Q2 2025 Angi Inc Earnings Call

Good day everyone and welcome to the Angie second quarter 2025 earnings conference call.

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please also note, today's event is being recorded

At this time, I'd like to turn the floor over to Andrew rusoff.

Chief Financial Officer, please go ahead.

Thank you very much and good morning everyone. Rusty here. Uh CFO of Angi Inc and welcome to the Angi Inc. Second quarter earnings call. Uh, joining me today is Jeff Kips. CEO of Angie, Angie has also published a shareholder letter which is currently available on the investor relations section of Angie's website. Uh, we will not be reading the shareholder letter on this call.

Altun pass it over to Jeff for a few introductory remarks and then open it up to Q&A. Uh, before we get to 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. These forward-looking statements may include statements related to our Outlook strategy and future performance and our base on our current expectations and on information currently available to us,

Actual outcomes and results May differ. Uh, materially from the future results, expressed or implied in these statements, due to a number of risks and opportunities, including those contained in our most recently quarter quarterly report on form. 10 Q our most recent annual report on form 10K, and in the subsequent reports that we file with the SEC, uh, the information, provided on this conference call should be considered in line of such risks.

We will also discuss our non-gaap measures which, as a reminder include adjusted Eva, which will refer to today is Eva for Simplicity during the call. I'll also refer you to our earnings, release shareholder letter, our public filings with the SEC and again to the investor relations section of our website for all comparable, gaap measures and full. Reconciliations for all material non-gaap measures. Now I'll pass it uh off to Jeff.

Thanks Rusty. Good morning everybody. Uh, the first thing I'd like to do is thank everyone for joining us this morning. We appreciate it. Our internal Research indicates that, this is the busiest earnings warning of the quarter and uh, we know everybody's working really hard. So thank you.

Um this is our second earnings call since Angie spun off from IC is an independent public company. I think it's worth taking a minute and reminding everyone. Again of uh the multi-year journey we've been on.

Last night, we reported our first quarter of proprietary volume growth since the beginning of 2021. It's a big milestone for us and our journey uh, to state the obvious, uh, that everybody knows we have over the last few years shed over 400 million in Revenue.

Uh, that is on the face of the p&l to the untrained eye. Many people have thought. This looks like a bad thing and under normal circumstances, maybe it would be we would actually argue. It is all a very good thing and quite the opposite for the long term success of both. Our customers and the company.

what we've really done is first, we have shed lower quality Revenue, which was in fact, deprecating, our customer lifetime value and thus the long-term value of the Enterprise

Quality transactions mean that customers leave or they don't come back.

Secondly, we've removed the material amount of unprofitable marketing and sales expense. In other words, we were spending money to acquire customers at negative profit. And so, now that we've adjusted that you can see, our profitability is improved greatly, our both our adjusted IBA and our free cash flow are materially. Uh, from 20122 where in fact, our free cash flow was negative.

Additionally today, and I've already cited this. You can see the key markers of our return to revenue growth. And this time, it'll be profitable Revenue growth. And that is first, the strong proprietary volume growth, which I just mentioned for the first time and several years.

The growth in Revenue per lead.

Finally, you can see the strong value creation, looking ahead in what we've done in terms of being, much higher value at lower sales force in our Pro acquisition.

The other key point in terms of what we've done over the last few years, is the Improvement in the quality of our customer experience. You can see it in our customer metrics, over the last over the last couple of years.

We've invested in the core product functionality and coupled with what we've done in terms of pruning. Our lower quality traffic, this is resulted in moving. Homeowner net promoter score by 30 points over the last 2 years, we mentioned this last quarter, but it's still an accomplishment and it's still true this quarter. And we've moved the total retention across all cohorts of our Pros by nearly 20% over the last 2 years. Uh, in this last quarter we've moved both the higher and win rates. And by that I mean a higher is when a homeowner who submits a service request on our platform hires a pro who's paid for that lead.

Obviously when the prop pays for a lead and they win it, that's their win rate. In June, our win rates, on our core Pro platform are up over 20% in July. Our internal early data is tracking to more than 30% up year-over-year and the higher rates are coming right along with those win rates.

So we have done this progressively over the last couple of years, and at the same time, we've been improving the technology we operate on. A year and a half ago, we had four different technical platforms with relatively low-fidelity integration in the U.S. and three platforms internationally. By the end of this year, we will only be operating on two in the United States and one internationally. At some point in the future, we see us as progressively, step by step, getting to a single modern international platform, which will give us a great deal of operating efficiency and more speed to market. So we are quarter by quarter, piece by piece, putting all the pieces together to serve the trajectory that we project.

Um, and we think steadily piece by piece, putting the evidence out so that you can see it too.

We still think we're in the early Innings and we still think we have a lot of work to do, uh but we're very optimistic going forward and um excited to answer your questions today on on the progress today and where we're trying to go and uh with that I'll turn it back over to you operator.

Ladies and gentlemen, at this time, we'll begin the question and answer session. If you would like to ask a question, please press star and then 1 on your telephone, keypads. If you are using a speaker-phone, we do ask that you. Please pick up your handset prior to pressing the keys to ensure the best sound quality.

To withdraw your questions. You may press star and 2

Again, that is star and then 1 to join the question queue.

We'll pause momentarily to assemble the roster.

