ANGI Stock

Hello, and welcome to the Angi Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note that today's event is being recorded. I would now like to turn the conference over to Julie Hoarau, Chief Financial Officer. Please go ahead.

Good morning, everyone. I'm Julie Hoarau, the CFO of Angi Inc., and welcome to the Angi Inc. Second Quarter Earnings Call. Joining me today is Jeff Kip, CEO of Angi. Angi has published a shareholder letter, which is currently available on Angi's website in the Investor Relations section. We will not be reading the shareholder letter on this call. We will go through a few introductory remarks and then opening 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 law. 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 recently quarterly reports on Form 10-Q, our most recent annual report on Form 10-K and in the subsequent reports that we have filed 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, include adjusted EBITDA, which we 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 GAAP measures and full reconciliation for all material non-GAAP measures.

Now I'll pass it off to Jeff.

Good morning, everyone. Thanks for coming to the call. We're very happy with what we've been able to accomplish on our strategy over the last 3 months, and we believe we're well on track. Julie is going to give some commentary on the numbers, and then I'm going to come back and discuss our strategy somewhat comprehensively. Julie?

Thank you, Jeff. So starting with our revenue. Our revenue for the second quarter was down 11% year-over-year. Three things drove it. First, we continued shifting away from our network channels. Network revenue was down 34% year-over-year. Second, we stepped back from lower quality paid marketing channels. We had ramps in Q2 last year, which makes this a harder compare. And third, our revenue in Q2 was materially impacted by a shift in mix and traffic starting about 10 days into March as oil and gas prices rose sharply following global events.

We noted that Homeowner behavior changed and demand moved away from larger jobs category like roofing and HVAC, and that's where we have the most available Pro capacity towards smaller jobs where we have less capacity, and that less capacity in those category unmonetized. We surveyed our Homeowner consistently over the last few months. In April, we saw more jobs being canceled or postponed. More recently, overall spend is back at expectations, but each job is like more expensive. So Homeowners are doing fewer jobs, which ties right back to the lower demand we are seeing. You can see all of this in our metrics for the quarter.

U.S. service requests are down minus 6%, while leads are down minus 13%. Our revenue per lead, however, is up plus 1% year-over-year. That's due to the mix out of the old like heavily discounted legacy ad product we had. So as a result, compared to historical seasonality, the second quarter revenue is in the range of double-digit percent lower than our pre-March 11 run rate. We have seen things trending positively, but we remain below our pre-March 10 run rate, and we do expect modest improvements as the future quarters progress.

On the profitability side, sequentially, from Q1 to Q2 2026, revenue grew, and adjusted EBITDA grew faster with about 50% flow-through. We have improved our marketing ROI, and we have reallocated about $6 million of inefficient TV spend in the second quarter towards, like, higher ROI channels. TV has been less effective this year than in prior years. So we pulled it back. And we do expect to take out a comparable amount moving into Q3. We remain on target with our overall adjusted EBITDA minus CapEx range for the year. Jeff said on the last earnings call that we would be happy with about $50 million a year of EBITDA minus CapEx, and we are right on track for that.

July EBITDA margin is already several hundred basis points above Q2, and further reduction in ineffective TV spend should support a stronger Q3. I also want to discuss the impairment that we registered for goodwill and trade names. We recorded a noncash charge of $235 million this quarter on our U.S. reporting unit. The trigger was a sustained decline in our market capitalization since year-end. That requires an interim test, which -- the test compares the estimated fair value of each reporting unit to its carrying value. We tested both reporting units, and the charge is entirely on the U.S. reporting unit. International came through with substantial headroom. So this is not a reflection of our business on a consolidated basis. There is no effect on cash, liquidity of our covenants.

Looking ahead, our annual test for goodwill impairment is in October and earlier if there's another triggering event. So if you exclude that charge, it is possible if the market conditions, the valuation assumptions or the operating performance deteriorates. That's a function of the accounting rules. We've disclosed the sensitivities in the 10-Q.

So in closing, we're not reinstating guidance at this time. Our focus remains on building out the strategy Jeff described in the shareholder letter. We have laid out the reasons to believe, and we expect that to show up in, like, as acceleration in 2027, as Jeff explained on the last call.

I will now pass it back to Jeff, who will go into more insights on our strategy.

Thanks, Julie. Let's get up in the helicopter and look at our market opportunity and our strategy to win it, comprehensively. I think as many people know, we estimate the overall market for completed home services work in the U.S. at about $700 billion. That is the total revenue available to our Pro customers. We estimate that less than 1.5% of that flows through our platform. So we have a material opportunity to continue to penetrate that significant market.

Our core lead business targets the $70 billion to $80 billion of total customer acquisition spend that all Pros make across the United States. About 65% of that spend comes from Pros with more than 20 employees. We have less than 0.5% of that market and probably in the range of 4-ish percent of the 35% of the market that is small to midsized businesses. So we under-index significantly against the large Pro segment. If we achieve comparable share in the large Pro segment to what we have in the small to midsized segment, we'll reach something like $2.5 billion in revenue, and we think that's a very reasonable target for our existing core business.

That, of course, ignores any improvements in Pro lifetime value and engagement, reducing churn, which is the focus of our strategy, for example, by 25%, all else equal, would add 10 points to our annual growth rates versus what we can do otherwise. Executing on both opportunities, i.e., penetrating the large Pro market and reducing our churn, would put us within striking distance of the $5 billion in revenue we talked about in our last letter. Before we penetrate the Pro software and services market at all. That market for Pro software and services to run their businesses and close down their leads is, we estimate about the same size as the market for total spend on marketing and lead acquisition.

So we have a material opportunity in front of us. Our strategy is to be the trusted revenue partner for Pros and go after both markets. So effectively, the entire marketing and lead acquisition market for Pros and also the services and software business.

What gives us the right to win in this $150 billion revenue market? Well, first, our core leads business. This is our competitive wedge in the Pro revenue cycle. We play a key role today at the top of funnel for hundreds of thousands of Pros. And with the improvements in lead quality and win rates we've made over the last couple of years, we're consistently improving our competitive position. Secondly, our market-leading distribution and customer acquisition assets. We have over 100,000 active Pros in the United States, a network any software and services company would love to have for distribution. We'll also acquire more than 70,000 new marketplace Pros per year in the coming years, also a great distribution opportunity.

Thirdly, our 30 years of brand equity in the industry, which opens many doors. Fourthly, our ability to generate cash to fund our strategy and continue delivering on our commitments. And finally, our AI strategy and development capabilities, which are already producing results. We have a homeowner agent already touching 50% of our homeowner traffic, converting that traffic at 3x the rate of traffic that doesn't touch it and contributing to our rise in success metrics. We've deployed our first Pro agent, the AI Front Desk, in just a few months. We're now in the market and booking appointments already at a solid baseline rate when compared to human call center performance that we observed.

As we said on our last call, we believe that we're in the middle of the greatest technological transformation in a generation. We believe that AI affords us the ability to build products which greatly improve both the experience for and the success of our customers and build them much faster. The 3 core footings of our overall strategy are: one, return the core business to growth through large Pro market segment penetration; two, finish building and migrate to our new AI-first single platform; and three, drive Pro win rate success and revenue through our AI strategy consisting of: a, the Angi Pro Chief Revenue Officer agent suite; and b, our Homeowner Agent.

