Q3 2024 IAC Inc Earnings Call
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Speaker Change: Welcome to the IAC and NG Third Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero.
After introductory remarks, there will be an opportunity to ask questions.
To ask a question, you may press star then 1 on your telephone keypad.
Speaker Change: And to withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Mr. Christopher Halpin, Executive Vice President, CFO, and COO of IAC. Please go ahead, sir.
Thank you, operator.
Speaker Change: Good morning everyone, Christopher Halpin here, and welcome to the IAC and Angie Inc. third quarter earnings call. Joining me today are Joey Levin, CEO of IAC and Chairman of Angie Inc., and Jeff Kipp, CEO of Angie Inc.
Speaker Change: We will not be reading the shareholder letter on this call.
Speaker Change: I will shortly turn the call over to Joey to make a few brief introductory remarks and we'll then open it up for Q&A. Before that, I'd like to remind you that during this presentation, we may make certain statements that are considered forward-looking under the federal securities laws.
Speaker Change: These forward-looking statements may include statements related to our outlook, strategy, and future performance and are based on our current expectations and on information currently available to us.
Speaker Change: Actual outcomes and results may differ materially from the future results expressed or implied in these statements due to a number of risks and uncertainties.
Speaker Change: including those contained in our most recent quarterly report on Form 10-Q and our most recent annual report on Form 10-K and in the subsequent reports that we file with the SEC.
Speaker Change: The information provided on this conference call should be considered in light of such risks.
Speaker Change: We'll also discuss certain non-GAP measures, which, as a reminder, include adjusted EBITDA, which we'll refer to today as EBITDA for simplicity during the call.
Speaker Change: I'll also refer you to our earnings releases, the IAC shareholder letter, our public filings with the SEC, and again to the investor relations section of our respective websites for all comparable GAAP measures and full reconciliations for all material non-GAAP measures.
And now I will turn it over to Joey.
Thank you, Chris.
Joey Levin: Obviously the big news today is that we are contemplating a spin of Angie which if we complete it would be the first spin out of IAC in four years and obviously join a very long line of spinoffs out of this company.
Joey Levin: Besides creating two separate focus companies, this move would allow Angie to stand on its own, have a more liquid currency and a standalone ambitious strategy, whether that's M&A or capital allocation generally. The key to making this...
Joey Levin: possible is the fact that profits and cash flow in the business have improved meaningfully. Consumer experience has improved meaningfully and jobs done well has become a true driving obsession of everybody in the business.
Speaker Change: and Jeff and I believe strongly the business has revenue growth again in its future and profitability will be stable from here. So we're in a position to do this, a strong position to do this.
Speaker Change: and grateful for the opportunity to have another spin out of IAC.
Speaker Change: I'm sure we'll have a lot of questions on all of this, and IAC's performance generally, which we think was very good this quarter, and people worked hard. We're very proud of the work everybody did this quarter, and so let's get to the questions to talk about it.
Thank you. Operator, first question, please.
Speaker Change: Our first question will come from Corey Carpenter with J.P. Morgan. Please go ahead.
Speaker Change: Thank you and good morning. Joey, could you expand on why now on exploring the Angie spin and then second question related to that which you just mentioned what's giving you the confidence in Angie returning to revenue growth and is there any impact you're expecting next year from the FCC's one-on-one consent rule? Thank you.
Speaker Change: I'll take the first one and I'll let Jeff do the second, but I can weigh in there too.
The
The answer to why now is...
Speaker Change: As we've said through many spins we've done in the past, there's not a particular formula or a specific kind of automatic trigger on these things.
Speaker Change: It's a confluence of things, and one is the business being spun, and the other is the impact on what's left behind.
Speaker Change: And in the case of Angie, the business being spun, the key is, is it stand-alone, strong, and healthy, and capable of being on its own in the public markets?
Speaker Change: and we think on the right path strategically. It has all the pieces it needs to really deliver for the consumer and there's a lot of execution ahead in terms of product, but there's also a lot of execution behind it in terms of product and seeing that come through on.
things like retention and customer satisfaction.