And our first question today, comes from Sergio sigura from keybanc Capital markets. Please go ahead with your question.

And Sergio. Your line is open.

Please proceed with your question, is it possible? Your phone is on mute.

Hey, can you guys hear me now?

We can please proceed with your question.

Um, great. Thanks for, uh, thanks for taking the questions. Um, I guess, you know, first,

Um, be helpful if you could delve more into the uh the leads and service requests Trends, You're Expecting for both the uh proprietary network channels. Um, just for the second half of the year that kind of underpinned. The guidance that you guys gave in the shareholder letter.

Sure, I I'll take that. I think that's a pretty straightforward projection for us. We expect that servers quests and leads to keep growing at approximately the same rate they were growing in the second quarter.

The then.

Improvement in year-over-year. Uh, Revenue comparisons will come from more growth in Revenue per lead.

and just to remind everybody that change in Revenue per lead is

The 1 other note, I would say is we expect that our Network volume will kind of stabilized at our exit kind of run rates for the second quarter. Um, and be roughly stable, the rest of the year.

Great. Thanks, that's helpful and maybe if I could throw in a second 1, um, interested. If you could talk more about your, uh, your profitable acquisition opportunities and then how we should think about that, consumer marketing expense line going forward, um, you know, that was up, uh year-over-year. So, just just wondering if Q2 is a good run rate as a percentage of Revenue or do you continue to see a nice Runway to invest behind those opportunities and uh, we we should expect that uh, that number increasing going forward. Thanks.

yeah, so to just

To talk about margins, broadly Sergio um uh where we are now after homeowner choice is, we've had a little bit of a step up in our consumer, marketing expenses, the percent of Revenue, compared to where we were in the first quarter. And last year uh as we're um, driving more on our paid proprietary acquisition channels. Uh and then in this quarter, you know, we simply had strong execution there and uh what happens is then on the on the margins where both um uh as as we

Drive on the paid acquisition channels on the margins. Some of those uh acquisition ends up being uh a little bit lower margin than in the core of our paid channels. And then at the same time we have a little bit lighter on our organic traffic. So if you think about our margins this quarter a little bit higher consumer marketing expense, as a percent of Revenue, we're making some of that back is in terms of our paid acquisition expense. As we've moved, uh, all of our sales, uh, away onto the single Pro, uh, Pro platform and optimize our sales force. So, uh, at the contribution margin line, it all kinds of even evens out, uh, where, uh, going forward, we expect in Q3 and Q4, uh, to be, uh, fairly stable on our contribution margins going from Q3 to Q4. We expect to have operating margin leverage. That is similar to uh the path that we had in the same quarters in the prior years.

Uh, however uh, in without the fixed expense increase that we saw in the fourth quarter of last year where we had some expenses, that won't reoccur this year in the fourth quarter. So uh, that'll give us uh, the ability to avoid some of the fixed expense margin de-lever that we saw in the fourth quarter and uh have more of a profitability flow through down to the bottom line.

Got it that's uh very helpful color. Thank you both.

Great. Thank you.

Our next question comes from Eric Sheridan from Goldman Sachs, please. Go ahead with your question.

Thanks so much for taking the question and appreciate all the detail in the shareholder letter. You know, I'm going around the part of the letter that talked about your highest priority product initiatives and uh improving the quality of match between homeowner and right, bro, can you talk a little bit about the duration of the witch, those 3 product initiatives? That were highlighted would get implemented by the company and how that implementation might inform elements of yield from those priorities, in terms of translating into Revenue growth or platform momentum and then the second part would be. I know it's very early but maybe time that broadly into how you're thinking about the exit philosophy of growth this year and things like those products initiatives contributing to a growth framework for next year. Thanks so much.

So, let me try and take the product and rate of product change question. I'll let Rusty talk about how we're thinking about how that rolls forward, um, in terms of Revenue, uh, and profit. So

Just to go up the step.

Our view is that the most important event in the user experience is the job done. Well, when a homeowner who submits a service request on our platform hires the pro base. So that lead on the platform and the job gets done. Well, literally, everybody is happy with what they've done, fulfills our brand promise, uh, encourages repeat and positive word of mouth about our brand from the customer. Uh, and Pros are not here to chat with customers. They are here to get work done and get paid for it. So it encourages them that uh they've achieved good Roi and they stay.

Matching and without a good match between the homeowner who wants to hire a specific type of pro and knowing that we're serving the specific type of pro to that homeowner. If that doesn't happen, we don't get a job done. Well, uh, so our focus is getting that match done and trying to make sure the 2 communicate, get the job done well, and move on. We're investing first, there's 3 elements of this 1 is getting the service. Request details, correct. We know what the service request is. We can find the right Pro. We have to make sure we serve the right Pros with the right skills and qualifications, get them matched and make sure that the contact is happening and we have a number of initiatives in play here. What we talked about in the letter is first of all, um, we have rebuilt our question and answer technology. Uh, that's done. We've also implemented, uh, an llm, we call it a Helper. But what it really is, is a a place where if the homeowner's confused about the question thinks they're answering the wrong question, or has the wrong task?

Or just can't really express it. They can come tell us in their own words that allows us to get to the right question or move them to the right tasks and keep the homeowner going and not end up with the wrong task. Going to the wrong Pro. So we built those 2 things. The next step is we are we have a team progressively, building out and testing better questions and answers based on our internal domain, knowledge, and research. We've got nearly 3/4 of our volume in tests on these new Improvement.