Let's walk through them one by one, starting with the large Pro segment. We have a 10x opportunity in the large Pro segment by simply matching our small to midsized segment penetration. We're already acting with velocity here and are watching the segment grow more than 20% year-over-year with less than 1/3 of our fully staffed headcount in place year-to-date. How are we doing this? First, we're progressively building out a fully enriched target database and leveraging it. Secondly, we're putting the right team in place. We've achieved our growth rate to date with less than 10 sellers, and we'll reach 30 by year-end. Thirdly, we've changed our go-to-market from "Here's a bunch of leads and here's a volume discount" to an operating partnership. We make sure each Pro is set up to win with the right software and operational approaches, and we work through their lead to close funnels with them on a regular basis.

Finally, the truth is that our core lead product is a better product market fit for large Pros because, one, large Pros already work against a high volume of leads, many different lead types, and they're focused on their overall cost of marketing versus won revenue rather than winning or losing each individual lead. Two, it helps that we've invested so much in our lead quality and win rates. We see our win rates up roughly 20% from a year ago and even more than that versus 2 years ago. We think we've gone from Pros winning roughly 1 in 9 leads 2 summers ago to roughly 1 in 6 now, and our Pros experience this and lean into our product.

But why couldn't we do this before? I'll take the blame. My first year in the job, we were looking at the wrong data with the wrong team, which meant the wrong execution. We started taking the segment and our operations apart a little over a year ago, and we've put everything back together to get to the trajectory we're now on. We're seeing real results, and we expect to accelerate from here.

Let's talk about our progress on moving to a new AI-first platform. We've talked plenty, and we've covered all the ground regarding the limitations of our legacy technology. We froze the old stack, and we're now in full flight with the build of and migration to our new platform. We're building all new software and technology AI-first, meaning set up to deploy AI and our data assets across all product and platform services. We're already hitting milestones in our replatforming execution path. Our Homeowner account experience is now live on the new technology. It's not visible to the eye because we've maintained the design in the UX.

We've also implemented new messaging technology. It's the same technology which drove greater engagement and success when we deployed it internationally. We'll deploy AI-driven UX in the future on this surface, suggesting, curating and automatically sending messages to get from contact to close job, again, improving the experience and success rates for our core business. We expect to finish both building and migrating our Homeowner experience to the new technology by year-end, and then we'll start iteratively improving that experience AI-first.

At the same time, we've started working on our new Pro experience platform, and we're targeting migrating our first test cohort by the end of the first quarter of 2027. Across all of this work, we are simplifying and removing friction from the product and customer experience, and we're merging the international and U.S. systems, creating a best-in-breed hybrid. It is worth noting that starting around 6 months or so of tenure, Pro churn on the international platform is about half that of the U.S. rate. We believe we can capture a chunk of this benefit through both platform migration and our Angi Pro CRO. Again, if we get half that delta, we'll have a 10% tailwind for future growth. We just need to execute. This is a core opportunity for us. It's not yet guidance though.

Let's talk about our AI strategy. There's two core topics to talk about: One, how AI is changing the traffic acquisition landscape; two, how we plan to leverage AI strategically in that changing landscape. First, in terms of the landscape, we would say that AI today is compressing the value of surfacing information and discovery and impacting where homeowners look for help. LLM engines are taking a growing share of the informational searches that historically brought homeowners to marketplaces like us. The most visible near-term pressure is on unbranded organic search. However, Google has been putting its own pressure on unbranded organic search for years now. Effectively, they have reduced our reliance on their free search traffic. Our unbranded SEO channel is down close to 5% of our total service request volume, and our plan does not assume recovery there.

So what's our plan for LLM traffic? Well, we intend to be present wherever demand forms, and we intend to match those homeowners to our Pros on Angi through traditional search, social and increasingly through LLMs and personal agents. We believe that at the same time AI is commoditizing informational inquiries, it's also increasing the relative value of matching homeowners to the right Pro and getting the job won and done well and creating the data to reinforce that loop. As a side note, we're actually doing reasonably well with LLM share of voice. Our most recent data says we're at the top of the industry and double the share of our closest competitor, but share of voice on LLMs is not where we believe the action is because it does not deliver conversion the way it does in SEO.

Instead, our objective is to provide the Pro supplier fulfillment layer for the industry on LLMs, Google, social and everywhere else, which we always have, but this objective now requires new tools and a new strategy. We've already built systems that can have a natural conversation about the work someone wants done in their home in the homeowners' language rather than ours in any channel. We can pick up the conversation at any point on any surface and either ask more questions based on context or directly surface Pros, again, based on context. We can drive a better match with this better context in our proprietary data and knowledge of our Pros and their preferences, skills and availability.

We've already built this with our ChatGPT app. We'll do this for Amazon Alexa, and we're working on other significant integrations, multiple of which we believe we'll announce soon. We're also doing this by buying ChatGPT ads. We're now spending profitably in that channel, and we're roughly $3 million revenue run rate on that platform. That sounds small, but 1.5 years ago, our Meta business was half that, and we're now approaching a profitable $100 million revenue run rate on Meta. We're optimistic about the marketing opportunities on LLM surfaces. We believe ChatGPT will grow and that Google will continue to offer significant ad inventory.

Along the same lines, we've already developed and deployed using the same approach, our Homeowner Agent 1.0, which we've called our AI Helper to date. And as we said, 50% of our customers use this agent, have improved success rates, and we're building data off this usage to deploy across all our other services. We expect to further develop the Homeowner Agent going forward and deploy it deeper in the funnel to clarify project details, provide cost ranges, identify appropriate and available professionals and move towards contacting and booking appointment through voice or text through this agent. Critically, this will drive better matches and jobs won well for our Pros and deliver outcomes and data to win more homeowner traffic.

I've put us already into the middle of the second topic, which is our AI strategy. Fundamentally, the underlying job won well and job done well both still require a match and a still skilled Pro. And this is our role as the supply and fulfillment layer in the industry. AI may be shifting the metaphorical front door for the Homeowner to walk through to gather information, but it is not going to eliminate what has to happen after that threshold has been passed. The right Pro match still needs to be found in terms of preference, skills and availability, and the right Pro still needs to understand, assess, price, schedule, win and complete the job. This is where both our assets and our strategy position us to win.

We have the Pro capacity to complete more work than any other marketplace. We have years of proprietary reviews, matching and job completion and cost data, and we can make sure that a Homeowner searching on an LLM finds not just the standard Pros that their model surfaces, but the right Pro for that task at the right time when the Homeowner needs it to be done. We've got the best engine in the industry to acquire, recruit and onboard Pros, screen where applicable, understand their skills, preferences and service areas and know whether they're available.

But now we're expanding that toolkit and that engine and our strategy, and we're leveraging AI to be the full-trusted revenue partner of the Pro and provide the tools that allow Pros to win work wherever Homeowners are searching, in turn creating that supply and fulfillment layer for LLMs and all other services.

As we've said, our core lead business is our competitive wedge. $35 billion of annualized job volume enters our platform. Our challenge is that only about $10 billion is completed by Angi Pros. Thus, we need to build agents to help Pros already receiving this demand convert more of it. The Homeowner Agent will play a role here, but more importantly, we're building the Angi Pro Chief Revenue Officer, which is an AI-driven revenue system that performs the high effort, cumbersome work between receiving the lead and winning the job.

The Pro Chief Revenue Officer will respond immediately to the Homeowner, answer calls, schedule and optimize appointments and routing, provide sales coaching, prepare estimates and follow up consistently, leading to more winning. More winning equals more retention and greater lifetime value and more Pro capacity in our supply layer to serve Homeowners on any surface. Again, this is real opportunity. Our best evidence looking across our businesses over time points to doubling win rate, cutting churn in half, again, not guidance, but data we see on our platforms. When we look at the results larger customers have had with some of the AI call center businesses that have gotten out there first, we see that their win rates have as much as doubled. So we're very optimistic we can replicate that.

