People Incorporated (PPLI) Earnings Call Transcript

Good afternoon, and welcome back to day 2 of the afternoon session of RBC's TIMT Conference. I'm Brad Erickson. I cover Internet here at RBC. Very pleased this afternoon to be joined by the CEO of Angi Inc., Oisin Hanrahan. Oisin, nice to see you. How are things?

Good to see you. As we said in the preamble, we are living the dream, right? I was mistaken when I thought I'm going to be a pilot or an astronaut. This was the dream.

That's right. Right. You're recreating the home services vertical. So that's way sexier than being an astronaut when we really stop and think about it.

So cool. Well, I have a list of questions, obviously. But I wanted to start. Obviously, you're new to the CEO role of Angi, started in February. Obviously been with the company since the Handy acquisition, which you founded. As you kind of took over and got your fingers on things starting in February, what were kind of the 1 or 2 or 3 sort of things that most immediately required your attention, would you say, as you got started?

So when I took on the role, as you said, I've been in -- I've been working with Angi for 2.5, 3 years at that point, 2.5 years. And I've been running Handy for 6 years before that. One of the biggest shifts we made was we came out and said, "We're never going to win this thing. We're never going to be the best in this category if we don't put out a really bright light, a north star that says we're going to put the homeowner and the pro at the center of everything we do." And that shift away from perhaps unpopular with some people, perhaps popular with some people in this call, that shift away from quarterly results, that shift away from, hey, we have to do whatever we had got to hit a number to [indiscernible] some long term [indiscernible] we've got to put the homeowner and the pro at the center of everything we do. So that was one big shift. And it was -- that was hard. That was a cultural change that we made inside the organization. The second one was a rework with the leadership team and a rework with the organization to actually support that. So we brought in a different structure for how we run the business in terms of how the business units were segmented and different voices around the leadership team in terms of shifting towards product, engineering, technology, design, data to really put those things at the center of how we serve our customer. And then the third was around values and mission. So we previously have not been as forthright in terms of what our mission is at Angi. And we actually didn't have a set of values that we recognized, awarded and recruited against. And that was a really important step for us. So those are probably the 3 biggest things. And none of them are short-term things, right? None of those 3 are things that have an impact on day 1. But I believe they probably have the biggest impact over the long term is if you set a north star and recruit people and organize in a way that puts that north star at the center, and you've got a really strong mission and really strong values, I think it changes the tone, and it changes the direction of the organization.

Got it. And then I think when you were elevated to the role of CEO, I think the obvious sort of takeaway was that, hey, this guy built a business that already resided around doing transactions in the home service vertical on the Internet. And obviously, that was Handy, is Handy. And so you've come over now and sort of gotten a look at the product and stuff, what are -- is it fair to say that you're applying a lot of the sort of direct principles that you put in place at Handy that were successful? Is it different because it's a different scale? Talk about sort of what your direction you're putting the new company on.

Yes. So we've got 2 different business models inside Angi. We've got the ads and leads model where pros pay us to get more customers. And then we've got the service model, where homeowners pay us to do work inside their home, where we sell the service directly to the homeowner, and then we take a margin and pay the firm. That second business model is the one that we -- that I've had the most experience with. And it's the one where we've really doubled down. And that business is $117 million in Q3 of this year, up 160-plus percent year-on-year. We've made an acquisition to even help that growth more. And we're at a place where, yes, the scale is different to where Handy is at. But it's not about a business that's at $470-odd million of run rate and more than doubling year-over-year. It's actually a dozen different businesses inside that because this is not won at a level of home services. No one wakes up in the morning and says, "You know what I need? I need some home services." Literally, no one ever wakes up and says that. I've never met a single, nor will I ever meet a single person who says, "You know what I need today? Some home services." The person who wakes up and says -- and the same is true of the pro set, right? No pros wakes up and say, "You know what? I'm going to start with a home service business." Like that just doesn't happen. Instead, a person says, "Hey, I need to get a light fitting installed." Or someone says, "I'm going to get my bathroom remodeled because I'm sick of the fact that the tiles are kind of cracked and this like color might have been fashionable sometime around the late '90s. But it now makes it look like I'm from the late '90s." Or someone wakes up and they say, "You know what? I'm going to get my deck remodeled because I'm going to treat myself, or I'm going to get a new deck installed. Basically treat myself, and I want to be able to sit outside." And that's how we've got to approach this category. Historically, I think we've said, "Hey, we're going to be the best in home services." Instead, we've got to be great in hundreds and hundreds of different categories. And it's closer to some of the leading e-comm players, like take away their furniture, you might think people wake up and say, "I'm going to get you some furniture." No, they're waking up and saying, "Hey, I'm going to get a couch. I'm going to get a sofa or I'm going to get a bedside table." And there's somebody inside each of these e-comm players running each category and thinking about it vertical by vertical. And that's what we've got to do. That's how we win this. And within services, it's the same thing. $117 million in Q3, it's broken down into individual categories. It's $X million of bathroom remodeling. It's $X million of TV mounting. It's $Y million of cleaning revenue. So it's really about thinking about this from the customer's perspective, from the pro's perspective and making sure that we organize in that way. And that's very similar to what I've done before. And that gives me a lot of confidence and makes me feel really good about the direction we're taking. And all the data is pointing the right way. Like look, there was some key things we wanted to prove when we started Angi Services. Where people are going to buy services, could we deliver them? Could we make any money? And we've definitely proven people will buy them. We've proven that when we get our act together and we put the right team on it, we can deliver them. And in our earliest categories, we've proven we can make money. So it's now just this execution game. And execution is hard. It's where the money is at. And you've got to actually go and recruit all the teams to do it. There's not a person on this call that doesn't know how hard it is to recruit teams right now, and we've got more open roles at Angi than ever before. And most of those roles are in engineering, product design and category management, P&L manager role. So it's -- trying to get through it.