Speaker Change: So, we like the path that Angie is on right now and like Jeff's ability to execute against that.
Speaker Change: There also is benefits to a more liquid currency. There's more direct investor access There's there's the ability to use that liquid currency whether it's for M&A or compensation I think being being spun off and standalone those things can help
Speaker Change: And, of course, this is also a tax efficient concept in the sense that the
The spin, if we do it, would be tax-free.
Speaker Change: And the other piece is that it allows IAC to focus. We've really been on a campaign of slimming down, focusing, and we think that that can allow us to do fewer things better. And that's what we plan to do with IAC.
Speaker Change: In terms of our confidence in the stability and future growth of the business, I'm going to start by going back two years to when Joey took over the business with tremendous opportunity to improve at the time.
Speaker Change: Joey and the team committed to improving the quality of the business, the customer experience, and returning the business to profitable growth.
Speaker Change: We've moved a fair amount of lower quality traffic off the ship, we removed some of our lower quality third-party traffic, and we've moved a significant portion of the business to consumer choice, which I'll come back to in a minute.
Speaker Change: The result has been that our jobs done well rate has grown about 30% in the last year. Pro-retention has risen materially each quarter and we've referenced that. Homeowner MPS year over year is up by almost 60% in this last quarter.
Speaker Change: So those are big markers and a tribute to what's been accomplished to drive the long-term experience and growth of the business.
Speaker Change: We've also taken our unit economics apart and put them back together. We've right-sized our sales effort to drive long-term ROI and we've re-engineered our paid marketing to drive material profit growth despite revenue declines. You can see it in the near 30% paid channel profit growth in the last quarter.
Speaker Change: We deliver profit growth in 2023 despite revenue declines. We're doing so again this year. We'll hold our profit again next year as Joey referenced
Speaker Change: as we make the next major investment in our customer experience.
Speaker Change: by moving really the vast majority of our traffic that comes through our core customer journey to consumer choice.
Yeah, I'll come back to this in a minute
Speaker Change: We've really been progressively moving our business towards consumer choice because we believe it's the best way to drive the customer Northstar experience of jobs done well in this marketplace.
Speaker Change: You may recall that our European business, which has an estimated jobs done well rate materially higher than NGUS, operates completely on a consumer choice model.
Speaker Change: We're accelerating our move in the U.S., consistent with both the European model and the FCC order related to the TCPA that I think most of you are aware of.
Speaker Change: And we're thus taking one last big step in our two-year path of effectively reducing revenue, but making material improvements in the customer experience and the long-term trajectory of the business.
Speaker Change: For those of you who aren't familiar with the FCC order, the portion of the order I'm referring to requires a business contacting a customer and using autodialer technology to have one-to-one consent from the customer to do so.
Speaker Change: The order is going to go into effect in January 2025, and we'll be there on our move to consumer choice as well.
Speaker Change: We really welcome this change, although we do expect some volatility in the first half of next year, and we don't know precisely how the impact is going to play out.
Speaker Change: But with the size and quality of our network and our ability to provide deep liquidity and one-to-one consent across that network, we believe we're uniquely positioned to benefit from the new landscape that's going to emerge post-order. We do think that the order will have the greatest impact on our third-party channel.
Speaker Change: However, we also expect the move to yield incremental, real leaps in jobs done well in NPS and retention and put us squarely where we want to be with our customer experience.
Speaker Change: It is going to mean another bump down in revenue. I would say we expect our first quarter to be down about as much as the quarter just ended along and in line with what we expect in the fourth quarter.
Speaker Change: But from there, we do expect to stair-step up and grow in 2026.
Speaker Change: based on what we know and is in front of us. We have confidence in that.
Speaker Change: In terms of profitability, we fully expect to hold our profit in 2025. Joey referenced this. I referenced it.
Speaker Change: Given everything I've already mentioned, I think the first quarter of 2025 will probably bump down from Q4 of 24, similar to the bump down from Q4 of 23 to Q1 of 24, but then we'll improve sequentially each quarter along with the revenue after that.
