Angi Inc.

Good morning, everyone, and welcome to the Angie Inc. Third Quarter 2026 Earnings Call. After today's prepared remarks, we will host a Q&A session. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by 0. As a reminder, this conference is being recorded. Before we begin, the company would like to remind you that during this presentation, the company may make certain statements that are considered forward-looking under the Federal Securities Law. These statements may relate to the company's outlook, strategy, and future performance and are based on current expectations and information currently available to the company. 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 the company's most recent quarterly report on Form 10-Q, its most recent annual report on Form 10-K and any subsequent SEC filings. The information provided on this conference call should be considered in light of such lists. The company will also discuss certain non-GAAP measures, including adjusted EBITDA, which they will refer to today as EBITDA for simplicity during the call. The company would also like to refer you to its earnings release public filings with the SEC and the investor relations section of its website for all comparable GAAP measures and full reconciliations for all non-GAAP measures. Now, it is my pleasure to turn the floor to Angie's CEO, Mike Stibe, and its CFO, Julie Oraro. Mr. Stibe, we'll begin with some introductory remarks. Please go ahead.

Thanks, Alan, and good morning, everybody. I'm excited to be here. Before I begin, I want to thank Jeff for the work he's done at Angie and for his support during this transition. I also want to thank our board and our leadership team for embracing a lot of change in a very short period of time. I thought to get started, I'd share a little bit about my background, why I came to Angie and what I've learned about the business in my first few weeks and what we see as the path to victory. I've spent much of my career building marketplaces and transforming businesses, especially in my last three roles as CEO. At The Knot, we built America's most used and highest rated wedding planning app. and we delivered annualized shareholder returns of more than 30%. At Artsy, we built a global transactional marketplace for art, we grew revenue aggressively and we made an unprofitable business sustainably profitable. At Tegna, we use technology and AI to improve productivity, to build better digital products and deliver approximately 40% annualized shareholder returns and a $6.2 billion exit. We did that by building strong teams, great products, and operating companies that move fast and invested shareholders' money wisely. That's the playbook I'm excited to bring to Angie. Angie is one of the most recognized brands in home services, a network of almost 200,000 pros around the world, and a leading position in a nearly $2 trillion global home services market. These are advantages that would be difficult to replicate, but today we're not getting enough out of them. Too many homeowners come to Angie looking for help and don't end up hiring a pro. And too many pros miss opportunities to turn these leads we deliver into jobs. We can make Angie work better for both, and we can run this company far more profitably while we do so. Let me start with how I think about the business because we've reported a lot of different metrics in the past, but we haven't always made it clear how they connect to revenue and profit. I want to change that and I want to walk you through how this business makes money in simple terms. That will also let us tie what we're working on directly to revenue and profit in the future. Homeowners come to Angie looking for help with a project and they tell us what they need That is a service request. We match that request with one or more qualified pros, and each match is a lead. Pros pay us for those leads, and we set the price of each lead based on its expected value to the pro. Pros can pay per lead within a monthly budget they set, or they can pay a subscription for an estimated number of leads each month. We call that budget or that subscription capacity. As we deliver leads, pros spend against that capacity and thus we generate revenue. So the business comes down to three things. One, generating service requests. Two, turning those service requests into valuable leads through matching and pricing that we sell to the pros. And then three, building the right amount of pro capacity to purchase those leads. We generate service requests in four ways. About a third come to us directly. These are homeowners who search for Angie by name, visit our website or app, or respond to our emails or calls and texts. Others come from unbranded search, where Google sends us free traffic from people looking for, say, a plumber or a roofer. We also buy clicks through paid marketing, and we buy service requests from third party affiliates. Finally, we win homeowners through LLM integrations and LLM advertising. a nascent but an exciting growth channel. We drive the number of leads and the value of leads through matching, connecting each service request to the right pros, and by setting the price of each lead fairly in order to balance pro retention and spend. We build capacity in three ways. Pros sign up online, our sales team signs up new pros, and we work with existing pros to increase their budgets. Now, here's what's been happening. Over the last few years, Angie has seen declines in service requests and leads. Some of that has come from changes in organic search traffic, as unbranded search has fallen by about two-thirds since 2023 because of changes to the Google search experience, which have reduced traffic across the whole industry. Unbranded search now contributes only about 5% of our service requests. So that pain is largely behind us. Some of the decline has been self-imposed as Angie's reduced affiliate marketing channels by about 80% since 2023, narrowing the number of partners we work with and focusing on channels that deliver good outcomes for pros. Affiliates now represent about 6% of service requests. So we are much less reliant on that channel than we used to be. Finally, Angie has reduced paid marketing over time where spending wasn't earning an acceptable return. Paid marketing remains an important and sustainable source of homeowner demand. These changes have put significant pressure on revenue, but they mean that as we roll into 2027, we do so on a much steadier base of service requests and leads with myriad opportunities to improve. On capacity, fewer service requests and leads have reduced the amount of pro capacity that we can serve. Most of our capacity now comes from more tenured pros, a much stickier client base. We retain around 80% of that capacity annually, and that means we need less new sales activity to replace capacity churn and grow the marketplace. This allows us to shift some resources from our small and medium sized pro efforts to our large pro sales efforts. While smaller pros are an essential foundation of the marketplace, these