The Pro Chief Revenue Officer will also ensure that we know the Pro skills, preferences, success data and availability and leverage that data and information to match each Pro to the right customer jobs across all surfaces. Again, we're already doing a version of this, but we will be able to do so at even higher fidelity once we implement our strategy. Again, better matches equal more jobs and done well, more data and a flywheel that wins.

As we said in the letter, our first agent, the AI Front Desk, is live. We have dozens of Pros onboard, and we've made dozens of appointment booked already at rates within the range of what we see from human call centers. Around 80% of the Pros we've onboarded still are using the service, which is a good rate for MVP pilot. We were not expecting perfection. We're very happy with our progress. We now want to iterate from good to great and start to scale up. Our next agent will be a receptionist, receiving calls on behalf of Pros with the ability to ask questions and do more than just book an appointment. Alongside that, we'll be thinking about schedule optimization and routing and then likely start looking at the visit itself with quoting and sales coaching functionality. As noted in our letter, we plan to demo the full Pro CRO 1.0 suite, both live agents and prototypes, at our Investor Day on November 17.

We expect that the Angi Pro Chief Revenue Officer will change the experience and the economics for everyone. The Homeowner will be more likely to get the job done, delivering outcomes. The Pro will win more and enjoy a better return from Angi, driving retention and Pro capacity for our supply and fulfillment layer. Angi will build a deeper network and more data to improve the next match appointment and job, and we'll also have flexibility in how we monetize the relationship. In our core product, that could be per lead, per appointment or per job won, and we'll also have the opportunity to earn more revenue through growth Pro LTV. Higher winning means higher retention, means more revenue. And we may also elect to charge a usage or subscription fee for our agents, building a whole new revenue stream for the business.

Again, we're very happy with our progress to date, and we're very optimistic about our opportunity to win the significant market in front of us. The landscape may be changing, but we believe we're well positioned, one, to win the large Pro segment with our core business and our new go-to-market; two, to improve the customer experience and our ability to innovate effectively by getting to a new AI-first single platform; and three, driving greater customer success, stickiness, retention and repeat with better outcomes, more jobs won well and done well with our AI strategy by both building the Angi Pro CRO suite and further developing our Homeowner Agent.

With that, we'll take questions.

[Operator Instructions] And today's first question comes from Dan Kurnos with StoneX.

One for Julie, one for Jeff here. So Julie, you said that the trends improved exiting the quarter. And we can all, I think it's been a long earnings season, but we can all kind of do math, and it implies sort of some sequential improvement throughout the balance of the year. So how should investors think about that sequential cadence on revenue and margin from here?

And then for Jeff, I mean, you've talked a lot about this kind of year of steady improvements before we see your strategy, the AI strategy, begin to accelerate that growth into '27. So, a, how much of that depends on large Pro? You gave a lot of details in your prepared remarks around how that's initially tracking, but just some incremental color there would be helpful. And then, b, obviously, I'm assuming we're targeting growth in '27, but I don't know if you want to commit to that.

Thanks, Dan. So you're right. As I mentioned earlier, there will be modest improvements as the quarters roll forward. So that means we expect maybe a little bit of improvement each quarter, but we're not guiding on it. Regarding margin, as I said earlier, July was strong. Q3 is looking good, but Q4 usually comes down a little bit due to seasonality.

So as we look ahead, we think that the large Pro opportunity is really core to growing again. We think the SMB business will level out at some point, particularly as we get online enroll live on the new platform and ramp. But we do think that the large Pro opportunity is the key to growth again. As you sort of pointed out, we're not committing to timing, but if we execute our strategy, we should be growing again sometime in 2027. Again, not point guidance, not anything, but we feel good about our momentum. We feel good about the opportunity, and we think we can really double down and drive significant growth through the large Pro segment.

And the next question is from Brad Erickson with RBC.

I guess 2 kind of related questions. First, you gave several metrics in the letter around just kind of the core blocking and tackling of the business that are all generally showing improvement. If you had to like focus it a little bit, what do you kind of view as the most instructive metric or two as we think about this return to growth?

And then second, what is kind of like the specific bottleneck on that return to growth? Like do you need a certain level of agent adoption at a certain level? Or is it just more as simple as completing the traffic cleans you've been kind of going through? Like what are the most important gating factors if you were to hit that '27 kind of not guidance but target that you just mentioned?

Let me take that, and Julie can correct me or add if needed. I think the core thing we focus on in our customer experience is win rate. The inverse of that is Homeowner job completion. But our Pros are our paying customers. The more they win, the more they stay. And so that is a really critical overall success metric. And in terms of the business, we're focused on overall capacity growth. So we cited a few metrics surrounding that.

But at the end of the day, we want to acquire more capacity than we churn. And as we build capacity, we point ourselves back to having the capacity to grow the number of leads and grow the revenue in the business. That's why moving from down 13% in the first quarter on Pro capacity to down 2% as of June and then we're about flat in July year-over-year is really important to our future trajectory. And having that Pro capacity is the most important gating thing in terms of growing in the future. If we don't have Pros with capacity to pay for leads, we can't market into it, and we can't grow the revenue.

And so then the biggest gating items there are, a, Dan sort of hit it earlier, our ability to penetrate the large Pro market at the rate it looks like we can penetrate given our extremely low penetration now. And of course, our ability to keep driving that win rate and Pro experience, which then increases retention and thus increases the number of Pros and the capacity available. And our strategy is built around those 2 objectives from the large Pro go-to-market to the new platform and the Angi Pro CRO.

And then in terms of timing, so Jeff said on the last earnings call in May that we focus on our strategy. And as I mentioned earlier, probably seeing modest sequential improvements. He also mentioned that in about a year, which puts us around May next year, we start to accelerate. So we're not guiding, and we're not putting a date on it. But assuming we execute our strategy, we'll be growing again at some point in 2027.

And the next question comes from Tarini Padmanabhan with UBS.

This is Tarini dialing on for Stephen Ju. So I have 2 questions. First, can we talk about Pro capacity as you've talked about it, but what's driving the growth there for you? Should we be thinking of the growth here as Angi throughputting higher quality leads to the SPs versus other solutions they can be using? And then second, as you roll out agents for Pros, you said that you may monetize either through improved core business retention or LTV or through a fee model. What do you think the revenue model could be or should be?

Sorry, I didn't get the first part of your second question. I got the part about the revenue model. But what was the first part of your second question?

Yes. So as you roll out the agents for the Pros, you said that you may monetize either through improved core business retention and LTV or through a fee model. So what do you think the revenue model could be or should be?

Okay. Great. Great.

I can take the first one.

Yes.

So we define Pro capacity as the budget available from each Pro or the actual spend if they don't have a budget, but most of our U.S. Pro base has set budgets. So when we're growing our Pro capacity, that means we're adding to our ability to buy service requests and monetize that capacity. We don't think about how much Pro capacity we have in relation to the market. We're currently utilizing about 2/3 to 3/4 of that -- of the total Pro capacity right now. And as Jeff said, our revenue represents less than 1.5% of the total marketplace. So we're likely still below 2% in terms of total Pro capacity.

We're currently growing our total Pro capacity, and this is despite the fact that our nominal Pro count is down, and that's because we're growing our average per Pro capacity, which grew about 13% year-over-year this quarter. And we're doing that by retaining larger Pros and targeting and acquiring larger Pros, and that ties directly to our large Pro strategy.