Speaker Change: All of this together gives us real confidence in the financial trajectory of the business and our return to growth.
Thank you. Operator, next question.
Speaker Change: Next question will come from Jason Halstein with Oppenheimer. Please go ahead.
Speaker Change: I think there's one question then a housekeeping question so just to elaborate on that I guess for for for Joey and Jeff I mean
Speaker Change: Many of us have covered Angie, HomeAdvisor, YALT for a long time. There's always been this big promise of a TAM, you talked about in the letter, and it's historically been hard to unlock, whether it's...
just word-of-mouth, Google, social media.
Speaker Change: you know, fully appreciate, you know, the improvement and efficiency in the business that you've been able to do, but I guess why should investors get excited now that
you finally figured out how to kind of really unlock
Speaker Change: the growth that has been elusive for, you know, kind of 15 years basically in this vertical. And then a follow-up, just remind us the basis of the MGM stock and what's the tax treatment if you were to potentially sell that stake, thank you.
Speaker Change: Thanks, Jason. Chris will take the second one, but the first one is the fundamental difference right now, which hopefully you've been hearing for a while, and we see and have shared a lot of the underlying metrics of this is
Speaker Change: absolute obsession with customer experience. The folks who have succeeded at
Speaker Change: disintermediating Google, which is obviously a very tall order, or going after things like word of mouth are the ones who have absolute customer obsession in getting jobs done well.
Speaker Change: And I think that change in our mantra is what's going to drive both pro-retention that changes the economics of the business and allows us to reinvest in compelling ways, and homeowner repeat rate and homeowner satisfaction, which allows us to reinvest in compelling ways.
Speaker Change: That is the difference, and that we're doing on a brand that is entirely dedicated to home services.
Speaker Change: that doesn't really exist in the market and that I think decides with us. And I think throughout the past there has been
Speaker Change: probably a over-emphasis on more shorter-term results and less on the longer-term investment of an obsessive customer experience.
Speaker Change: and that's what we've put in place, that's what we continue to put in place and if we do continue to do that, I think that we can build a compelling direct brand with homeowners that goes after those other portions of the market that you mentioned.
Speaker Change: Do you want to add to that, Jeff? No, I completely agree.
Speaker Change: And then, Jason, on the MGM stake, we currently hold 64.7 million shares of MGM. Our basis is just below $1.3 billion.
Speaker Change: of about a billion one gain. We've got more than enough NOLs to offset. So we think about it, and you can see it in the sum of the parts, as the market value of the shares is the appropriate way to think about our holdings because we can offset any taxable gain right now.
Thank you. Bye.
Thank you. Operator, next question.
Speaker Change: Next question will come from John Blackledge with TD Cowan. Please go ahead.
Speaker Change: Great, thanks. On DDM digital revenue, can you talk about the drivers of the 3Q overall revenue outperformance, notably ad revenue accelerating?
Speaker Change: at a faster pace than expected while performance marketing and licensing were a bit lower. And then for 4Q, can you unpack the mid to high single-digit revenue guide relative to our, we had kind of like low double-digit revenue growth in 4Q. And then as we look into 2025, just any color there on DDI digital top-line growth. Thank you.
Speaker Change: Sure John, thank you. You know third quarter digital performance was excellent across both traffic and monetization.
Speaker Change: Digital advertising revenues grew 26%, led by 14% growth in core sessions. And we're happy to see overall sessions were positive for the quarter for the first time in a while.
Speaker Change: Traffic growth was particularly strong in our entertainment and food properties and we continue to see momentum there. Direct ad sales were strong as well.
Speaker Change: perhaps even aided a little bit by advertisers pulling some spend forward into September ahead of the election.
Speaker Change: And then programmatic was superb with rates up 30% plus in the quarter. Performance marketing disappointed at down 7% with continued weakness in financial services such as insurance and brokerage.
Speaker Change: That segment has improved this quarter and we expect growth in the fourth quarter across performance marketing.
broadly.
Speaker Change: and we were also happy with how that flowed down to adjusted EBITDA. We would highlight aggregate adjusted EBITDA only grew slightly in the third quarter.