Questions we've rolled out: nearly 15%. We talked about some of the leading indicators in the letter of the progress we're making on that 15%.

We have 20% fewer wrong task, credit requests. That's our best leading indicator that we're matching much better. Our Pro engagement, our higher rate and our win rates are all up single digits across that 15% by the end of the year. We think we're going to get into the 80% plus range. So we're going to be progressively realizing this and then we're going to go back for Round 2 in 2026 and tweak. Additionally, and see how much more we can get out of this. Both by training the nlm and by relooking at our questions and getting feedback from Pros,

We're also starting to play with a service request Q&A path in the llm. We've planted this on some of our landing pages. So it's live. Now it's very early stage and I think as, you know, the LMS have to learn and conditioned themselves, based on both, uh, the, uh, public databases, they access in our internal database. So, that's where we're an early days there. But ultimately, we envision an llm enabled Q&A path, which is trained and ultimately delivers better conversion and better matching. And of course the user interface, that people are starting to get used to, with Chad GPT and and, and everyone else. So that's what we're doing there. On the pro side, we're we're increasing the Fidelity of match by only selling the product.

Where the pros get to pick the tasks they want and the zip codes. They want a pro who chooses their tasks and zip code is basically telling you. This is where I'm a good match and this is what I want Pros. Get the leads. They want they're much more likely to call and if they're more likely to call they're more likely to win and the homeowner gets their job done. We have historically had a significant portion of our Network on the Legacy ads product, which is due to the construction of the technology was, you had to accept the fixed basket of zip code. And you had to accept the fixed basket of tax. And the result is those Pros, call the homeowners less, they get matched. The things they aren't as interested in because they're happy with the basket. The economic exchange. We had to make was a more material discount to make the value work. So this is why we're moving away from there. We're already getting better matches because we're Shifting the composition of our Pros. Um, and when we migrate the ads Pros, all our Pros will have that functionality.

The other thing we're getting there is we've got a little bit of inconsistency in making sure we have all the skills aligned because of the nature of those categories versus the specific tasks on the 2s and very consistently now and thus upgrade the overall quality we have and the the uh confidence our customers have. And that and we're going to be able to merchandise it. Well so all of these things will be base hits uh to get us around the bases. And ultimately I guess I can't say beat the end.

Yankees. There's a high concentration of analysts investors in New York so we'll say win the game um, final

We're rolling out.

And start to keep going.

Half the size of the United States. So we're optimistic on volume but then in terms of the customer experience, what this does is these Pros will come in as a view 1 by 1 and express interest 1 by 1 um uh interact interface and when Pros view them 1 by 1, you have sort of a crowdsourcing effect of better matching Pros, don't express interest and the ones they don't think match their decent judges as our algorithm is in Europe. We have a more than 50% higher success rate. We think that this 1 by 1 effect helps there that product is entirely 1 by 1 so we're bringing it to the US. So again we're doing a range of things across the the homeowner path. We're doing a range of things across the pro selection experience and quality experience. These will progressively impact the business. I think,

80% plus of this will happen over the next year with a higher uh concentration of that over the next 6 months and we will continue to put 1 and 2 and 3% wins on the board over the next 6 to 12 months.

Build. LTV ideally build, repeat rate build our brand promise and then support, what Rusty's going to talk about in terms of future growth, so Rusty, do you want to add anything there? Yeah, sure. So to give a little bit of color on how that all comes together in our financials and our metric Outlook, um, on the homeowner side. I'll reiterate, what how, how Jeff has characterized this? It's like a pretty simple story. It's flat plus growth equals growth. So, uh, with our network channels, you expect it to be stable around the current levels, um, going into next year, just because we're lapping. Uh, the roll out of homeowner choice and q1 of this year, will be mechanically down year-over-year next year. But then, you know, flat year-over-year for the balance of next year. Uh, and then the growth part of the formula comes from the proprietary channels as Jeff mentioned, uh, where we're making strides and developing uh, additional opportunities there to, uh, fuel some future growth. Uh,

Then on the pro side of the the equation, our strategy is designed to to deliver growth in Revenue per lead and pro capacity next year. And 1 reason that happens is the Shifting. The mix of the probe base that Jeff mentioned. Uh but we've also been targeting uh being more targeted in our sales. So with more activity, focused against the heart of our Prospect pool with a better product offering and that's resulting in higher value.

Um, Jeff mentioned this in the letter, but I'll repeat it here because it's a powerful Point. Um, we acquired 39% fewer Pros in Q2 versus last year but the aggregate Pro lifetime value. Sold in Q2 was down just 4% year-over-year. So each Pro were acquiring as much higher value. And then these 2 Trends are creating a Tailwind that will continue to benefit us into next year. Um, we also have an opportunity to do a better job selling into larger Pros, uh, so say Pros in the 10 to 20 employee range. Um, larger Pros are already a meaningful part of our business now, and our product tends to work pretty well for larger Pros, uh, but compared to their portion of the overall industry we're under indexed and think we can optimize our sales motion and grow the part of our sales force. Uh, targeting this sent this segment.