So let me talk about the agents and economic models and maybe even some sort of constructs on models you might use. So first, our first priority is that we are trying to improve Pro win rate, drive the Pro revenue cycle and thus become the trusted partner in the Pro. We do that, the revenue is going to follow. I think one way it will follow is what I outlined in my remarks, which is driving win rate consistently drives retention. Again, we have evidence that you double the win rate, you may cut churn in half. If I can improve churn by 25%, that's a 10% annual growth tailwind. If I can change it even 10%, that's a 4% annual growth tailwind. Obviously, both of those are key monetization.

But you would say Pros are pretty used to paying for software to help run their business. And when we think about, we think about there's a couple of ways that this can manifest itself. One is, if we're overall driving the success of our core product, we have pricing ability. Two is, we can charge a usage or a flat fee, and it sort of doesn't matter, but to get to an average monthly amount. We could charge that for our leads. We could charge that to Pros to use our software and agents for other leads. Your software works really well for Angi Leads. Can I use it on my Google LSAs? Can I use it on my inbound phone calls? Can I use it on one of your competitors?

If you think about it, our Pros, our average small Pro is paying about $600 a month for 12 leads, and they're winning about 2 of those. If they start winning 1 more, i.e., a 50% improvement in their revenue, would they pay $50 a month in either usage or fee for that? Would they pay $100 to use it for other platforms? Maybe. I think it's actually pretty fair, and I think it's pretty reasonable if they're getting much more value that they pay for where they get the value from. If you want to think about a hypothetical model, I just lay this out because the real power in the business model here is our existing distribution. We are building agents, i.e., software that goes right next to and with the core product we're already selling to wedge ourselves in the revenue system. So it's a natural add-on. It's like getting some fries with your burger and a soda, like a meal deal.

So we tag that in, and we send it out, and it's almost costless CAC. So with 100,000 Pros today and then 6,000 Pros a month, you then just get into, if this is a freemium product, how many convert to paid and then what's the retention? And on a very simple level, you can build out a model that says, once we roll this out, which is probably not before next year and more likely in the second quarter or later, where am I in 15 months? If I put 100,000 Pros on my platform and I keep 25% to 33% of them and I keep 25% to 33%, that's the conversion to paid of all the new Pros. And I have something like, I don't know, what, a 3% monthly churn or 2% to 4% monthly churn, you can imagine getting to numbers that look like 30,000 or 40,000 paying customers after 15 months, simply because of the installed distribution and the natural synergy of these agents with our lead product.

And if I have 30,000 to 40,000 customers at $50 a month, I start to have a decent monthly run rate of revenue, and I also have the opportunity to upsell these people into larger packages. Pros are already paying $1,000, $2,000, $3,000 a month for software packages to run their business. So we think that at lower price points, given our CAC, we can actually build a pretty decent recurring revenue base. Again, I think you can build that model and do the math yourself, but I think it would be a very nice lift on our existing revenue and profit base and give us something really to power the business going forward.

So I think those are a couple of different ways to think about it. And we're really excited about it because, again, we think we have the assets to really make this work, and we've already got proof of concept with our first agent.

Our next question is from Sergio Segura with KeyBanc.

I had a couple on consumer marketing and traffic. Consumer marketing did increase as a percentage of revenue. So just -- in the quarter, just curious how you're thinking about the trade-off between growth and efficiency today in the current macro environment? And then if you could provide any color on what portion of your marketing spend is variable and can be dialed up and down based on kind of market demand versus investments that are more fixed in nature? That's question number one.

And then the second one related on ChatGPT. You talked about the growing traction there. Can you just speak to the economics of that channel relative to traditional search and what you've learned so far about the quality and conversion of traffic through ChatGPT?

So I'm going to go in reverse. The economics on ChatGPT are, we're making a nice profit margin. It's not quite as good right now as Meta or Google, but it's also at very low volume in early stage. And we moved this thing from losing a little bit of money to making a little bit of money pretty quickly. And ChatGPT/OpenAI, they're optimizing, and they're continuing to work through these tests. So it's making money, not quite as much. We actually anticipate that it will probably be similar because that's what it will take to compete in the market with the other platforms.

In terms of marketing spend and efficiency, we have a pretty rigorous discipline around making our last dollar buy breakeven margin. That's probably easiest in Google, where we can work through their profit curves and we can work with their interface. But we exercise that discipline with consistent analysis and lean testing across other platforms. So our marketing spend is variable, but we're going to buy until we're not making any money, and we're not going to pull it back to make more money because if we pull it back, generally, that means we're making less money. And so the really critical piece is having the Pro capacity to buy SRs that match into that capacity and generate revenue by creating leads. And that's really how we drive it.

I think the exception is probably our brand marketing, where you have kind of 2 pieces, which is TV and non-TV, which is largely social. We also look pretty consistently. It's just not as easy to read as quickly. We look pretty consistently at the ROI of TV. We use iSpot and we look at the response to the ads, and we triangulate. We -- our TV was not working nearly as efficiently as it has in years past according to our prior analysis. We've pulled that back, Julie mentioned significantly, $5 million or $6 million from Q1 to Q2, and we'll probably do about the same in Q3. And then we're going to go back to the drawing board and look at our channel and daypart mix, and we'll look again at our creative. So we try and exercise the same discipline on TV as we do on performance. There's just a little bit of lead lag there.

And then on social, we've been able to drive a lot of impressions and traffic with our social brand activity. This isn't big dollars. There's several million dollars there. We do have the ability to pull that back if we don't think it's working. But we also continue to believe that we need to keep our brand impressions and our market-leading brand awareness out there. So we're always balancing that. We're not aggressive there. We could pull it back a little bit, but we think it's important.

Maybe I got all your questions, Sergio. You can let me know if I missed something.

I think the only thing you may have missed is just if you could talk about the quality and conversion of traffic from ChatGPT, if that's any different from your other channels?

We don't see anything worse. We don't see anything better. It's a little hard to read at the volume we have because our sample size isn't really big enough to distinguish it, but we see it tracking with other channels right now.

The next question comes from Youssef Squali with Truist.

This is Robert on for Youssef. What's the plan to drive more traffic and jobs to the platform as capacity builds? And then my second is, what are your capital allocation priorities over the next year? And how are you thinking about your bonds?

I can take the capital allocation priorities question. So the last big capital allocation decision was to buy in bonds at a discount. We're obviously looking ahead at those bonds coming due in 2 years and going current in the year. So thinking about our bonds and our refinancing is our top capital priority right now, and we'll take care of that like in due time.

In terms of driving more traffic and service requests to the platform, we believe we have ample opportunity in our existing channels with the expansion of Pro capacity. We've had a mix shift from last year and the beginning of the year, which has limited the volume we can get at the CPAs that break even with the capacity we have. But as we expand our Pro capacity and we fill in task and location, we believe there's ample opportunity to scale in our existing channels.

On top of that, we are always testing new channels, looking at new partnerships and so on. The most promising channel we have right now is our ChatGPT test, where we're scaling that up bit by bit. We're reaching profitability. And they appear fully engaged in growing that business. So we think there's real potential there. A channel we haven't made work yet from an economic basis, but we continue to test is TikTok. We look at the other major platforms.

We also have multiple partnerships. For example, the partnership we have with Anywhere, Compass Group. After their merger, we're still executing there to bring in jobs through their agents. And we have multiple other partnerships, including our retail partnerships with Walmart, Wayfair, et cetera. And so we have an active business development opportunity. We have some real opportunities there. We're continuing to look at the LLMs and the new platforms. And we believe we're in a position to grow into our capacity as the year goes on within kind of the approach we've outlined.