Speaker Change: that benefited our corporate expense a year ago. Digital EBITDA grew 28% this past quarter, and incremental margins were 42%.
Speaker Change: When you look at fourth quarter, October the month was softer on both advertising spend and traffic than we expected.
Speaker Change: We note, for those who are newer to the story, that Dot Dash Meredith does not sell digital inventory on its titles to political advertisers, so there's no benefit from the election and just headwinds.
for the properties.
Speaker Change: Good news for DDM was the election was rapidly decided and things are shaping up to come in during November and December with advertisers steadily returning. We know Thanksgiving is a week later, so things are tighter in the overall holiday shopping period.
Speaker Change: DDM is pushing hard across its properties to drive both advertising and performance marketing but we thought it prudent to guide fourth quarter digital revenue to the mid to high single digits at this point.
Speaker Change: Now looking to 2025 and beyond we are still confident in 10% digital revenue growth as the baseline for the DDM business That'll be as we've said before driven roughly half by traffic growth and half by improved monetization
Speaker Change: And I'm sure we'll talk about the cipher, which is a key advantage tool for us in monetization. Individual quarters may bounce around above and below that 10% target, but we still have confidence in that as the long-term driver of the business.
Thanks, John. Operator, next question.
Speaker Change: The next question will come from Eric Sheridan with Goldman Sachs. Please go ahead.
Eric Sheridan: Thanks so much for taking my questions, too, if I could. First, with the decision to break out CARE as a reported segment, I want to know if you could hit the refresh on where that business sits today and how you're thinking about the market opportunity set.
Eric Sheridan: X, Angie, and MGM, but you also talked about the M&A environment being challenging from a valuation standpoint. Any reset or refreshed view on capital allocation broadly against what you see as the opportunity set? Thanks so much.
Thanks, Eric.
Certainly
Speaker Change: Breaking Out of Care is its own segment, makes a lot of sense. It's a scale business, $365 million of revenue and $45 million of adjusted EBITDA over the last 12 months.
Speaker Change: in terms of brand, bigger in terms of audience, bigger in terms of providers and families by an order of magnitude relative to any competitor that we're aware of. And so,
Speaker Change: That is the basis of, I think, a lot of potential in the business.
Speaker Change: When we look at the opportunity, just to put some numbers around it,
Speaker Change: near term or even longer term, the site receives 7 to 10,000 job posts a day and 70 to 100,000 applications a day, and we're only converting a very small fraction of that into paying customers.
Speaker Change: But what that tells you is we have the liquidity both on the supply side and on the demand side, and I think we have the potential. And our new CEO who's been there about a year, Brad Wilson, has been very focused on this.
Speaker Change: We have the potential to improve the product and customer experience, especially using tools like AI and machine learning to get those matches better, to use conversational UIs to get better information out of both the family and the caregiver to make those matches better.
Speaker Change: And if we can do that, we think we can drive conversion and also do a better job optimizing pricing and packaging there.
The other thing...
That's been a nice
Speaker Change: Tailwind for the business. I think COVID was with some volatility in the business. It might have brought some demand forward in terms of In-home childcare and then that's a headwind as people move back to out of home childcare.
The other thing that is embedded in care that is
is currently underappreciated is.
Speaker Change: background relative to child care, but we can start to innovate on those products and we think serve those markets better And we've got some things coming out in particular for senior care shortly, which we hope will which we hope will start to address that
In terms of
Speaker Change: of Capital Allocation, Eric, we are, nothing has materially changed. We've had a discount for a while.
Speaker Change: and we have not been active in the M&A market. We've been more accumulating cash than spending cash and I think that's okay.
Speaker Change: until we find opportunities that meet a very high bar. Everything is still on the table for IAC as it relates to capital allocation. We talked last quarter, Barry's preference.
Speaker Change: as it relates to share repurchases, but everything is on the table and will continue to be on the table for capital allocation. And in the meantime, the cash balance grows.
Thank you. Thanks Eric. Operator, next question.
Speaker Change: The next question will come from Ross Sandler with Barclays. Please go ahead.