Uh, and then finally online Pro acquisition. Jeff just talked about, um, on top of that, the, the, the launch of that, uh, we have it online, acquisition tests. We've been running in Boston and it provides kind of additional validation that there's a sizeable opportunity to tap into incremental capacity. Uh, although that will take some time to to optimize uh, to achieve the potential there. So uh, together, we expect these initiatives will help us return to growth in proactive position next year. Uh, and in overall Pro spending capacity, uh, and then the growth in the number of

Next year. Um, uh and then that will likely be offset partly by some modestly. Lower Pro acquisition expense as a percent of Revenue, uh, and then on the fixed cost side, we expect to be able to remain relatively flat. So we'll deliver modest leverage and result in adjusted. EBA dog growth. Uh, overall that means similar to modestly higher. Even down margins on a higher Revenue basis here.

Thank you so much.

Thank you.

Our next question comes from Corey Carpenter from JP Morgan. Please go ahead with your question.

Yeah, thanks. I I had 2 um, Jackson from the shareholder letter, you talked about the evolution of the of organic versus paid traffic. Just hoping you could expand a bit on that Dynamic and the implications that has for you. And then you've talked about this a few times but just wanted to dive a little deeper on the upcoming transition of add service pros to the new platform. Kind of what can you tell us in terms of what needs to happen behind the scenes you know for that to effectively be executed in what some of the potential risks there are thank you.

Great. Thanks Corey. Uh, I think first in the letter, we were specifically focused on free search organic traffic. Um, I'll touch base on the, on the Range. I think free search organic traffic, which people often refer to as Google SEO. Um, unbranded Google SEO is, um, it's a probably a decline

Asset for most businesses. You talked to, uh, internet marketplaces, content providers, Etc. Uh, Google has not been growing. Its free rent over time. Uh, 5 or 6 years ago, are unbranded free search traffic. Uh, was about was a little over 20% of our total volume. Now it's a little less than 10. Um,

That's not a heroic accomplishment. Uh, many people would look at it as the opposite, but it's sort of the trend of the industry. We've been able to hold share, um, over the last year and a half or so, in terms of where we are in share of voice, um, and we have been constantly working to get our technical setup, right? And make sure our content is fresh and applicable.

And we're going to continue to do that. That being said, uh, we're not projecting growth in what Rusty just talked about, in the free organic. So all of our volume and all of our margin assumes continued declines, the good news is that when you're below 10%, the decline is not major. So we're not banking on any of this here. We've done everything, what we've done in the second quarter with proprietary traffic without any help from Google SEO and we're going to do what we do going forward and our projections going forward are, what they are without any help. And if anything, a little bit of hurt, uh, from the way Google runs its SEO. Uh, we look at our ability to grow as, uh, we are very effective, online, marketers. And we have the leading brand of the industry and it

Changing ecosystem, we've been extremely effective, both on Google and on other platforms, with getting more efficient and driving volume. Again, our SEO is down and our proprietary traffic is up. I think that's all that you need in evidence there. Um Rusty's reference, we're going to continue to add uh to our TV, spend next year and we have a set of other initiatives to drive there. And we think we can execute, we're also positioning ourselves with our work on internally use of the llm to set ourselves up to when the llms are ready to integrate their, uh, and, you know, serve our Pros there and be able to keep growing the business, uh, and helping customers through new interfaces that emerge as the landscape changes. So uh, we have a pretty clear plan, uh, we're executing on it and we think we can keep going.

The new platform.

For the migration of pro Platforms in the US is also very much an execution story. We've done 5, successful migrations internationally of

Half to the same, half the size to maybe, 50% larger than the number of Pros were migrating and we've done them. All pretty successfully. Um, it's been over the period where we've taken the your the international business from you know single single digits negative profit to 20 million issued in profit. So we we've been able to kind of move the ball pretty well there. Um you go through a few steps 1 is you have to do a

Platform with that data. So you have to build the pipes. I think 3 you have to do an effective, go to market plan, you have to communicate with the pros. Explain the changes explains what's happening 4. You have to do the actual data migration. Um, and then 5 you have to do, Post migration customer care and activation um in Europe, we've had actually higher yield on our migrations than normal month-to-month retention because you get reactivation and you get the extra care. We've been over a 100% pre to post active Pros, a couple of times. Um, so we think we have a Playbook, uh, past performance does not always guarantee future results. So, we are very focused on this. And we've had a team of people working on this for months, but we think we're ready to go. And then, you know, the great Insurance on this is that Pros are coming to us.

to buy leads to win, work to run their business and

If you change the ux or you change the app, some of them are probably like me when my bank moves a button in my bank app, I'm shouting in my office, you know, by myself but um at the end of the day, they want to buy the leads, they want to build grow their business, fill in the gaps and we sell leads in the interfaces and actually that difference. And so, we'll get some complaints, we'll move on and if uh, we were, we were able to replicate what in the US, what we've done in Europe 5 times, then we'll be in good shape. And uh, we'll have everybody in a better product for them and for the

Homeowner and um, you know, we're excited, uh, only selling on that platform or that product has worked pretty well and we're selling into the same base of people who we've been selling into or a few decades at this point.

Great. Thanks. I think I got both questions. Yep, thank you.

Thank you.

And our next question comes from. Stephen J from UBS, please go ahead with your question.

Hi, this is Vanessa and for Stephen. So I just want to leave in the marketing spend, what does the payback Horizon look like on that? And how should we measure Roi in terms of your marketing and sales Channel and uh just 1 more? Its what are you doing to build brand of traffic?

