People Incorporated (PPLI) Earnings Call Transcript

All right. We're going to get started. Thank you, everybody, for attending this session. My name is Ross Sandler. I run the Internet team here at Barclays. Super excited to have the guys from IAC back again in person after a nice 2-year hiatus.

Chris, maybe we could just dive right in. Start with macro, you guys released the November metrics this morning. Maybe just on the advertising side. So DDM down 16%, a slight downtick on a 2-year stack. Just walk us through kind of what you're seeing on that business.

Sure, and great to be here. Thanks for having us. There's 3 main trends underlying the down 16% in digital revenues at Dotdash Meredith. The first is overall advertising market, classic display, both premium and programmatic, video, et cetera. That was soft in October. I think we've seen material or real weakening of that across the month of November. And like anything, it's -- like it's been, since May, different trends across different sectors. But you saw real softness and pullbacks across CPG, some pharma, a few other sort of discretionary ad budgets where both on the premium side -- well, let's start with the premium side. They're not -- they're just pulling back on campaigns or not executing. So you have a slowdown there. And then on programmatic, we have pretty good data from October that programmatic ad rates from a major platform were down about 10% in October. We'd expect that to probably be a little more in November based on what we're seeing. Against that e-commerce, and this is -- was sort of an interesting pattern, I think, for all of you as investors. E-commerce looked -- this is where we hand off hot leads for conversion to buy goods on third-party sites: Amazon, Walmart, et cetera. That was actually pretty strong. What we've seen though is a real shift where the beginning of November was weaker year-over-year than we expected, and people are buying later. But if you look at it versus 2020, it was wholly consistent. So thinking about it now, and we've seen strength -- real strength in December year-over-year. So probably what happened was, last year, the news was banging away on consumers because of supply chain, none of the things you want to buy for Christmas or Hanukkah is going to be in, buy it early, a lot of it got pulled up. Now it's been -- it's having a lag. What we call the Turkey 5 from Thanksgiving through Cyber Monday was solid. It was not mind-blowing, but solid across platforms, I think, high single digits, low double digits -- very low double digits up, but beginning in November was challenging. I think we'll see that normalize over the 2-month period. And we also had some orders that didn't ship until December due to procurement or execution challenges -- fulfillment challenges at partners make November look worse, it doesn't matter between the 2 months. We've already seen that come through. Where we have seen weakness would be the third element, which is performance marketing on services, broader decline, not -- we expected it, but when you look at the year-over-year numbers in brokerage sign-ups, mortgages. These aren't gigantic businesses for us, but we got there. The insurance industry broadly is struggling on sign-ups. So just a decline in those activities. But from an e-commerce perspective, it was a solid holiday period, but it's definitely shifted into this year.

Okay. And so just to be clear, like the Meredith that you had a chart last quarter about some of the like where we are in terms of transition and traffic improvement. So there's not really a traffic thing going on in November. It's really just the brand advertising you started with that stepped down a bit?

You'd have some traffic -- and we're trying to figure out what is -- or get detail on, we'd be down slightly on traffic year-over-year across the portfolio. We said we were down 5% as of October, kind of moving along there. Some of that is probably high numbers in the base in certain categories, but this isn't -- the down 16%, even if you adjusted for e-commerce shifts and things falling into December, it's not a traffic challenge as much as it's just advertiser demand.

Premium advertising. Yes. Got it. Okay. And then Angi's 5%, pretty solid 2-year stack was fine. Just a quick summary on what you saw there?

Yes. I mean you can see up -- okay on Ads and Leads. Services, we got to think -- Services were 7 -- up 7%. We've got to think about the right way to communicate that because with Joey in there as CEO, we're actively deemphasizing and shrinking certain areas of services, while continuing to invest behind others. We've talked about it before, but there are certain categories we were in products where low gross margin and negative contribution margin that we're moving out of things that just don't scale. Others, like Book Now, we feel very good about and continuing to invest behind. But there will be noise on the revenue line in Angi, particularly in Services, over the coming months and quarters. We view it as really what's important from a gross profit side and overall profitability. We will demonstrate that to you. This is a bit where monthly metrics, which we're sunsetting, are kind of a distraction, but we need to come up with a better framework for conveying progress in Services and the balance in the portfolio across Ads and Leads and Services, and we'll look to do that with the February earnings call.