Great. Back to DDM.
Speaker Change: Guys, on Decipher, there's a bunch of new information in the letter about how that's driving some improvement. Could you just talk about how the approach has changed with OpenAI?
Speaker Change: now powering some of the number crunching at Decipher and how quickly you can roll that out to all your advertisers.
Speaker Change: and then more broadly as we look out over the next like five years, how can you take this technology to off DDM inventory and how big of an opportunity might that be? Thanks a lot.
Speaker Change: Yeah, it's a really important question. I'll start and then I'll turn it to Chris.
start to address the off DDM inventory.
Speaker Change: outperform generally the market on intent, given the nature of DDM's inventory and the data we have that, the unique inventory and the unique data that we have surrounding that. And that's driven performance, that's driven outsized growth in CPMs and some of the stats we talked about, about how Decipher advertisers perform relative to non-Decipher advertisers.
Speaker Change: What the OpenAI integration did was take that same mapping that we have inside of DDM and map that to I think Something like 30 million more URLs or somewhere in that neighborhood
Speaker Change: And so now we have the ability, whether through partnership or we can just buy some of that inventory to sell that inventory to advertisers to increase the size of their buy with us and to deliver larger scale packages.
Speaker Change: and that's something that we think we can deliver in 2025 and we expect to be a driver of growth unbound by the size of BDM's existing inventory.
You want to add to that? Yeah, no, I think.
The only, um...
Speaker Change: Additional element there, when you think about third-party properties, you've got the demand and the supply side. Right now, of DDM's existing inventory, Decipher can address 100% of our supply.
Speaker Change: that those incremental 30 million websites that are in categories similar to DDM. So the effective supply that we can decipherize will only increase.
Speaker Change: Only about half of the $640 million of digital advertising revenue is going through demand channels where Decipher is addressable. So as of right now, we
Speaker Change: Demand that comes through essentially forward contracted orders from from advertisers
and agencies.
Decipher can be utilized.
Speaker Change: Right now, about half the revenue is coming from Decipher-inclusive campaigns and about half non-Decipher-inclusive campaigns. We said in the letter, the former, where Decipher is an element, are growing 25% and the latter are growing about 5%, so you can see the growth driver that Decipher is. But that's only on about half of our digital advertising demand.
The road map for Decipher is to...
Speaker Change: make Decipher applicable to those channels and really increase the addressable portion of the demand. So it's all in the roadmap and OpenAI was a key step and we continue to grow the supply side and then we also think we'll continue to grow the addressable demand side.
Thank you, Ross. Operator, next question.
Speaker Change: The next question will come from Dan Kornos with the Benchmark Company. Please go ahead.
Speaker Change: Yeah, thanks. Good morning. Chris, can I just follow up on that? Are you...
Speaker Change: Fully as fully distributed as you want to be with within the ad tech ecosystem, and do you need to make any incremental?
Joey Levin: Joey, you know, obviously we've been here forever on this. You use the word, I guess, well, the word deconglomeration.
Speaker Change: Is that a long-term philosophical change for you in terms of M&A, companies in the portfolio, time to spin, increased focus, and what does it mean for things like stakes and Turo and MGM? Thanks.
Thank you.
Speaker Change: No, it's not. Dan, it's a good question. It's not a long-term change. We've always been...
Speaker Change: deconglomerating and reconglomerating. I think right now we're we're focused on, we want to focus on fewer things.
Speaker Change: And that's our near-term priority. It is possible in the future that we add new legs to IAC, but for the moment, we are focused on
Speaker Change: other things that are possibilities for IC that are either already in the portfolio or could be new things. So that really hasn't changed, but I'd say short term, certainly with the step of Angie, it is more slimming than expanding.
Speaker Change: Thanks. On the DDM question, I'll break it down into a couple elements.
Speaker Change: to the DotDash platform, we feel excellent about the state of our programmatic stack and programmatic integrations.
broadly, so the ability
for us to transact.
