Angi Inc.

Please note this event is being recorded. I would now like to turn the conference over to Andrew Russakoff, CFO. Please go ahead.

Thank you, operator. Good morning, everyone. Andrew Russakoff here, CFO of Angie Inc. And welcome to the Angie Inc. first quarter earnings call. As a note, I go by Rusty, so everyone should please feel free to refer to me as Rusty. And joining me today is Jeff Kipp, CEO of Angie Inc. Angie has also published a shareholder letter, which is currently available on the investor relations section of Angie Inc's website. We have also made some changes to our metrics disclosures this quarter and have published a short deck on the website to provide more helpful context and explanations. We will not be reading the shareholder letter or presenting the metrics primer deck on this call. I will soon pass it over to Jeff for a few introductory remarks and then open it up to Q&A. But 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 are based on our current expectations and on information currently available to us. 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, including those contained in our most recent quarterly report on Form 10-Q, our most recent annual report on Form 10-K, and in the subsequent reports that we file with the SEC. The information provided on this conference call should be considered in light of such risks. We'll also discuss certain non-GAAP measures, which, as a reminder, included just EBITDA, which we'll refer to today as EBITDA 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 gap measures and full reconciliations for all material non-gap measures. Now, let's jump right into it, Jeff.

Thanks, Rusty. And welcome, everyone, to Angie's First Quarter Earnings Call, and our first as an independent public company. I'm going to offer modestly longer introductory remarks today than we would normally given our release of the new operating metrics that Rusty just mentioned. Overall, our first quarter performance was solid. As many of you know, we implemented homeowner choice in the quarter. Homeowner choice means that every lead sent to a pro on Angie is sent because a homeowner has specifically and affirmatively taken action to choose that pro in our user interface. A year ago, about 40% of our leads were auto-matched. and today essentially none are, we could explore some auto-matched leads in the future for customers who want that product, but today we have none. For context, homeowners are happier when they're able to choose the pros who contact them and are significantly more likely to hire a pro with whom they have selected versus a pro with whom they've been auto-matched. Since we implemented homeowner choice in January, we have seen our homeowner net promoter score, key metric for homeowner satisfaction, near positive for the first time since we started tracking the metric. The metric was below negative 30 two years ago. A positive 30 NPS move in that kind of time frame is a significant accomplishment. I've got to tip my hat to the entire organization for their hard work over the last couple of years. Further, our pro win rate, the percent of the time a pro wins a job on a lead they pay for, jumped 10% from before homeowner choice to after. And that is a key indicator, too. Pros don't come to the platform to chat with homeowners. They come to win work. Both metrics are key indicators that we're getting more jobs done well. A job done well is the North Star experience for customers on both sides of the marketplace. Homeowners come to Angie to find a skilled, reliable pro to get their job done well. And as I just mentioned, pros come to Angie to be hired to do jobs well. Of course, while we believe that driving jobs done well is the key to long-term value creation for Angie, for our homeowners, for our shareholders, for our team, the move to homeowner choice did impact our financial performance in the short term. Nearly all of our first quarter revenue drop can be attributed to the impact of homeowner choice on lead volume in our network channel. This is a good transition to discuss the new metrics we released last night, metrics we believe will help investors better understand the movements in our business. Given that this is new disclosure and new framework, I'd like to take a few minutes to walk through it. Thanks in advance for your patience. Let's start with a breakout of service requests and leads, which we previously called monetized transactions, into proprietary and network channels. The key distinction between proprietary and network channels is who is in control of the homeowner customer experience and service request details. In proprietary channels, we, Angie, control the experience and details of the job. Proprietary channels include, first, all traffic on our owned and operated brands, domains, and apps, which by definition go through our proprietary customer experience. Secondly, traffic from referral partners who send homeowners directly into our customer experience and service request submission path. And finally, customers of our retail and real estate partners from whom we can obtain the exact details we need to know for the job to be done and match well to our pros. The Angie Network channel, on the other hand, consists of third-party affiliate partners who bring homeowners through their own user experience and questions about the service request and show our pros for selection through our widget technology on their site. Obviously, in this case, our partner is in control of the experience and the job details. Let's move to the actual numbers in