The last thing I'd point out that's important is that our repeat rate has been running up 20% over the last couple of quarters. And that's pretty critical in terms of supporting our brand traffic going forward at lower TV spend. And when that repeat traffic comes in through paid channels, it improves our conversion and cuts our CPA and allows us to spend more. So I think that one of the sort of biggest hidden turns in our business over the last quarter has been the return to growth in customer Homeowner repeat, which we're pretty excited about. And we think that, that's a valuable asset in our home mix as well.

And the next question is from Eric Sheridan with Goldman Sachs.

Maybe 2, if I could. The first, building on the comments earlier about the improvements you saw in July, is there any way to sort of tease out how much of that might be an easing on the macroeconomic headwinds that the economy was broadly facing relative to some of the improvements you're trying to drive into the business organically? That would be number one.

And then when you talk about the migration and some of the investments you want to make to be an AI-first platform, can you just refresh whether some of the commentary we're getting today on those investments also fits inside the parameters of the annual cash flow framework that you gave last quarter?

So the answer to the second question is, yes, it's all inclusive. We're not talking about incremental headcount or investments. The answer to the first question is, of course, nuanced, which is we do believe we've seen recovery in the Homeowner, not fully. We think we still have some mix and traffic impact. We also think that a significant piece of this is driving our Pro capacity back towards growth. Our utilization remains down below where it was tracking previously. And so that continues to slow us down. We think that is mix and availability at the same number of leads per SR.

And then we think there's a bit of a nuance in there, which is in response to the shifts in mix and traffic, we've sort of grinded through and retuned our marketing machine. We think we're making a little more money on a little less revenue. So apples-to-apples, we're actually doing a bit better. And I think I'd sort of slice and dice it that way, if that helps, Eric.

And this does conclude our question-and-answer session for today. I would now like to turn the conference back over to Jeff Kip for any closing remarks.

Yes. Look, on a very simple level, thank you to everybody for joining and following along. We're obviously very excited and optimistic about what we've been able to do in the last few months and as we look at the opportunity in front of us. We're accelerating our strong momentum in the large Pro segment. We're on track with our new platform work, and we think there's real upside as we complete each piece. We're growing our LLM presence, and we're also making real progress with our Homeowner Agent. And we have our first Pro agent live and performing really above our expectations, and we expect to move forward with all deliberate speed there.

So we're on track with our strategy, and we're looking forward to accelerating in the quarters to come. And thanks, everybody, for your support. Have a good day.

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.

Welcome to the Angi First Quarter 2026 Earnings Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Julie Hoarau, Chief Financial Officer. Please go ahead.

Good morning, everyone. I'm Julie Hoarau, the CFO of Angi Inc. and welcome to Angi Inc.'s first quarter earnings call. Joining me today is Jeff Kip, CEO of Angi. Angi has published a shareholder letter, which is currently available on Angi's website in the Investor Relations section.

We will not be reading the shareholder letter on this call. I will soon pass it over to Jeff for a few introductory remarks and then open it up to Q&A. 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 have filed with the SEC.

The information provided on this conference call should be considered in light of such risks. We will also discuss certain non-GAAP measures, which, as a reminder, include adjusted EBITDA, which we'll refer to today as EBITDA for simplicity during the call. I will also refer you to our earnings release, shareholder letter and public filings with the SEC and again to our Investor Relations section of our website for all comparable GAAP measures and full reconciliations for all material non-GAAP measures. Now I will pass it off to Jeff.

Good morning. Thank you all for taking the time to read our letter and join us today. We know everybody is busy. Just to repeat a little bit of what I wrote in the letter. We believe we're in the most -- in the middle of the most transformational time in technology in a generation. We think AI agents and agentic coding presents Angi opportunities that we did not have in the same way or fashion 12 or even a few months ago.

We believe it's incumbent upon us with good stewards of the company and its capital to move aggressively to take advantage of these opportunities, moving from our legacy platform to a new AI native technology platform for our core business in flywheel, much faster as the first building agents to multiply the effectiveness of our core customer experience and offer new capabilities to our Pro customers, what we are now calling the Angi Pro Chief Revenue Officer is the second. And finally, leveraging a agentic coding to build these agents in the platform twice as fast as we could before is the third.

We have great assets. We're confident that our existing flywheel is one of the best in the industry, if not the best. We have 30 years of brand equity. We have nearly 200,000 active [ Pros ] across North America and Europe. We have the most powerful customer acquisition engine there is in the industry.

Our flywheel is going to spin even faster as we deploy agents to improve our customer success rates and serve as a phenomenal distribution base for our new product that anyone building AI software would love to have. Thus, we think we have a tremendous head start and great leverage against the opportunity.

For the last 3 years, we've been working hard quarter-by-quarter to incrementally improve our customer experience and business on an old brittle legacy stack and the resources we've been using to do this are really critical to moving forward as quickly as possible against the much greater opportunities I just described. We have made real progress on the customer experience. I won't list everything I've listed in the past.

But moving NPS 30 points and improving pro churn by 30% are key markers during that period. We've also made good incremental progress moving AI into our key revenue flows with 50% of our homeowners now touching our AI helper in their path. However, we've also not been 100% consistent at delivering incrementally with our legacy technology. The time and costs are extremely high. The incremental approach we've taken and we are taking is not enough, and it's not frankly worth the opportunity cost versus what else is in front of us.

We just can't afford to keep our product development teams battling with the core technology to improve quarterly revenue and deliver against specific targets. So we're going to release our resources against the opportunities I just described. Getting to the new AI native platform is critical because it's going to allow our core product to function more effectively and drive AI-first innovation, improve the customer experience and the efficiency of the business. far better than we can on the decades old code in our current technology is made up of.

Our core flywheel is going to spin faster in our core experience on both sides of the marketplace is going to be better. Shifting and focusing on building the new Angi Pro Chief Revenue Officer is an incredible opportunity because first, we're going to generate materially more value for our core Pro customers by making sure they win more of our leads, driving retention, engagement, multiplying lifetime value, which in turn will spike acquisition opportunity of new Pros. It's the strongest bet we can make in this business.

And then secondly, we effectively will have a new business because our Pros will be able to use the Angi Pro [ CRO ] for [indiscernible] leads, the rest of their business, grow and enjoy more success, which is, of course, our core mission. We get more jobs done well for our homeowners and more jobs done well by our Pros. So we have a twofold market opportunity and a huge as yet undisrupted market where we have the leading assets and leading market position. So multiple things can be true at the same time.

Our mission has not changed. We're focused on jobs done well, as I just said, and jobs [ won ] well for our Pros. Our goal is to deliver profitable and accelerating growth over time. And we are also making a clear pivot on how we execute our strategy, given, again, what we think is a remarkable opportunity in front of us in our space, and we think we are well positioned to win. So with that intro, we will move to questions.

[Operator Instructions]. Our first question today comes from [ Dan Kernan ] with [ StoneX ].

Jeff, I guess the first obvious question, just to follow up on this. We're calling it a pivot, but it's really more of an enhancement the way I think you guys are trying to win business. And so with the reduction of guidance here or the pull of guidance, I guess, for the short term, maybe you can just frame for us how much this is going to impact in your mind, revenue and EBITDA and over what time frame? And then I want to kind of follow up on sort of how you perceive the market opportunity.

Okay. Thanks, Dan. Good to hear from you. So first, it is -- again, two things could be true. We have been going down the path. We've been going on. I think it's a material pivot in the way we deploy our resources and execute and I think it is a whole new opportunity that we are going to build as well.