large pros generally have much bigger marketing budgets and they have more resources to respond to homeowner inquiries, which is good for both capacity and lead value. So we've reduced our smaller pro new business sales team by about 70% since 2023. Our sales team is now sized appropriately for the business that we have today. And once leads return to growth, we can easily dial up our investment in sales and online enrollment to grow capacity. In short, the team has been managing declining search traffic, has been reducing affiliate and paid marketing activity where the economics weren't attractive, and adjusting the size of our sales organization. That has hurt revenue, but it was the right work to do to sustainably grow cash flow. We have a healthier business to build on now, and I see clear opportunities to improve our products, run the company more profitably, and return to growth. Which brings me to our near-term priorities. First, we are going to maximize cash flow. We can run this company at much better margins and at higher velocity. I've seen companies like Angie become too layered and expensive to operate. Unnecessary bureaucracy erodes focus, it adds complexity, and it frustrates talented people who are trying to build great things. Angie had become too layered, and we've already acted to address it. Yesterday, we made the sad decision to reduce our headcount by approximately 300 roles, primarily in middle management and support functions. These changes are expected to generate approximately $40 to $50 million in annualized operating expense savings and reduce capital expenditures by approximately $10 million. Some of these savings will be reinvested, but the majority will go right to the bottom line. These actions improve efficiency. More importantly, they make Angie a more nimble and fast-moving place where talented people can do their best work. will bring greater focus and speed to how we operate. Simplifying how we look at the business, as we've done on today's call, is part of that. Removing unnecessary layers and support functions also puts our leaders closer to the work, gives talented people more responsibility, and it minimizes wasted time. We will also be putting in place a high velocity operating system with clear objectives and key results and fast data-driven decision making. My teams of prior companies have implemented this successfully several times, and it can really speed our return to growth. Third, we're going to turn a good product into a great product. We are already making progress against two clear opportunities here, and AI is foundational to both. On the homeowner side of the marketplace, many homeowners visit Angie needing to get a job done, but they do not get the right pro for the job. To address this, we're building AI-powered experiences that help homeowners find and book the right pro and encourage them to return to Angie every time they need a job done. On the pro side, too often pros miss opportunities to turn leads into completed jobs. We're building AI-powered tools that help pros respond to homeowners, follow up and book appointments at much higher success rates, and I can tell you the early tests here have been very promising. The better we convert homeowners' needs into service requests, the happier our users will be, the more business we will bring our pros, and the more profitable revenue we'll book for Angie. And the more jobs we help our pros win, the more valuable our leads become. This should support better retention, more capacity and pricing that maximizes the value for pros and for Angie. These improvements can have compounding benefits for our marketplace and unlock tons of profitable revenue. The work you've heard about previously, including our re-platforming, pro-CRO, and the homeowner agent work continues to make exciting progress. Fourth, we will supercharge the enterprise with AI. When I was recently CEO of Tegna, we introduced AI and automation across our largest departments and identified approximately 2 million hours of annual productivity improvement opportunities. That unlocked cash flow. and productivity. It freed up people to focus on delivering better work and expanding our offering. AI capabilities have only multiplied in the months since. I'm excited to build a team here of elite AI-enabled talent that can multiply their impact by managing teams of agents. Fifth, as a leader in our space, we will ensure we are plugged into the LLMs that will provide new sources of both free and paid traffic. We are already making big strides here. In AI Answers, our internal data show that our share of voice is the highest in the category. Our apps are live in ChatGPT and Gemini, and we're building out ChatGPT ads as a growing and promising marketing channel. You'll see another big announcement on this front later today. Now with all that, let me talk about the financial outlook. I'm not ready to give you a detailed financial forecast for 2027. but I expect EBITDA less capex to grow meaningfully in 2027. And I believe we can run Angie at structurally higher margins from now on. My first priority is going to be maximizing and growing cashflow. Our third quarter performance demonstrates what's possible. We delivered our highest quarterly adjusted EBITDA margin since 2018, reflecting the cost actions already taken and more disciplined marketing spending compared with earlier this year. and that was before the savings from our latest organizational changes. Due to efforts the team has been making to remove unprofitable or lower quality marketing and sales, revenue comps remain challenging for the next few quarters and the year over year impact will continue into 2027 even as those decisions improve the fundamental economics of our business. That said, Everything I've seen so far suggests the team's outlook for a return to growth in the back half of 2027 makes sense. In the meantime, profitability will be greater than expected. Most of the savings from our recent reorganization will flow to the bottom line, and I expect EBITDA less capex for 2027 to be substantially better than the $50 million floor my predecessor previously provided for this year. Going forward, I plan to provide you with regular updates on the priorities I shared today, along with clear and consistent KPIs that demonstrate the impact of our work on Angie's marketplace and financial future. And I'll be back on our next earnings call with greater fidelity on the 2027 outlook. So let me close with this. I'm excited to be working with all of you and the team here at Angie. Angie is a great brand, a large network of pros, and enormous opportunities ahead. I'm proud of how our team has responded to the changes we're making, and I'm excited about what we can accomplish together. We're going to build better products that delight homeowners and pros. We're going to run this company at better margins. We're going to return to growth as a much stronger, more valuable company. Thank you, and I'll turn it over now to Julie to discuss our financial results in more detail.