the release. You'll note the 33% and 57% step-downs in network service requests and leads, respectively. These declines were the result of requiring network channel homeowners to choose their pros. Before the January rollout of homeowner choice, all network service requests were auto-matched to pros. Post-rollout, we're seeing only about half of network homeowners choose at least one of our pros. It's a little lower than our proprietary customers taking action percentage. but this is driving the decline in lead volume and fewer SRs as well because we have less revenue per SR with which to market. As noted, this change accounts for nearly all of our lead volume drop and thus effectively nearly all of our revenue drop in the first quarter. Secondly, it's worth noting the proprietary service request declines have decelerated materially and actually improved sequentially each month in the first quarter. And proprietary lead declines have decelerated to nearly flat for the quarter as a whole. Implicit in our 2026 revenue guidance is that the network channel will remain flattish year over year, comparing to the significant drop we've experienced in the first quarter of 2025, and we expect to hold through the remainder of the year. And proprietary lead volume will move to growth. On top of that, with our move to selling a single pro product and with migration of our ads pros to the single pro platform in the third quarter, we expect revenue per lead to start growing in the second quarter of 2025. So to do the basic math, flat network volume plus growing proprietary volume plus revenue per lead growth mathematically adds up to revenue growth in 2026 and sequential quarterly improvements in revenue declines in 2025. Okay, moving now to our active pro network metrics. I would first note that the volume of newly acquired pros has been coming down. Importantly, I would remind you that, as we noted in the shareholder letter, that the value creation on this smaller base of pros and smaller sales force is nearly 150% greater than a year ago, despite acquiring 41% fewer pros in the first quarter. So we're acquiring fewer pros but with greater capacity and generating much more aggregate lifetime value, which is, we think, pretty clearly the right way to run the business rather than paying for unprofitable volume growth. We anticipate that we'll grow the number of pros next year, i.e., 2026, and add to total capacity, both because we'll stabilize our sales headcount and because we anticipate rolling out online pro acquisition in the second half of this year. And we'll likely see growth in the raw number of pros by 2027. It's not the raw number of pros per se that drives capacity. It's the capacity per pro. And in terms of our capacity for growth, it's worth noting that if you do the math on leads per active pro looking back the last few quarters, You'll notice that we're at roughly 11 leads per pro in the first quarter, but 15 two quarters ago in the third quarter of 2024. So we have significant capacity in the existing network, along with the capacity that we'll add during the rest of this year in 2026, meaning we have plenty of capacity to grow into in 2026. The next change in the metric I would point to is that we've moved our pro network to an average monthly active basis from a quarterly paying or transacting basis, because first, Our operating focus is to drive pros to engage with homeowner service requests because without engagement, there are no jobs done well, hence the shift from transacting to active pros. Secondly, because we run the business on an active monthly basis, we think showing the metrics this way more accurately reflects our operating approach. We've also placed our previously acquired pros into cohorts so that you can see the year-over-year retention in each cohort clearly. Newly acquired pros in the last 12 months have what we would term an activity rate rather than a retention because, by definition, they have no prior year activity. We are focused on activating and retaining our pros in their first year. Pros acquired more than 12 months and up to 24 months ago have different retention characteristics than what we call the base cohort, which are pros acquired more than 24 months ago, and thus we have split the cohorts to show the performance separately. I would note that retention for each cohort is meaningfully improving. Base cohort retention is up 8% for the trailing 12 months versus the prior period as of Q1 2025, and retention for pros acquired in the 12 months ended Q1 2024 is up 16%. Activation rate is improved as well, also by approximately 16%. Thus, apples to apples, had acquisition of new pros been level over the last several years, the network would be growing, driven by the improvements in customer experience, which have turned translated into significant retention and activation campaigns across each cohort. So, to wrap up, our split of service requests and leads into proprietary network channels show more clearly the drivers of revenue declines in 2025 and our path back to growth in 2026. Looking at leads per active pro on an average monthly basis also shows the capacity in our network to absorb the growth going forward. Finally, our move to active pro cohorts allows investors to more clearly see the dynamics between declining acquisition and improving retention and activation in our network, and with the anticipated acceleration of new pro acquisition in 2026, shows the path back to network growth. Thanks, everyone, for taking the time to listen to my explanation, and now we can move on to your questions.