Uh, hey Vanessa, I'll take that first 1. So our approach uh, to Roi on both sides of the marketplace is uh, philosophically to acquire volumes out to incremental break, even on a lifetime value basis with fully loaded costs. Uh, and when we say incremental break, even that means that we're targeting for the last dollar we spend to break even which means that our goal is to maximize the aggregate profit uh as opposed to targeting, kind of any specific margin percentage. Um so for Sr acquisition

We're doing this on a, on a 1 year basis. Much of the payback does come in that first session, uh, but there's still significant value from repeat, use and engagement through our CRM campaigns in the first year, um, in our digital marketing, we apply uh data science models to establish our bids

And that estimates whether or not it would be profitable to increase, bids to say, say spend an extra dollar to acquire more volume. Uh, in some channels incrementality is easier to determine so Google sem is probably the best example of this. While in other channels, we triangulate between multiple attribution approaches and then test up and down to determine, uh, our optimal levels of spend. Um, then on the, on our Pro acquisition, we we want to scale our dials meaning the time of our sales, force until our lowest value prospects convert at a value equal to the cost of the last set of dials, uh, the way to think of, of this is that if we add to the size of the sales force, that results in making additional additional dials against lower converting portions of our Prospect database.

Uh, to 2.8 times this past quarter, uh, which is uh, truly meaningful improvement. Over our acquisition efficiency uh in recent history. Um, but philosophically, as I mentioned, our goal is actually not to Target any particular LTV to cap ratio. The objective is to maximize the total aggregate profit, um, which Jeff laid out is represented by LTV minus the acquisition costs. Uh, so we're targeting that profit. Um, so for instance, as we look for new pockets of volume that actually might mean that we're able to acquire incremental pros at an LTV to CAC ratio. That is kind of just above 1.0. Uh, and while that would average down our ratio, we would do that since it would grow our aggregate profit and then the similar concept applies to, to marketing as well.

Yeah, if you want to take the Branded traffic,

Yeah so I I alluded to the Branded traffic question a little bit earlier um but I think there's 3 elements, I think the most important element is a product in our experience. Have to deliver on our brand promise no matter what we say or do or whatever kind of cool creative. We put out our version of, where's the beef um or whatever we have to deliver when the homeowner gets to us and the pro gets to us. So I think first of all, all of the work we're doing to raise our success rate and come a place that um

That people will download an app for, uh, is really critical to our brand growth. At the end of the day, serving our customers leads to retention and repeat, which is, I think the best form of growth we can get, I think. Secondly um we have historically been a pretty significant investor in TV. We backed off that a little bit this year and took TV out of the first quarter because we wanted to get through the homeowner Choice transition and observe the landscape and really focus um on our online acquisition and how the business model was going to behave. We've started the TV up again at a little lower rate than last year, but we are planning to probably in aggregate. Um,

Maybe even double our TV. Something directly up 50 to 100% from this year. And obviously TV is a great way, a great way to reach homeowners and prose and uh deliver our USP and our brand promise uh, and get them to come. Try us or use us again.

I think thirdly, um, there's a whole other range of activities. We have launched uh, this year, a pretty strong and comprehensive effort against paid social. We have a significant internal effort. Um, we have published multiple videos where we've gone and helped homeowners with their jobs. We're calling them house calls. Uh, we actually had 1 reach more than 25 million views. It was a custom dog house where we supplied 1 of the pros, it was a collaboration with an influencer but 25.

5 million views. I told the marketing team. I said, I'll take 1 or 2 of those a month, please going forward. So we have a pretty significant effort there. We've engaged with Outside Agency, uh, with a reputation for doing this well, to augment our efforts. That's just getting up to speed. Um, and, and then I mentioned the, the 1 with an influencer was really successful. We're also working with influencers, so, um, we're not banking any of this in our forward numbers. We're looking at TV is delivering it kind of recent return rates uh, sort of analytically, derived and we think there's opportunity but safe to say by focusing on the product. By restarting our TV and by getting our branded message out in every other channel, we can find, we are working on enhancing the leading brand in the business. I think our unneeded awareness is still Far and Away the best and are aided awareness as well. Um, and uh, it's a really key asset. We have that we want to continue investing in

Our next question comes from Brad Erickson from RBC, please. Go ahead with your question.

Good morning. This is Audrey on for Brad. Thanks for taking the questions. I have 2 quick ones. The first 1 is, how do you think about Pro capacity and prose filling their book of business? If you can just run us through that and does it get to a point in time where this is a blocker for future incremental growth and then secondly, can you provide any insights into service provider Supply constraints within the Home Services industry in general? And then are these constraints contributing to the trends, we've observed in the numbers of the past few quarters. And are you seeing any shifts or improvements in this area? Thank you.