Yes. So you mentioned a few of the categories, and like you said, you've done the Roofing acquisition. I think I would love to hear a little bit more about what you sort of consider the low-hanging fruit? And I guess we look at it as like 2 interesting things. One is there's a certain set of, we'll call it, more commoditized home services that would seem like very intuitive for brokering on the Internet. On the other hand, with things like the Roofing acquisition, I think you could argue you guys are kind of going after some of the higher ticket items, addresses more of the TAM. Handy is, I believe, correct me if I'm wrong, Handy is a -- big portion of it is housekeeping, and then like you mentioned, hanging TVs. You have deals with like furniture shops and stuff for installations and that sort of thing. What -- when you think about sort of 3 or 4, 5 biggest categories, subcategories where there's low-hanging fruit where you see product markets at, what sort of are those? And how well are you addressing those at this point?

So I thought what you said initially was correct. So I used to think that price equated simplicity. Price equated the likelihood of us being able to price the job and sell it in a relatively commoditized way. It doesn't. So the reason it doesn't is there are so many other variables that are important. And I'll take roofing as an example. A $10,000 roofing -- roof replacement, shingle replacement job is way, way, way easier than a $200 or $180 dishwasher repair. So you've got way more margin dollars to play with. You've got way more standardization in terms of what the actual materials are going to look like, what the customer desire and preference is. The scale of the job with a roof replacement, it's simple, the roof's going to be replaced, right? With a small dishwasher repair, I need to have exact parts for your dishwasher to diagnose the problem, takes time. The replacement cost for the dishwasher is pretty low. And as a result, once I clip into replacement of the whole thing, in terms of like the labor hours go up, and it's no longer economical to do it. So you're in this interesting place where we're identifying more and more categories where there's low customer discretion. If you need to get your roof replaced, you need to get your roof replaced. Like, yes, you could do it preemptively. But generally, you need it replaced. Otherwise, your home is leaking. Second, there is less and less customer preference. Like take a -- what's another good example? Take painting as a relatively cheap but highly customized example of customer preference. Unless the customer is going white, they have a lot of preference on exactly what the color pallets are going to be. And they're going to want it and they're going to want to test it. They're going to want to test it on the wall, and they want a certain level of sheen, non-sheen, gloss, matte, et cetera. Whereas with roofing, you pretty much just want the same shingles you had before. Same is true of most roofing permit jobs. It's mostly a straight replacement. You go into -- even in a home, you can have a very minor remodel that might change the composition of the home and might require a lot of internal permits, and some permits that can be tricky to get. So we're identifying these categories that are low discretion, person needs it, low customization. So you typically don't have that much custom work and this person doesn't have a lot of preference. Ideally, they're outside the home. So the reason they're outside the home is important is there's a lot of really great LiDAR aerial photography that allows us to price the job without actually being there. So we could use the LiDAR data to price a bunch of exterior jobs without ever going into your home. And that reduces the cost. It allows us to narrow it and really tighten the band of price for you. So we can price a roofing job just using LiDAR and aerial photography without ever going to your home. So within a pretty tight range. The same you can do with fencing. You can do the same with concrete driveways. You can do the same with exterior painting. Anything that requires an inside-the-home job, like that's -- in some cases, we can get data in advance. In some cases, we can get the person to do like a video walk-through. But like using the raw data that we have from outside your home, that's low-hanging fruit because we can price the job. We can know with certainty, like take roofing again, we can know exactly how close we can get the truck to your home. So one of the variables in roofing is the time to move the materials off the truck right on to your roof. If you've got a driveway that stops 30, 40, 50 feet short of your roof, then we know, actually, we're going to need a bunch more labor to move that material or we're going to need to bring crane on site. We can look at how wide your gate is to know how large a truck we can get there. We're going to have to go from a large truck to a small truck, or we're going to need to do multi-truckloads to get all the materials there. So there's so much low-hanging fruit in these external large-dollar value jobs that we just think there's a ton of opportunity. And we're continuing at the same time to build out the Handy model for those interior small value jobs.