Got it. And I think just stepping back from the metrics, my take coming out of the last call was there was a little bit of a kind of shift in tone to Joey is getting reengaged kind of at the company level. You had a string of kind of underperforming metrics to date, some of that macro, some of that company specific. And we're kind of moving into like a little bit more of a let's just get back to the basics, take no prisoners type of vibe. And maybe the numbers, assuming we don't have like some crazy change in direction from macro next year, numbers are in the right place, and you'll give us the update on '23, next call. Is that the right kind of feel right now? Is that back to business?

Yes, I think it's fair. We actually just had our strategic offsite last week with all our companies. And you've got great insight because the motto of it was back to basics. And that in the age of negative real returns on cash and capital, there were a lot of initiatives, programs, et cetera, across businesses that were potentially ill-conceived or definitely ill-conceived with hindsight, really focused on ruthless prioritization for each business and what are the major needle movers, clear-out distractions. And it's things as marketing optimization, SEO, SEM, the product improvements that are going to really move the needle and take share and overall management team quality across a number of companies, really productive session. But we think with rising opportunity cost on capital, with a tightening fiscal and monetary environment and with a lot of competitors that had overfunded business plans retrenching in the environment, it's focused on basics. You will take share and you will create value.

Yes. The one thing that the investment community, including myself, struggle with sometimes is we like to try to put IAC into these different eras where from maybe 2014 to right before the pandemic, you had like the Match IPO, then the spin and the Vimeo spin. So you kind of attached like a certain narrative to that time period. Before that, you had the 5 to 1 -- or the 1 to 5 split and kind of a little bit more of a back to basics then, then you're buying back a lot of stock. So how would you characterize what era we're going into for IAC? Is it more like that right after the 1 to 5 when you guys were buying back a lot of stock and doing a little bit of M&A and just kind of building the foundation for then, the big move in '14 with Match? Or how -- where would you put where we are right now?

Yes. We just -- this is one of the themes we were talking about at the offsite, where there is -- there have been 3 different prior periods where we went from -- well, this is way back. But when IAC started, it had $16 million of EBITDA, but where it's kind of gone low to $1 billion down to $100 million to $200 million back to $1 billion and kept doing that. We are right now in a rebuild phase post-spinning Vimeo and Match. And it's definitely -- coming into it as a CFO, there were things in the portfolio that were subscale or had business plans that seemed compelling in early '21 when people were giving you money for free. We've looked to clean up elements of that portfolio. Obviously, the merger of Bluecrew into EmployBridge, which we're excited about that combination, but also eliminated $26 million of EBITDA burn from the P&L. Other things like that where we're saying, okay, if there's capital that's not going to meet our hurdle rates that's tied up in something, let's free it up to be able to deploy. So one is optimizing where we are, but the second is we do believe this is a good IAC environment coming, where it's the old -- I guess, Warren Buffettism, of when the tide goes out, you see who's swimming naked. As capital gets dearer, if you've got conviction, you've got capital and you've got a long-term profile. We do believe, in terms of capital allocation, there will be true value opportunities. But we're looking to rebuild. It's been a tough year on the Meredith integration, both operationally, I think the collective view is too bullish, too optimistic on how easy it would be on the integration and migration and then layer on a total reversal in the ad market. The former is really done in the sands of time to 60, 75 days longer on migration doesn't really matter, but now let's go forward and execute. The ad market is going to be with us and challenges for a while, which we can talk about, but we feel very good about that combination. And that business will be a free cash flow machine. And is essentially valued, we think, at nothing in our current sum of the parts, but we feel very good about where that business will be. We feel good about Care and the opportunities there. Joey is fully focused on turning Angi around, and we actually think we're already on the path. We always said it was going to be a V and a V backup quarterly this year and see real opportunity there, and then look to add another tentpole to the portfolio.

On that latter point, before we get to Meredith, what are the kinds of things -- if we get into this target-rich environment for IAC, what are the kinds of businesses that you guys would be -- I mean, it's usually a marketplace model that you're looking at, but I think everything is on sale and increasingly so as we get into '23. So what should investors think about as far as targets?