Rusty touched earlier on near-term. What we're seeing which is, um,

our Pro, our Pro, our nominal Pro growth, we think should inflect by 2027. However, because we're growing our capacity for Pro by discipline on our, Prospect selection and dials and by shift of resources into higher capacity, segments of the pro Network, we're almost Pari passu on lifetime value created before cost. Um, and so between those 2 areas, we think we're, we're in pretty good shape to grow Pro capacity for at least the next couple of years. Um, let me take on kind of industry Trends and whether there's caps next and then I want to get this sort of a a a question that's bounced around a bit about how broke capacity works. So in terms of the industry we're a small portion of the industry. Um, we think we have

5, May maybe 5% the pros in America on our platform. Uh, we think there's Apple Room to Grow, uh, as Rusty pointed out. We actually think we're under indexed on the higher capacity Pros. So we're probably under indexed, on overall capacity, we're probably below 5% capacity. Um, and so, as a very small portion of the market, we have a lot of opportunity. There, we have great name recognition, uh, again, we're delivering good value creation. So we think we have some Runway there.

Uh the trends in the industry have been a couple people have talked a lot about how um kids aren't going into the trades these days uh because they all want to be uh machine learning people and CFOs like Rusty. So um

You know, they they whether that's true or not I think increasingly you also are reading about Millennials and other people looking at the trades the trades are paying in better and better. Um, I have 2 Sons 1 of them is going into construction uh, 1. 1 story, does not make a trend but you see it more and more, um, whether or not, that's a major factor, we don't know. But there is more money to be made.

Uh, housing is a constraint new housing is a constraint, people want to repair their old houses. So we're not sure that this is a long-term secular issue, uh, in that business. Um, it's been a pressure. We'll see. I think the other Trend people have pointed to is consolidation. Um, you read a lot about private Equity or you hear a lot. Anecdotally about private Equity, getting involved in some of these business. Consolidating, and building scale when Rusty talks about looking harder at larger pros. And the opportunity there, we're looking at the same thing. Um, so again for us, we're very small fraction of the industry. Um, if you look at online travel a few years ago, I haven't refreshed it. But a few years ago, half of all online travel was booked online. 80%, through the

Doha and then 80% of the otaa traffic was booking and Expedia. So that means the 2 Market leaders had. 32%, we're below 2, we're 1 of the market leaders, for sure. We think we have some room that's both on the pro side and on the homeowner side. And again, at the end of the day, people are going to need walls and roofs and electricity and plumbing. Um, and people are going to serve this, so, um, we don't not think that there is some massive secular Trend working against us if anything, um,

Pros are not going to get disintermediated. The way some other jobs like CFO are getting projected to be Rusty's laughing at me. Are projected to be disin disintermediated. Um,

In terms of their... there's a question we've commonly gotten that you might be making, which is about individual pros and lifetime capacity. How does that work? Do they win work and then get off the platform when they win a homeowner? Do they just keep that homeowner? So, there are a few elements to this. One is that certain trades lend themselves to the tradesperson or the pro effectively taking a homeowner at lifetime value.

My electrician is a home advisor guy who's been on since it was serviced magic, I hired him in 2018, he comes every time I call him, he's done.

Probably.

Or when I go to Europe, I talked to our Pros there and 1 day. You know, I finished and and 1 of the gentlemen who didn't speak very good English. Didn't ask like came up to me and grabbed me by the cheeks and planted a kiss. On each cheek me being American, I was a little taken aback, but, um, for him, it was very normal and I was, of course, flattered. But, um, what he said to me was, listen, I've been with you for 15 years since, uh, it was a different kind of business and your product has gotten better every year. It's gotten so good. That I've built an entire business and customer base and I don't need you anymore, and I feel very bad.

And I said, you just made me feel very good because we fulfilled our mission, we helped you build your business, you're happy. You like us. I hope I hope you tell other pros and we've got a victory that happens.

The other side of it happens, which is when I moved in, to my most recent house in 2018, uh, I had black mold in 1 of my ceilings. I had to hire a pro to, to mitigate that he was from home advisory came on and I was quizzing him at the time. It was home adviser quizzing him. How do you feel about this? He's like, well, to be honest, uh, it's made my life like I I sometimes get frustrated when I don't get the win, but the winds come with a lot. So as I said, How's it made your life? He said, well, um, I started taking these jobs on the weekends. I realized I could have a business. I left my boss.

I was able to hire 1 person and then because of the home of ourselves and other person and then another person and then I was able to afford a new house where my sons could have separate rooms and now I'm saving for their college education. I didn't go to college. This is a big deal for me. I've hired 4 and 5, and 6 and 7 people. So there are Pros Who start out and keep scaling. And as long as they're winning with us, they're not going to leave us. And then finally, there's the constant scale where we see our largest Pros. Telling us constantly will take more leads. If you have them. Obviously want them in a good enough quality but we'll take more leads and on some level. There's unlimited capacity there. So I think you have a range of use cases. I think all SMB businesses have this phenomenon where somebody, like, my optometrist in Manhattan, who has a small office got on Zach, do I used to book them through Zack do now I can't, he's still this book of business. He can't bring any more people into a small office and he's done and he's happy. This is a common SMB thing that will happen, but we have a lot of opportunity with larger Pros. We still provide a great way.

For pros to scale and take more and more capacity and grow their business.

And um while we think it is a real thing, we do not think it is a definitive limiter because we've effectively always been dealing with that phenomenon and because we've skewed smaller um we probably have more opportunity to win there going forward. So hopefully I covered all the bases there on the various elements of pro capacity. You can let me know if if you have a follow-on or there's something you think I missed.

No, that's great. Thank you so much.

Thank you.

Our next question comes from.

Yugal aronian from City, please go ahead with your question.

Hi, good morning guys. You have Max on free golf. Uh, thanks for taking our questions.