In terms of your question on revenue, EBITDA, cash flow, we've made a clear decision not to give guidance. We think that setting guidance and the pursuant distraction it is from executing its larger opportunity is not where we should be focused. But what I would say is our existing business in flywheel generate and will continue to generate solid operating cash flow, which we think of as adjusted EBITDA minus our CapEx and we plan to continue to generate solid operating cash flow.

We're not looking to destroy our EBITDA margins or take our cash flow anywhere near 0. We're effectively going to fund our platform and product strategy internally, meaning we're only going to add to our cost base where we see more opportunity. For example, our AI software and token costs will be several million dollars more than we anticipated either a few months ago.

But by taking resources off the legacy technology and acknowledging that we're no longer going to focus on quarterly revenue, there will be an opportunity cost measured in some amount of lower revenue implicit by not working on the core technology to deliver incremental revenue wins. But to be clear, we don't plan to use the cash on our balance sheet to fund the transformation rather, we actually anticipate continuing to build the cash on our balance sheet by continuing to produce cash flow.

Does that -- just to be clear on that before I ask the kind of TAM question, Jeff. It's obviously not a distraction. You're aiming for a bigger target here, some revenue opportunity loss, but you're -- I mean we're still focused on the core business, and we don't anticipate -- I mean, I don't -- is there any way to kind of frame how big a disruption you think this might be to the core business in general?

Look, I think we plan to operate with a cash cushion. Without this being a commitment or guidance, I think we be happy with the cash flow cushion and give or take, the range of $50 million a year. That's adjusted EBITDA minus CapEx. That's not a goal of budget, a commitment or a plan or guidance, but that's directionally how we think about floor.

And we think that, that's a good number that allows us to internally fund the transformation and continue to deliver cash flow to the business. And we think that our core business will continue to generate solid profitability, we think that once it gets on to the new platform, we will have the opportunity to accelerate with innovation and efficiency there. And then I think we'll have the opportunity as we put our agents in place and get penetration over the next several quarters, we think we'll have the opportunity to accelerate materially following getting the new Angi Pro CRO infrastructure into place.

So with that, Jeff, I think in the letter, you basically said that your -- the $700 billion TAM that you're referencing is just job value and for you guys to get to your $5 billion revenue opportunity, which you lay out there, it just seems like doubling your win rate. I mean, what you're suggesting here is that by building the CRO for Pros, I mean you have an opportunity for them to utilize this both on and off platform.

So there seems like there's a software element to this. So maybe you could unpack for us how you think about getting to that $5 billion? And separately, is there a separate TAM that we aren't discussing yet today or in the shareholder letter that could be achieved or attacked from a software perspective, given that most pro marketing budgets are viewed as percentage of job value, but software is typically a separate expenditure line and kind of viewed as sort of a separate TAM when they think about cost of service?

A great multipart but very smart question from you, Dan. I should expect nothing less. So yes, $700 billion TAM is residential construction, specialty construction, home services, total job value that we think is our target market for our platform and customer base. Today, we capture below 1.5%. The market is split 75% larger Pro, 10 employees or more, a 25% smaller Pro. We think we have 3% to 4% share in the smaller Pro market, and we're under 0.5% of the large Pro.

We have a strong view, AI, no AI, we can replicate the share of the small Pro market in the large Pro market. We think we've underinvested and not executed well there over time. Doing just that -- and getting to that share would give us $2.5 billion of revenue with a 10% take rate, which is about our current take rate, which is Pros pay $50 a lead, they win 1 in 7, 1 in 8. The average job is about $4,000. And so we think about it that way, I'll come back to that.

On our platform, 10 homeowners submit jobs. Seven of the jobs get completed, but only 2 of those are won by our PROs. If you look at our core long-standing strongest brands and businesses in Europe, which would be the U.K., Germany and the Netherlands, they win more like 3.5. So we believe that doubling that too is well within reach. And so Pros are winning twice as many, 4 out of the 7 instead of 2 out of the 7 that takes your share of the total job value in the market from 3% to 4% to 6% to 8% or 7% as a proxy.

If you come back to the take rate, Pros are looking at their overall P&L and their share, they're paying to support their revenue. We think tend is a pretty good marker where you're driving good value. By improving the win rate, we would lower the take rate unless we took lead pricing, taking lead pricing is one way to keep the take rate, a fair take rate, another way is charging some for the software.

So you're correct. There's 2 markets there. There's the lead market where maybe we'd like to be a little less than 10, to drive real value there. But there's also the software market and based on our research and looking at -- if you take 10% of that $700 billion job value market, it's $70 billion, that's the potential revenue. We think that there is a comparably sized market, $50 billion to $70 billion maybe, in services and software to sell the Pros that is likely growing as software transforms with AI.

So on some level, there's $140 billion of revenue out there. I think our focus is on delivering against the [ 70 ] delivering for our Pros but it is a product that while we're first focused on Angi leads, our Pros should be able to use for other leads and frankly, running their overall business.

So you're not wrong. And when we think about our $5 billion revenue target, one way to do it is to get 7% of the market and a 10% take rate. Another way to do it is to get a lower percent of the market and effectively have software and services revenue. And then the third leg we have is actually accelerating growth even faster in Europe, which can be a material contributor because there's another $500 billion or $600 billion of TAM in Europe which we've been less successful at penetrating. We think that's tied a bit to market structure, and that's a different conversation. But we think we have multiple ways to get to the $5 billion. And I think you've hit you've hit well on a couple of them.

The next question comes from Youssef Squali with Truist.

This is Robert on for Youssef. On the Q1 performance, can you just explain the levers relative to 90 days ago, which areas of the business are outperformed and how sustainable is that outperformance? And then what are you guys doing in new LOM traffic channels?

I'll take the first question. So in terms of revenue, we had a strong like January and February. Then March pulled us to the lower end of our revenue range, driven primarily we believe by macro factors. Service request mix shifted away from larger jobs in category where we have the most extra capacity such as like roofing and HVAC and towards smaller jobs. We survey thousands of Pros and homeowners and it's clear that homeowners backed away from projects like more in March than in previous months.

And as a result, like Pros reduced [ LEAP ] budget because they believe they would lean like less jobs. Meaning, overall, we had lower capacity. On EBITDA, our EBITDA came in at about $23 million. That's above our $10 million to $15 million guidance range. There were 2 contributing factors.

First, we capitalized about EUR 2 million more of engineering labor than we thought in our initial guidance. We follow our accounting policy here, and we went by the book. So it went a little bit higher. And second, we had a couple of onetime benefits on expense and some timing. And so we came out above our guidance for Q1.

Yes, I would again say editorially, we look at all-in adjusted EBITDA minus CapEx. So when we have these swings, you can blame Julie for following our accounting policy. But we -- given our druthers, we wouldn't capitalize it, and I don't mean to speak accounting heresy, just we think it makes things more complicated and the cash ends up in the same place. So we're just calling out that benefit.

Let's talk a little bit about LLM traffic. We have been investing a fair amount in making sure that we are there for the LLM traffic. We've been buying OpenAI [indiscernible] successfully. We're near breakeven on that buy. There's been a bunch of noise out there on it, but we're happy with it. We're in their beta test, and we know they are working on optimizing and we're confident that we're going to be able to grow value and expand there.

We've launched our app successfully on ChatGPT. We'd like to see them move their app ecosystem into deeper integrations, and we're working with them on that. We're going to launch on Amazon soon. And we are live working on multiple other integrations with major players, which we expect to announce in the next couple of months.

