said focus on having the best content.

Russias content.

Yep.

And fewest ads, which means in all of these areas and helping one in some ways. We're looking at undercutting. The competition on price is the number of AD was effectively or the those kind of way you monetize that is effectively.

The way you do price the content and the price to service because we really only monetized with ads now we we monetize with.

Other.

Format of advertising I think of e-commerce as a.

Format of advertising, where we're sending audience on two other sites that monetize is on their sites, but really the way we built this product.

Allows us to undercut the competition on price and we're going to continue to do that and I think that we can do that sustainably because we're doing that I think comfortably profitably today. So there's no big players in front of US finance, there's huge players in front of us several of them.

And we are doing very well with investopedia and the balance and we're we're going after the people who are bigger than us with with bigger audience and bigger revenue and.

Again doing that with the freshest content the path to sites and the fewest that beauty is another one homes and other one.

All these are multi billion dollar categories of advertising online, where we think we can deliver really compelling content and really compelling service. So it's when we think about just 2020 it's.

More content.

More and better content in our existing category and then we're going to continue to look for either new verticals or new.

Additions in our existing verticals.

So we've done that in some categories already.

And I think we've done a few in beauty right now and we'll keep looking in that area for for more.

Great. Thank you Bill.

Thank you. Our next question comes from Michael Kim with Goldman Sachs.

Great. Thank you for the question I just have to.

First in the letter you guys talked about how Andrew you could benefit from remaining inside IC for the time being.

Could you just library and those benefits ours is helping to think about broader strategic initiatives are is about how many and then just on the second question. Glenn I was just hoping you could clarify the.

Angie margin outlook for 2020, I think you mentioned that they may be a little bit muddled next year because of some of the investments just any additional color there would be helpful. Thanks.

Sure in terms of the benefit of being Angie benefit of being and I see I, probably should answer that one of them.

Force a friend answer that.

In the room here, but it is.

One of the things that we've talked about Angie doing right now is.

Investing in the business and that was what we've done over the course of 2019 and I think we'll continue to do over the course of twenties Bonnie.

Some of that is easier with a very large shareholder who is very aligned with you on the size of long term opportunity in the category and.

The ability to take more share any ability to deliver a really compelling consumer products and ER, we have that sort of outlook and that that patients and I think that.

That can work well for Angie in this phase of its evolution, especially as we look at a particular new product around.

Fixed price.

That's one thing the other is I do think we there is.

And what plenty of operating flexibility or whether that means M&A or whether that means something else.

I'm not sure, but but we have the sort of firepower and the wherewithal to do.

Passive aggressive things in this category and we'll continue to look to operate that way.

Yes on the margin on the margin point, we Nonetheless goal I said don't expect margin improvements and on a steady state basis.

Good day revenue basis that is.

We don't think margins are going to increase and depending on again the decisions, we make to invest a more aggressively in fixed price to invest in marketing to investing a lot of the growth initiatives that brand and talked about margins could go down on a steady state basis, and then if you have way you're in.

The gross revenue recognition, obviously, the numerator is higher so on the same EBITDA base the margins would through that through at just mask the margins would slightly go down.

We will update all this obviously when we share our outlook.

In February as we're working on our plans now our marketing plans and our investment plans, but it will be very much investing into success next year as opposed to this year, where margins came down given some of the volatility in the in the eco system and our and our reaction to it.

Great. Thanks, Thank you very much.

Thank you. Our next question comes from Victor Anthony with Aegis capital.

Hi, guys and thanks to put me on this a follow up.

Your question about the economic impact shifted no.

The business the purchase price so first.

You also mentioned I guess, the listen if you take rid of the traditional business the why shouldn't take rate for fixed price eventually be the teams maybe high teens.

Given that you know other I'm not fixed price.

This is oh the incident typically tend to have any I take rates.

That's one you know you've also talked about in the past that no one third of there Jim.

GMP isn't easy easy to convert I think you you already there I think.

To fixed price and a.

One third is probably harder to attain.

He also talking about billions of dollars a jump you shifted I'm kind of curious exactly the mix the jumping mix between the one third the one forward into one third.

If that makes sense for you guys and lastly, I guess a trade off.

Building.

Supplies for the fixed price business, which is migrating existing therapies and it was a trade off there. Thanks.

Sure.

So.

I certainly being.

We'll take rate and the team seems very achievable I do think it depends on the individual project you know the smaller the project the less materials that are required for project I think the higher the take rate can ultimately be obviously as you get into larger more complex projects that have supplies materials involved that changes things a bit but.

You know mid teen seems.

Extremely reasonable and I think we all believe that here.

You know the one third one third one third was more about the number of task and I do think we is obviously, we've gotten that first third live a lot more quickly than we thought I.

I think we are obviously going to also pursue that next third but it's a little too early to comment on that at this point in terms of in terms of GMB I don't think or I don't think we're ready to break out sort of what what's the percentage for the DVR can only tell you that we have a enormous amount of on and transacted or potential GMP. It is going.

Monetize and there's a ton of it in this first one third of transactions that were enabling.

Obviously, you get into higher value projects and those make up a large a part of our gene.

Tapped GMB as well.

What are you know we've made great progress and enabling the first third of transactions, we will certainly be making efforts towards the second third but I just aren't there yet and I think we have you know we've debated this quite a bit internally, but I think we have.

I think it's important that we perfect. The experience around this first third of transactions that we've enabled they do represent.

35% to 40% of the request that we receive for consumers and our goal.

More importantly, just processing the GMB, which is obviously desirable is to create an experience that just knox people socks off and so we want to really get this first third of transactions right.

We've got lives, we still got a lot work to do to perfect that experience and then and then we'll move on from there.

Last question.

Yeah building supply yeah. So your supply constraints we are.

Obviously, we want to rollout new products that appeal to new segments of SPD that we're having a hard time getting fixed price does that it doesn't mean that we can also offer those jobs into our traditional network and I'm sure we will do that as well over time.

But a core core goal of ours is to bring a lot more providers into this marketplaces participants and we're seeing really really really good success with fixed priced out of the gates on that front I would expect us to.

Extend that to the entire network over time as as a scale gross.

Thank you.

Thank you.

Next question comes from Echo, a Runion with Wedbush Securities.

Hey, Thanks, guys right. So.

That's gone Yours service requests growth came in.

Accelerated nicely comps were little bit easier, but still et cetera colored and I were above our expectations and just wanted to kind of here a little bit more about that in light of some of the marketing challenges was it.

Search kind of coming back improving was it the other distribution.

Partnerships that use develops I'm, just kind of what's leading to growth there and expectations and then also on the distribution point.

Reston last night, I mentioned Rex in home services Uh Huh.

They're kind of building out the service there I buy network and let the real the partnership with Realogy just wanted to get your thoughts on partnering with Oh I buyer community. There's obviously a ton of supply there you know our our.

Hi, buying margins just to swim for for them to kind of.

To give that business out and partner or you know is or is there opportunity for you guys to create efficiencies that model for them and take part of the share.

Thanks.

Yes frequently wouldn't let me address the second one first I.

I think I buying is interesting. However, the transaction volumes are still relatively small when you think about the scale. We're at we actually think the traditional brokerages and the partnership we have Realogy you know it just they just offers a much larger opportunity to reach homeowners. During these transactions I do think ultimately that the slim margins and.

Hi, buying mean, they may need to they may need to do this themselves so I'm not sure.