I guess, just maybe on the macro, um, you know, would love to just seeing, you know, in the macro Trends and how that's impacting the uh better failure guidance.

Um I think you know last quarter you included 3 to 5 Points of incremental headwinds. So

Just curious if that's still included and then maybe secondly on Capital, allocation. Um, you know, you guys were absolutely very active in 2 Q, buying back stocks. Just how do you think about maybe the pace of BuyBacks through the rest of the year, um, and just your overall Capital, allocation strategy? Thanks,

So let me take the beginning of that and then if Rusty has anything to add, he'll add. So we saw a very significant impact in April uh impacting both homeowner traffic and wins for Pro.

Uh, so we think we saw some disruption in our retention. In April and May, homeowners were hiring Pros less on our platform. When we talked to our Pros, especially our larger Pros, they said, "Look, um, people's confidence in the economy is disrupted. You can read it in the paper, um, or online, if you will. And, uh, we think we're getting hired less, so we're not overly worried."

We see a little bit of pressure there, um, but not dramatic. At this point, um, the 3 to 500 basis points is rolled into our run rates. Um, we've come up a little from April, so maybe it's at the low end of that, you know, maybe it's 2 or 300, we're not sure I'm guesstimating. Um, so there's some pressure but we basically forecast off our run rates. We think we're excelling, uh, more on our paid execution than on a than on the recovery, but

There's obviously some recovery in there. We think we're on track on our full year numbers; we're actually outperforming. But again, it's more on the execution, we think. And, uh, we believe that whatever the economic insecurity is has improved, but there's still some embedded in the business. Rusty, I don't know if you'd add anything. Yeah, I know, I, I, I, I, you know, uh, double down on just that it's, uh, we've seen our business performance.

We're happy with but it's still just a cautious. Uh, macroeconomic environment. The only thing I'll add is the thing that we talked about last quarter is just reminding folks that, you know, our business, you know, has tended to have some modest counter cyclical, um, Dynamics to it. Uh, 1 reason for that is that pros. Need us more when homeowners are hiring less. So we tend to see a benefit in terms of, you know, retention Pro acquisition on both costs and volumes and then Pro engagement on the platform. Um and then the other reason is that 2/3 of our business is

And non-discretionary tasks that are uh, you know, tend to be resilient, uh, you know, through cycles. And that ratio has basically held this year

Does that did that answer your question? Do you have any follow-ups?

Uh, yeah. And then just maybe on top of allocation um, and just typing them out by a back through the rest of the year.

So, on BuyBacks, um, obviously our board is going to do BuyBacks when it deems it a a best and highest use of our Capital at that time and we've done a bunch. Um, the 1 thing I would say is we're not going to do this much every quarter, um,

for a variety of reasons, 1 of, which is there's limitations on how many shares you can go out and buy back after doing a tax-free spin, you know, based on sort of, uh, historical IRS rulings, uh, and what's out there kind of in the understanding and interpretation of the law. Um, and in our tax sharing agreement with our former parent. So, um, I wouldn't expect every quarter of this kind. I I don't think it's unlikely that we'll buy in more shares over time, but I can't predict it, um, we'll monitor where it is, and our board will make the decisions that it deems best. Um, so but obviously, we've the board thought it was a very good allocation of our capital in this last quarter. And, uh, we made a significant move there and, uh, reduced

Our share base. And uh, obviously with the way we're looking at the business going forward, we're optimistic that that can be a creative.

Okay, great. Thanks, guys.

Great. Thank you.

And our next question comes from Dan kernos from The Benchmark Company. Please, go ahead with your question.

Yeah, thanks. Good morning. Obviously, you've covered a lot of ground Jeff. Um, I I just want to go back to your very comprehensive answer, on sort of the market market approach in in Sp capacity.

If we get through double opt-in and we go to a zip code based approach which feels very similar to what zillow's done is there any reason to think why we can't get to a point where just a handful of top Pros in each category, dominated zip code? And that frankly, the total XP count in the matter in the market just doesn't matter as much as relative to saying, just improving the overall SD quality and naturally improving the conversion through self selection, uh, from both the consumer and the pro over time

so,

I think your hypothesis may prove to be true. I think there are some differences with Zillow that um suggested that there's alternative hypotheses that may also be true. Um,

Homeowner the real estate. A real estate agents capacity. Probably works a little bit different than Pro capacity depending on the category um homeowners

In all our research, homeowners have always told us they want 2 or 3 Pros to choose from except with an immediate emergency or a pretty transparent. Uh, repeat job.

You might be able to serve Zips and tasks with a few pros. But I think that what we've observed is that there is enough, um,

Capacity for pro ship that we effectively need to measure that out over time and make sure that there's always multiple Pros. If we can, we're at 2 2 and a half per Sr who we present, we always want to make sure there's multiple Pros for the homeowners that improves their higher rate that improves their satisfaction and improves their confidence because they can compare. So I think there's Dynamics in uh, the pro segmentation that suggests to me that maybe it won't get to just 3. I don't think you're wrong that. Um, we can cover at some point, with a fixed set of Pros, um, all of the demand and these these zip codes and tasks, uh,

It's just uh probably a longer Drive than I can hit. You know I probably need a few. I probably need a few strikes at the ball before I can get onto that green and really really answer that with high confidence.