The overall share of traffic from these sources is pretty low right now, but I think we are all seeing consumer usage shift and will increase. And we think the platforms are going to figure out how to leverage this traffic, and we'll be very interested in working with us. If you think about -- I wrote this in the letter, but if you think about our approach, our approach and our pivot is about making sure our Pros get better results.

When our Pros get better results, our homeowners get better results. And when customers get better results the LLM wants their customers to go there. And so we think that in the same way that our results on SEO once kind of one SEO when we were a home adviser at Angi's List. And we have most recently taken really leading positions in and buying on [indiscernible] social for the same reason, we think we're going to do the same here. So we're pretty excited about it.

Our approach has been -- we've developed technology where we can pick up the conversation in any part of the chat with the context in the chat. So if you were to say, "Hey, ChatGPT," or, "Hey, Claude," or whichever you're talking to, "I have water on the floor in my bathroom." We could effectively let the LLM know, and we will have let the LLM know, that we can pick up the conversation there and ask questions, which are LLM driven, but with our proprietary domain knowledge fine-tuning the LLM chat.

We also can pick it up somewhere in the middle or at the end when Claude or ChatGPT, [ perplexity ] or whomever has diagnosed that, oh, you have a crack in the base of your toilet and we can say here's some Pros, Ms. or Mr. Consumer and get the job done there. And we're already taking the same approach with our core homeowner experience.

We have in test an LLM first chat that effectively mirrors this experience. It's right now a conversion deprecation, which we want to narrow before we move it broadly. We do plan to lead with this experience when we're working with partners and new traffic channels because we do believe that ultimately, where we want to be is having a full chat with a homeowner, getting whatever information they're capable of, and homeowners aren't always very good at giving the information or assessing the information and being able to provide price estimates advice information and, of course, our Pros through the experience.

And that is where we see things going, and that being beneficial to the pros on the other side as well. So that's how we're looking at it all holistically. So I hope that kind of answers your question.

The next question comes from Sergio Segura with KeyBanc.

First, I was hoping you could just provide a little bit more detail on what the Angi CRO is going to look like at the product level, any kind of required investment for that product? And just maybe a little color on why this is the right jobs to be done to focus on right now?

And then secondly, relatedly, maybe how does your go-to-market strategy change with this new AI approach? And then if you could discuss any challenges or opportunities of targeting the smaller Pros that you mentioned in the letter for this product?

Right. So the reason this is the right job to be done right now is on a simple basis, this is, we believe, the best way to achieve our mission and deliver the best customer experience to both sides of the market. What we're trying to do is make sure that when a homeowner comes to our platform, they hire a Pro from our platform and the job gets done well, and the Pro feels like they've won a job well. Everybody is happy when that happens, customer NPS is plus 50 for retention and satisfaction jumps and the Pros pay us, and we make more money, and everybody is happy.

Our biggest gap, as I walked through earlier when I was responding to Dan is the number of jobs that are actually completed versus the number our Pros win. So to drive that North Star experience, our Pros need to win more. There's been just a dramatic change in the possibilities available to us with AI agents at a genetic coding in just the last few months. And we have been assessing and digging in and looking at what we're doing and we believe that agents offer us the opportunity to close the loop and take that metaphorically 2 out of 7 to 4 or 5 out of 7 that I referenced earlier, and double the win rate, double the effectiveness for the homeowner double the effectiveness for every -- the Pro and really grow value in the business and the ecosystem.

In terms of how we're approaching this, how it's going to look, effectively, what we're doing is starting with the core lead to close cycle. So lead received first agent would be what you might call an AI call center and booking agent. Outbound call can be made to the homeowner, homeowner doesn't pick up outbound tech can call back in. Booking agent gets more information, confirms the needs, books into the Pros calendar, sends reminders to the homeowner and the Pro, make sure there's a rescheduling, make sure the Pro shows up and getting the booking is really the first key anchor in getting the job won.

A lot of our large Pros look at booking rate as their key metric. But you can go from there and imagine that you can coach the Pro on the sale going in. You can record the visit. I don't know if anybody uses [ granola ] for their meetings and transcribes their meetings, you do something very comparable. You can send notifications with coaching advice to close the sale during the visit, and you can also take the transcription of the call and the agent can put together a draft quote by the time the Pro gets out to her or his truck or van and is able to then dispatch a quote right away.

One of the gaps in the winning process is delivery of in a timely fashion and accurately. And once you have the quote, you have follow-up, you have checks on changes, you're closing the deal, you have asking the Pro to intervene with a visit or a call to close the deal. And you can go from there. And your imagination can take you to different places. And what we're going to do is carefully assess the needs and the opportunities to make sure the -- when the homeowner submits a service request and creates a lead for our Pro, one of our Pros is consistently winning it.

And so you can imagine the ecosystem will look like that. And in our mindset, we should have our first agent in its first test in the next several weeks. We will then -- as that gets going and we complete or genic software development life cycle, which is the platform on which you do your agent development, we will work on getting our second one out, and we're working on prototypes and we get to our Investor Day in the fall.

We hope to demo this for everybody who wants to come. And look, we're pretty excited. We think that the opportunities opened up here to really deliver value for our customers and then ultimately really accelerate the business to deliver value for more and more customers that our shareholders are incredible right now.

The next question comes from Stephen Ju with UBS.

This is Vanessa on for Stephen. I just wanted to ask a question on the guidance. So can you add some color on what forecast item is getting more difficult for you to resend guidance on and is it more on the cost side as you build out the product?

So I wouldn't say that we're having difficulty forecasting. We have high visibility in our business. We pay careful attention to what we're doing. It's just very simply, we're not going to give guidance because there isn't a reward for managing the quarterly or annual guidance. There's not any reward for hitting the range on our quarters. There's not any reward for dedicating resources to getting the next million dollars in the quarter versus the next billion of value that's in front of us. And to be honest, the market is telling us that.

So we're going to stop trying to invest and improve our revenue on our old platform, which is really just fighting the last war. We believe the upside of our AI native strategy is on some level, uncapped. So we believe that anything that distracts from the tremendous prize management, engineering resources, anything that distracts from the tremendous prize we have in front of us is effectively kind of a waste of time.

We still plan to run our commercial machine and drive the business back to Pro growth and ultimately revenue growth. We're just not putting a timetable on that. Our milestones that we're thinking about is we're targeting getting onto the new platform in the next 12 months or so. That's a key marker in terms of getting into a place where we can innovate and work on the core business.

And then secondly, what I was just talking about in response to Sergio's question, we're going to sequentially build test and roll out our Angi Pro Chief Revenue Officer agents. And as we get that into place and the new platform rolls out, we anticipate being able to accelerate our revenue in 2027. And now we think it should be material. Otherwise, it's not really worth playing for.

So I think without giving guidance, that's how we're thinking about it. And it's not a problem on visibility or difficulty. It's simply a matter of where we're prioritizing resources. And then frankly, the feedback we're getting from the market on the value of doing that.

The next question comes from Cory Carpenter with JPMorgan.

This is Danny [indiscernible] for Cory. For the first, Jeff, can you talk about what this pivot business strategy means for the consumer homeowner experience and how it may change? And then for the second, can you talk about the rationale for the debt repurchase in 1Q and 2Q quarter-to-date and maybe provide an updated capital allocation strategy?

So let me talk about the homeowner experience. I'm going to let Julie talk about our bonds, and then I'll add any color there. So I talked a little bit earlier about the development of the LLM surfaces as traffic sources and our strategy there. And that was sort of very practical how are we approaching this now? How are we working with the LLMs and how does that opportunity work?