Speaker Change: with the inventory that we don't sell directly and get excellent monetization there. We feel great about the state of our ad tech stack and optimizing price and serving frequency, etc. Neil and his team have done a tremendous job building that out.
The two...
continuing efforts which we've talked about in the past.
Speaker Change: One is continuing to have Decipher integrate into demand side platforms.
Speaker Change: The key step there is for them to accept a non-cookie-based...
targeting and ad buying within their DSP.
For some, it can be natural or...
Speaker Change: Everything they're doing is cookie-based, so it requires them to look at their...
Speaker Change: algorithms differently, but we're chipping away on that and and allows decipher
to go more broadly.
The second is...
of agencies and then the large advertisers that transact.
Speaker Change: And for us, that's a focus on developing the managed service capability.
So we talked about some some ad tech
Speaker Change: All of them are part of the Decipher roadmap and a core focus of DDM management.
Speaker Change: and the company is heads down executing to make the cipher addressable to even more of the ad market.
Thank you. Operator, next question.
Speaker Change: The next question will come from Tom Champion with Piper Sandler. Please go ahead.
Speaker Change: Curious if you could talk to the relationship with the jobs done well metric, any connection there or would this amplify that trend? Thanks.
Speaker Change: Sure. So, right now the Ads and Leads business exists as two different products, but also on two different platforms.
Speaker Change: Fundamentally, it's the same transaction that happens. Pro pays us several hundred dollars for a bundle of leads or contacts with homeowners.
Speaker Change: So, at the end of the day, this sort of business deal isn't that different.
Speaker Change: but operating it in two formats with some inconsistencies in setup on different technical platforms isn't...
Speaker Change: was alluded to sort of the way you do it if you're building it from scratch. So we've set out to get onto a single platform so that we can market consistently and run the business consistently and sell one product to our customers rather than multiple products through multiple sales forces.
Speaker Change: We have been running a test to understand the efficacy of selling the single product. It is performing better than the leads, almost as well as the ads, and we see a path to ending up on the same product.
Speaker Change: The same product will be a pro paying several hundred dollars for a bundle of leads. So we don't expect this to be disruptive commercially or disruptive from the customer experience or frankly to our customer base because it's fundamentally the same business deal.
Speaker Change: and we think that getting it on the same platform will improve our business a great deal. Again, by selling one product to our customers and marketing into one customer base.
Speaker Change: In terms of jobs done well, we think this will also enhance the business.
Speaker Change: Currently, the difference between our ads and leads product is that ads effectively buys a bundle of zip codes across a single category, whereas leads are able to specify tasks within a category and specify zip codes.
Speaker Change: What that means is that the LEADS product lends itself better to matching than the ADDS product. And what we will effectively do is take the ADDS product, which is a commitment product,
Speaker Change: and move it on to the LEADS platform as a commitment product but with the matching features which we think will actually materially enhance jobs done well for that piece of our customer base.
Speaker Change: So in short, we think we're going to drive commercial efficiency and effectiveness and jobs done well. And at the end of the day, I don't think you asked this, but just to cover it,
Speaker Change: This is a migration of about the size we've already performed five of in Europe and are about to form a sixth by moving the Canadian business to the European.
Speaker Change: So this is a core competency in ANGI, and although these things are not simple or easy, this is about as close to BAU as it comes when it comes to doing one of these things.
Thank you, Tom. Operator, next question.
Speaker Change: The next question will come from James Hinney with Jeffries. Please go ahead.
James Hinney: Thank you. Can we just get a little bit more detail on the comment that you made around reducing corporate costs post an Angie spin and you know what specifically are some of those areas and how much could we expect in terms of savings over the you know near, medium, and long term. Thank you.
Speaker Change: Sure, I'll start and Chris can add to this, but we're not putting a number out on it, James, but the
Speaker Change: We'll look at all corporate costs, everything's on the table in there.
Speaker Change: to figure out what we need in a slimmer IEC that currently provides services for Angie. Some of those costs may go with Angie and some of those costs may go away.