Thanks, Mike. So I'll briefly review our third quarter financial results. The key driver of revenue and profitability. And close with our outlook. Third quarter revenue was $242 million, down 8.9% year over year. Adjusted EBITDA increased 6.3% to $42.2 million. That's our highest quarterly gross margin since 2018, as Mike mentioned. Let's start with revenue. Our marketplace revenue is driven by three factors. First, we generate homeowner service requests. Second, those service requests turn into leads through matching. And three, third, pro capacity. So service requests represent homeowner demand. Matching determine how many leads we can deliver against pro budgets to generate revenue. and Pro Capacity represents the budgets available to purchase those leads. So starting with homeowner demand, service requests declined 2.4% year over year to about 4 million compared with 5.5% decline last quarter. So this improvement reflects a more stable demand while lower affiliate and organic sales traffic compared to last year continued to pressure results. Turning to leads, leads declined 17.6% year over year to 4.5 million. This reflects the wind down of our legacy advertising product and the overall reduction in pro capacity from our reduced sales force. On pro capacity, average monthly active pros in the US declined 14.4% year-over-year to approximately 101,000. That reflects the purposeful reduction in our sales organization and our shift toward large pros who have bigger budgets, convert more leads, and stay longer. Average pro capacity increased in the low double digits partially offsetting the decline in active pros. And as a result, total pro capacity declined in the mid single digits. Revenue per lead increased 9.8% to $47 as we moved out of the heavily discounted legacy advertising product and large pros became a bigger part of the mix, partially offsetting the decline in lead volume. Large pro revenue grew 20% year over year, while revenue from smaller pros declined 17%. Sorry, revenue from smaller pros declined by 13%. In summary, service requests are more stable. Leads per service request has declined year over year, partially offset by improved revenue per lead, and we're continuing to shift our pro capacity mix to large pros. Turning to profitability, adjusted EBITDA increased, primarily reflecting lower fixed expense and more disciplined marketing spending compared to earlier this year. That's before any benefits from the new cost action Mike described. Fixed expense declined $14 million or 24.4% year over year. reflecting the workforce reduction announced earlier this year in Q1. Sequentially, consumer marketing declined $13 million from 41.4% of revenue in Q2 to 37% in Q3, while fixed expense went about flat. As Mike discussed, our latest organizational changes are expected to generate approximately $40 to $50 million in annualized operating expense saving and reduce capital expenditure by approximately $10 million, so that's $50 to $60 million of total annual savings. We'll also have approximately $18 to $30 million of one-time restructuring costs, primarily related to severance expense. So we expect to reach the full annualized savings run rate by the end of the first half of 2027. The savings, they are incremental to the $70 to $80 million that we announced earlier this year in Q1. Some of those savings will be reinvested, but the majority will fall to the bottom line and increase profitability and cash flow. Now on to cash flow and our balance sheets. Our operating cash flow for the quarter was $28.5 million compared with $21 million last year. Capital expenditures were $14.1 million resulting in free cash flow of $14.4 million compared with $4.9 million last year. We ended the quarter with $202 million in cash and about $400 million in debt with no borrowing and our revolving credit facility. Lastly, closing with a near-term outlook before we turn to questions. As Mike noted, due to efforts the team has been making to remove unprofitable or lower quality marketing and sales efforts, revenue comp remains challenging for the next few quarters. especially with unusually high marketing expense in Q4 2025. At the same time, we do expect profitability to benefit from the cost discipline already underway. So while we're not providing detailed financial guidance for 2027 today, we expect the action we've taken will drive higher adjusted EBITDA with stronger cash flow. We focused on improving pro capacity Increasing leads and operating at higher margins. This will result in stronger and more profitable operating business. And with that, we'll open it to questions.