Yes. I mean there's a few different sort of genres of focus. One would be public, what would now be small-cap companies that were just perceived at inflated multiples whether they came public through SPAC or through an IPO, where their shareholder base is a little bit lost, they're now at that share price level where kind of nobody cares. And the Board will go through the 5 stages of grief and management for accepting that it just doesn't make sense to be a public company at this scale and positioning. The second are businesses that have good underlying core economics, gross margins, operating leverage, where they've obscured it with a lot of bad initiatives and money-losing activities, which there's a host of, so you can buy a cleanup and ideally uses a platform. And the third are roll-up opportunities, both public and private. On the private side, the large cap stuff is -- tends to be heavily well capitalized. They raised a ton of money, and it's going to take a long time for that to reset on a value basis. But medium and small cap, you can sort of hone in on a mid-23 point where a lot of these will -- even if they are decreasing burn, we'll run out of money and that there will be need for price discovery, either sales or capital raises and we think there's going to be some very interesting roll-up opportunities. There's a number of sectors, we're talking about this earlier, where there's a ton of look-alike companies that all have the same -- we all do $70 million of revenue and lose $15 million of EBITDA, and they're all subscale. A bunch of them aren't going to make it, but you can cobble together a few with a platform, and we think create real value in markets like this just as you could in 2002.

Yes. Totally agree. Okay. If we drill in on the Meredith -- Dotdash Meredith side, so maybe first just starting with like what kind of played out this year? So I can't fault you guys at all for what happened with digital advertising. That's just macro. We're seeing that with all of our companies. But if we look at the micro in the transition, you mentioned the 6, 7 months delayed. I don't know, on a scale of 1 to 10, how would you rank the team's execution? And why was it more complicated with Meredith than, say, some of the little tuck-ins that you had done at Dotdash over prior years where it seemed like you plug it in and boom, you're off and running?

Yes. Well, I'll start with that, which is we bought something that was at least 100% larger than Dotdash. So that is -- it's not really the minnow swallowing the whale, but it's sort of the shark swallowing the whale, which is actually a good food chain analogy, too, probably or aggressiveness analogy. But the -- on the integrations, there were 2 key assumptions that we got one very wrong and one mostly wrong enough that it hurt. Very wrong was we have a very good technical team at Dotdash. If you think about the migrations, it is a core platform that you bring the sites over, plug them in, set them up. And the one assumption was we would be able to hire technical resources to increase the bandwidth of the pipe we had to migrate sites. And you can look back in hindsight and say that was very flawed because the job market was insanely tight and who would want to go work on a short-term project at a digital publisher, but that was an assumption. We really were never able to flex up that capacity, and we were stuck with the pipe this wide to move a fixed number of properties over. The second that we got somewhat wrong was once -- because it was a common platform at Meredith, once we integrated or migrated one, it would be very formulaic thereafter to move the other sites. So we started with Health.com, reasonably sized site, but we didn't -- it didn't have that many integrations to others. So if we screwed it up, it wasn't going to be the end of the world. That went extremely well, technically migration learning. And the view was, based on prior migrations where we either bought a single, but more importantly, bought say 3 different sites at one time, that would be formulaic. The 2 big migrations we got, we were surprised to the downside on. One was on the Lifestyle sites, people in style where -- because of how people scroll -- and lower case, people scroll in a totally different way on lifestyle where they scroll really quickly, whereas Dotdash and Meredith sites, they tend to read very smoothly. We had to reverse the ad serving logic in order to get the ads out that punted those to the end. The second was on recipes. We actually had to build a whole new module to move the recipes over partly due to just challenges of how they were stored and indexed at Meredith. That pushed people and our recipe sites or food sites, which are huge, to the end of the line and because the bandwidth of the pipe didn't increase, that's why it all back ended. Where that manifested itself was whereas we thought we could run the playbook and have the initial step down in traffic and be able to realize growth in '22. All these are back ended and we won't see growth until '23 from improving the site speed content reduced ads. But also it didn't allow us to run the e-commerce and performance marketing integrations, which is just the biggest opportunity that exists on the Meredith sites. And in many ways, we missed the holiday period, forget, we hope to do them in September. So it hurts '22. But in terms of the thesis, we are as big believers in that now as we were previously.