Speaker Change: and everything in that context is on the table and we're just beginning that exercise right now.
making sure we preserve the ability to
Speaker Change: build out the functions that don't exist at the spun vehicle as they relied on corporate. So active analysis that we're going through and we'll likely be coming back to you next quarter when we're setting out guidance for next year.
Speaker Change: Great and maybe just one quick follow-up on just the macro environment that you're seeing within digital advertising and obviously a pretty strong quarter in Q3. I'm just curious what you're seeing maybe by vertical or just generally in the macro landscape.
Speaker Change: reasonably healthy right now when we look at MGM, when we look at Turo, when we look at basket sizes in the commerce part of Dot Dash Meredith.
Speaker Change: We don't see the consumer, at least the consumer that we're generally interacting with, retreating in any meaningful way. It seems relatively stable, but for October, which we think was, there was a lot of distractions in October.
Speaker Change: And then, you know, specifically with respect to advertising categories at DDM
Speaker Change: The slowdown in advertising spend was pretty broad-based. We saw in the last couple weeks of October ahead of the election. Since then, we've seen categories like retail, technology, and health.
come back solidly.
Speaker Change: Food and CPG had a strong September, but is coming back more slowly since the election. And then home and travel are both slow.
Speaker Change: But that's been due to secular slowdowns for a while. So, and then one other, you know, entertainment and media continues to be very weak is streaming.
Speaker Change: The holidays and as we as we say the Super Bowl for our food properties of Thanksgiving and and December and the team is pushing along
Speaker Change: The first time I've seen this video, I've been watching this video for a long time.
Thanks, James. Operator, next question.
Speaker Change: The next question will come from Yousef Squally with Truist. Please go ahead.
Yousef Squally: Thank you very much. So a couple questions first on the
Yousef Squally: Data licensing deal, can you talk about the contributions of OpenAI to the core and just generally what does the pipeline look like? With these types of deals, once you do a deal with one big platform, typically you do deals with a whole slew of others, if you haven't heard of any.
Yousef Squally: yet, so maybe just provide some color on that. And then, Julie, on the Angie spin-off, why just float the idea as a potential event at this point? What are you hoping to gauge before you make a final decision? And potentially time in for that. Thank you.
You've got a number of term sheets since...
Speaker Change: a level of transacting or announcing them. But there's active dialogue and different platforms have different perspectives on it. Some respect intellectual property and some aren't there yet and might need some assistance on getting there.
Speaker Change: And so we'll see how that evolves, but there is certainly a number of active dialogues along those lines.
Speaker Change: On the question of timing, that's both a tactical issue and a legal issue. When you start to consider, you actually have to make a disclosure around that as an 85% shareholder.
Speaker Change: And that also allows us to start to explore details of that with everybody necessary in the ecosystem or all constituents in that ecosystem.
Speaker Change: to figure out the details. I do think it is highly likely that we get to the conclusion that we will spin Angie, but there are some processes and boxes to check with all constituents to get that done.
Thanks Joey and Yousef with respect to the OpenAI deal
If you look at
Speaker Change: There are two parts to that license. One is a fixed component, which we recognize ratably, and the other is a variable component.
which will true up at future dates depending on
Speaker Change: We were licensing revenue was up about $4.1 million year over year. The lion's share of that would be driven by the OpenAI license. So that's on a quarterly basis a good proxy for the revenue we're recognizing.
Speaker Change: and then the variable components will be, you know, calculated and recognized in the future.
Okay, thank you both.
Thank you. Operator, next question.
Speaker Change: Your next question will come from Weigel Aronian with Citigroup. Please go ahead.
Weigel Aronian: Hey, good morning guys. Just to follow up on the last question around...
Weigel Aronian: and mentioned the letter AI Overview showing up in about 20% of queries.
Weigel Aronian: Can you expand on that a little bit, what you're seeing there trend-wise, what you expect, how you expect that to play out over time? I know right now you're not seeing much of an impact of traffic.
Weigel Aronian: Do you think that stays that way? And then, Joey, you just mentioned the term sheets, but in the letter you also talked about protecting your IP. Maybe you can just expand on that as well. Thanks.
Sure.