Got it. Okay. So let's stick on the roofing front because that's a lot of great color you just gave right there. Maybe just a little -- I imagine -- so you can automate pieces of it, I think, that probably people aren't as aware of. I imagine there's also still going to be some manual component there. Maybe just talk about get into the mechanics of like a sample transaction if you could. And then separately, I think one of the questions we've had as you've acquired Total Roofing is like is that -- obviously, it gets you intelligence of how jobs are done, bid, all that stuff. But then it's also just a straight up supply addition, right? Service provider shortage being what it is, it gives you access to proprietary supply. When we look at the model you're sort of starting to run in roofing, is it intended to add to the supply piece? Or is it more intended to sort of build your intelligence as you address the vertical more broadly? Maybe if you could just talk about that.

Those are very related problems. Very, very related problems. So if you unpack that, let's just go through the transaction and it will become clear why they're related. Today, with the model that we've now got, you come online, we call you. Someone from our call center team calls you knowing that you want to get a roofing job done, you want to get your roof replaced. And we already have your address. We have an early read on what we think the cost is going to be, as in how many square feet your roof is, what the pitch is, et cetera, et cetera. And what we can do with that is we can give you, over that first call, after we ask some questions, a pretty narrow band of price. After that, we send a person out, we confirm the price, sign, we can organize financing for you. We organize the shingles to be delivered, dry materials to be delivered directly to your home, so we have proprietary relationship with manufacturer, proprietary relationship with distributor where we get rebates and we get preferential pricing. We don't take inventory on the materials because we're ordering directly for your job after we've sold you the roof. Then the important part in terms of supply. We contract with a labor crew to do the work. Before, we would have to contract with a crew that had experience in labor, permitting, buying materials, had inventory, had the relationships, could pull it all together, and pricing actually. Whereas now, all we're doing is we're saying, "Hey, all you need to be good at is labor. You literally just need to know how to put on a roof." So it unlocks supply in the sense that it means the number of people that we can go to with a roofing job is far larger than before because you didn't need to have a balance sheet. You don't need to be able to get a permit. You don't need to do any of that. So you literally just need to know how to put on a roof. And we'll take responsibility for making sure that work is guaranteed and all that other stuff. So it truly does change the model and change the propensity and our ability to bring more people into the business. So it's a lot easier for us to go and bring on roofers than it is to start people and having a roofing business, if that makes sense. It's a lot easier for us to say, "We got a crew of 6 or 8 people together, and can you -- that are already doing this for something else, join us and do it for us." As opposed to say, hey, you need to know how to buy materials, [indiscernible] permits, organize financing, all that stuff that you have to be able to do before, and then you still have to be able to do if you want to work as one of our lead pros or ad pros. So some pros are incredibly good at that, and that's great. And we're going to continue to have a great business there, allowing them probably the best performance marketing the business. But for pros that don't want to do that, we're now unlocking a whole new supply approach. The same way that with Handy, we unlocked a whole new supply of Handy people. Like we -- the Handy person before, in order to have a business mounting TVs, needed to do a lot more than just mount a TV. They needed to go out and figure out how to get customers. And they needed to figure out how to market and how do they take payment, all that stuff. Whereas under Handy, they didn't have to do any of that. They literally just have to know how to mount a TV and show up on time and do great work. So we're -- by breaking apart the supply chain and taking responsibility for the parts that we could scale, like we don't need hundreds and hundreds of distributor relationships. We need like 3 or 4. Like that's it.

Yes.