Yeah, that's fair, Jeff. Very hypothetical question at this point, um, since you're just going through the migration and then just on the growth in Revenue per lead, is there how much of that is um, incremental category, uh, expansion versus just, uh, obviously improving, uh, conversion, um, and and sort of all of the other underlying metrics are there. Any other pieces that you haven't talked about, that could help.

Drive Revenue per lead, um, higher overtime.

so,

Obviously, if we drive the win rate up, we have opportunity to take more price per lead, and if we can, you know, deliver high confidence in the lifetime value of the lead above, uh, the job. I mean, our Pros are basically judging their value by. How much do I pay? What do I get? But we can probably get more pricing there. Um, so I think there's some pricing opportunities, but that all has to do with value delivery, and the pros buy into the value delivery. Um, I think secondly, uh, if we could obviously buy higher consideration jobs, uh, at cheaper prices, we would scale up there and that would shift our Revenue per lead. Uh, the higher consideration, jobs are probably more competitive um out there but we have found pools of them to access over the last few months with our online marketing. So if we can shift, average consideration up

That would shift uh a revenue per lead. I think really the the biggest driver for us is right now. It's going to be shifting um out of the old ads model which had a much higher discount than the 30% were offering is an intro on our new subscription um you know as much more than double in some categories um and moving away from that and then giving those Pros the leads, they

Or discount and effectively delivering them the same value. And uh we think that that's what's going to be the core driver over the next year or so um of that uh, consideration size and revenue per lead

Got it. Super helpful, Jeff. Thanks for all the color today, appreciate it. And uh, nice to start to the year.

Great. Thanks, operator. I think we have time for 1 more question. If there is 1,

We do have an additional question. This comes from Matt Condan from Citizens. Please go ahead with your question.

Great. Thank you so much for taking my questions. My first 1 is just on the proprietary service requests going 7%. But if you look at the consumer marketing expense, it was a 13. He just helped me. Think about just the efficiency of marketing, expense specifically on the consumer side or the homeowner side of the marketplace. And then my second 1's. Just how do you think about balancing the efficiency in Pro acquisition? Which is having enough Supply on the network to drive? Just Superior consumer experience. Thank you so much.

So, let me start if Russ is anything to add or anything because I've missed anything, he'll jump in.

So on the simple ratio of proprietary growth versus marketing growth. I think the way you have to think about it, is we've executed a mixed shift.

And um, by executing the mix shift into paid proprietary with uh the free Google SEO coming down a bit, you're paying more on the average per lead. However, Rusty explained our approach which is incremental break. Even

Data, for example, you're not as able to finely tune, um, your incremental profitability, but we have ways to do it, um, and so we're constantly working on getting more efficient. Um, I think you have a little bit of inefficiency built into the second quarter as we've scaled up new channels. Um, but again, not material. So I give a mix shift, and I think that's the way that's working. Um, I think we expect that to stabilize a little more going forward, um, but we will always sort of ebb and flow a little bit there.

I think on the pro capacity I think again Rusty, hit that 1, we do the same thing there, where we again, have a pretty high powered artificial, intelligence machine learning team, they work on scoring, all our prospects and bucketing them. And we work on dialing to the last dials break even based on the likelihood as scored by our machine learning team that the the the the the job is going to convert and the anticipated LTV and on the average, we've really been able to finetune this 1 of the net results has been an increased capacity per new Pro. Um, our new subscription Pros are 2 to 3 times as much capacity as our traditional leads pros. And that's a combination of efforts there. Um, that have added up to that. So, uh, we think we have the, the plan and we think we've been executing against it. We think you can see it on our numbers so far, um, on the

Sales side and uh on the online enrolled side. Uh we're we're trying not to be too excited about that, but if we're acquiring more than 10,000 Pros a month in uh in markets that collectively are half the GDP or less.

Uh, of the United States. We think we have an opportunity to add a few thousand a month there and our European Pros. You know, only buy.

20% is less leads per month than our, uh, legacy leads product pros. And so we think we have the opportunity to really expand capacity and have supply meet demand and grow the business. Um, and we think we've got a reasonable number of pieces of that thesis in evidence and, uh, can thus project.

what Rusty's talking about with 2026, which isn't overly aggressive with a fair amount of confidence. Yeah. So and then, the only thing that I'd add on the marketing side is that we're we're going to talk about our marketing execution in isolation, but uh it's really a fully integrated commercial Engine with our product and the pro side of the network. So uh, if you think about, uh, you know, every every day we have people working on kind of optimizing, our funnels matching bidding conversion and then there's kind of the density of, uh, and liquidity in the network. So, when we improve those things, uh, it makes the uh, you know, the the um, monetization

Of every individual, Sr., uh, impacted, right? So we're able to move up that monetization, uh, through the product and optimizations in the product. When we do that, uh, and we make each, uh, unit of volume more profitable, sometimes we're able to bid into that and get more volume. Sometimes, uh, which might actually increase our marketing costs, but, uh, increase our overall profit. And then other times, uh, we take that uh, as profitability and we uh, reduce our marketing costs. So it can go either way uh, on that. And the goal is to grow overall profit through execution on marketing as well as optimizations in the product.

Thank you so much.

Thank you, and I really want to thank everybody for all your time on a very busy earnings day. I look forward to talking to you all in the future.

Ladies and gentlemen, that will conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.

Goodbye.