Weigel Aronian: In terms of what we're seeing so far, when it's there, we see
Weigel Aronian: It's rolled out on 20%, but also that's only a subset of our traffic, so when you put all that together, the impact to Dot-Meredith is minimal.
Bye-bye.
Speaker Change: We don't know how the UI evolves, and we don't know how penetration evolves. I do expect penetration will continue to grow, and I expect that we'll continue to...
Speaker Change: featured decently in that penetration because meaning in the AI overviews because our content usually
AI overviews or elsewhere in terms of.
Speaker Change: And it's something we're keeping a close eye on and that gets to your second question, which is if people are using our content but not sending us audience or compensating us in some other way, we are going to have to protect our intellectual property.
Speaker Change: and to make sure that's the case. So far, that has not been the problem, but if that becomes a problem, we certainly will protect it.
Great, thank you. Operator, one more question please.
Speaker Change: Yes, sir. And the last question will come from Nick Jones with JMP Securities. Please go ahead.
Speaker Change: Going lower, monetizing transactions going lower, albeit slower than service requests. I mean, how should we think about that metric going forward? As you kind of turn the corner for growth, let's say in 2026, does that...
Speaker Change: Is that a metric that can be stable and continue to grow? Is there a gating factor we should be aware of as we think about kind of the algorithm for growth in this business? And then Joey on M&A.
Speaker Change: Are there any learnings, kind of from the, you know, the last evaluations really kind of got ahead of everything? Kind of post-election, I think there's folks maybe...
Speaker Change: speculating that the valuations may kind of run a lot higher. Does that kind of mean you're staring down maybe a multi-year period of really struggling to find any M&A? Are there any learnings from kind of the last time that maybe make it different if that happens this time? Thank you.
Speaker Change: I'll start on the first question. So there's a there's a few components to what you're talking about our monetized transactions per SR are going up as we better manage our SRs against the capacity in our system
with the inflection we expect.
Speaker Change: In revenue growth in 26, we also expect monetized transactions to start growing again.
Speaker Change: The other piece you mentioned is the number of service pros.
The fact is our
Speaker Change: effectively outperforming in growth what it used to because our retention is going up. So if you normalize acquisition over the last couple of years you would actually see growth in the service pro base but because we are taking down low profitability service pro acquisition you are seeing a decline.
Speaker Change: So, as we get to, I think you used the word floor, so I'll use it, as we get to a floor in terms of taking the last piece out of our traffic with moving to consumer choice and consent.
Speaker Change: And then getting to the right size in terms of our sales force and our acquisition approach with our pro marketing. We will effectively level out in 2025 and grow again across all these metrics in 2026.
Speaker Change: So hopefully I think that answers all the pieces of it and also explains a little bit of why we see the growth even though optically you're not seeing it on the face of our metrics.
I think I'm
Your other question, what's key in...
Speaker Change: Any environment, probably not telling anyone anything they don't know, but what's key in any environment, whether valuations are down or valuations are creeping up, is having an edge in the things that you're going after. And that's certainly what we have looked for and will continue to look for.
Speaker Change: If we go back to the last big acquisition, biggest acquisition we did, which was Meredith, while the timing was not ideal and we got some things wrong as it relates to the COVID benefits that both our business and Meredith's business were seeing at the time.
Speaker Change: What has turned out to be true was the strategic value of that transaction and the only reason that that has That that we're doing okay in that transaction right now
Speaker Change: not what we originally hoped for, but the reason that we're doing okay in that transaction right now is because we were able to deliver that strategic operating execution difference in that business with bringing that, what was a,
Speaker Change: unmodernized digital business into the modern world to a way to the point where we could take start to take share as a publisher. So we had a meaningful macro headwind on that business which we underappreciated the potential of that but
Speaker Change: But the strategic element was essential to the survival and what is now winning and taking share in that category as a digital publisher.
Speaker Change: So we'll continue to look for an edge, and when we find an edge, that is something that enters the realm of possible, and that's what we continue to look for.
Speaker Change: Thank you everyone. Thank you operator. Wish everyone a good day and thank you for your time.
Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
The End
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