If you go a step further, what many people see right now, and you can just go back to the development of OpenClaw is really the key marker here, consumers are going to have personal agents more and more. And those personal agents are going to be able to go out form tests for them without them necessarily interfacing with in their minds, a website. So what we have -- what we strive to do is to be the best place for a homeowner come to get their job done well.

We think that the strategy we've laid out continues to be the best thing. And as I said, we think that the strategy we've laid out is the best approach to delivering signals to the LLM to make the LLMs choose us effectively get the job done, get the traffic, to demonstrate that you're going to get to drive done, get more traffic.

When you think -- when we think about personal agents, personal agents are effectively trained LLMs, trained on personal preferences. And so if we can train the LLM by delivering results to be a choice [ place ] to send homeowners, we will also train the personal agents. So what we want to do is we want to position ourselves not only to be a place where a homeowner can come and use us as their agent to get their questions answered and find their. But the homeowners personal agent will come and do that. And we think we do that by delivering jobs done well for our Pros, which means job has done well for our homeowners.

I described a little bit earlier our thinking about the homeowner experience. And when you think about what I was saying with the ability to deliver estimates based on the information the homeowner gives us, again, homeowner information is not always perfect. So it'll have to be caveated estimates. Taking photos, taken info, have an iterative conversation make requests for the homeowner for certain measurements, et cetera. You can imagine the way the interactive experience can develop and ultimately, that means the Pro has better information.

We get better matching, the Pro can match the technician and the equipment that they send, and we can have a much stronger ecosystem. And this can happen either by a homeowner coming through an LLM, coming to Angi, coming through a partner. We have several partners who deliver us traffic or, frankly, a homeowners trained personal agent. And we see the world evolving this way. And so we think the homeowner experience will evolve this way, and we need to deliver against it.

In terms of capital allocation. As just said earlier, we're confident in our ability to produce consistent cash flows. In terms of M&A strategy, we conservative and then we capped our share repurchase ability until next year. We have repurchased about 20% of our shares outstanding at the time of the spinoff, that the limit of the set hub of tax-free [ still ] and that's for data 2 years following the spinoff, so until April 2027. So as a result, we saw that buying bond was a good use of capital. We bought about $100 million worth of bonds. So that's about 20% of the debt outstanding at an almost like 9% discount.

So just to follow on, we are clearly not against buying our shares at favorable prices, but we can't do that until next year. We're clearly not against buying our bonds at favorable prices. As Julie said, we just bought a bunch. We do have to be mindful of creeping tender rules and how that works.

So we're not averse to doing it, but we have to -- in the same way, we have to pay attention to the structures around share repurchase. We have to pay attention to the structures around bond repurchases. And as Julie said, we are not in an aggressive mindset, we're in a disciplined mindset about M&A. We would take a great value and a great opportunity that augments our strategy but we're not trying to go and take the cash off our balance sheet and buy brand-new things that are outside of what we've told you our core strategy is and I think that's our thinking on capital.

This concludes our question and answer session. I would like to pass the floor to Jeff.

Well, thanks very much. Thanks for all the questions. I think we've laid out what our thesis is here, which is there are really tremendous new opportunities in front of us that are provided to us by AI agents at agentic coding. We think we're remiss to continue to work on the old technology, which is not easy to work with, nor is it productive to keep chasing quarters and revenue guidance, et cetera.

We are incredibly excited about what's in front of us because we think we have a clear line of sight on executing against our agentic strategy, and we clearly believe that we have the strongest distribution base between our brands, our Pro network, and our acquisition machine in the industry. And we think we can spin the flywheel stand-alone. We think we can add to it by building our agents and then I think effectively, Dan pointed out, there's another market opportunity here for us as well.

So we're extremely excited. It's going to take us the next several quarters to put it all in place with the new platform and the rollout of agents but we will be talking to you over time about our progress and how we're looking at the metrics, and we're -- we just think that this is a unique opportunity and we haven't seen something like this in the last few years for Angi. So thanks again for joining us, and we will talk to you soon.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Welcome to the Angi Inc. Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note today's event is being recorded. I would now like to turn the conference over to Andrew Russakoff, Chief Financial Officer. Please go ahead.

Good morning, everyone. Rusty here, CFO of Angi Inc, and welcome to the Angi Inc. Fourth Quarter Earnings Call. Joining me today is Jeff Kip, CEO of Angi. Angi has also published a shareholder letter, which is currently available on the Investor Relations section of Angi's website. We will not be reading the shareholder letter on this call. I'll soon pass it over to Jeff for a few introductory remarks and then open it up to Q&A.

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 filed 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, include adjusted 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 GAAP measures and full reconciliations for all material non-GAAP measures. Now I'll pass it off to Jeff.

Thanks, Rusty. Thanks, everyone, for joining. I'd just like to start, we are fairly happy with where we've gotten to right now. Over the last 3 years, we've given up about $0.5 billion of lower quality revenue but at the same time, we've doubled our EBITDA and cut our capital expenditures in half, meaning we've swung from real negative free cash flow, real positive free cash flow.

At the same time, we moved our homeowner NPS more than 30 points. We've cut our churn by more than 30%. We've improved our customer success rates more than 20% and actually, in the fourth quarter, we've turned our customer repeat rate positive about 10%. So we're pretty happy with the progress we've made. We're making a material stair-step improvement in our year-over-year revenue changes probably 700 to 900 basis points.

Actually, in January, we grew very modestly, although year-on-year, we don't fully expect growth in the first quarter. But we're pretty happy with where we are. We're very optimistic. On top of that, we've reset our margins and we've cleared the capital to invest in long-term profitable growth. And we're just -- we're very excited about our prospects in the AI landscape. I'm going to talk a little bit about that.

I think there's a few things to talk about. I think we should talk about LLM, marketplaces, software and agentic coding, different areas, different layers of emphasis there. First of all, when we look at LLMs, we see it as a great opportunity. We're very happy to see LLM enter and be places where homeowners and consumers generally who have lower knowledge and maybe less frequent interaction, go to discover and explore.

We've been very successful building an acquisition on Google, which is effectively the predecessor of the LMs. Google obviously, has its own LLM where homeowners and customers go to explore research and discover, we've been very effective because we have built a network, a deep, broad and skilled network which Google still find very useful as a partner to serve its customers, and we believe the LLMs will as well.

We have started working actively working with every LLM, we have had conversations and are an effective dialogue. We've announced the deal with Amazon Alexa. We have an app submitted to another major LLM talking live about 2 technical integrations based on the same technology we've built for the app we submitted, and we feel very good about the opportunity there. We think that it's harder for LLMs to go out and build the deep and engaged customer base that we have. Again, we were able to do it and maintain it and sustain it. all the time while Google tried to do the same. So we feel pretty good about our competitive position.

We think we can serve as excellent partners to LLMs. In fact, we've deployed LLM technology in our [ SR ] path in the core customer experience, which we are training with our own proprietary data and experience to make sure that we can land the homeowner to better match. About 35% of our homeowners touch that part of our technology and experience. They convert about 3.3x as well to a [ Pro ] selection as the customers that don't. And so as we train that technology, we think that's positioned us better to interact with the LLMs.

Our approach with the LLM is that we can pick up the context and the conversation that the homeowner is having with the LLM at the beginning when Rusty says, "I have water on my floor, what do I do?" or the LLM can have the full discovery with Rusty and get to the point where you say, "Okay, we think there's a leak at the base of your toilet, we need a plumber and we can take that information and bring the right plumbers." So we think we can do that effectively.

Obviously [ pros ] have separate marketing channels than we do, they go direct to Google, they do a number of things. We actually think longer term, we can help them there because we think we're probably at scale, the best there is at finding homeowners who need help from [ PROs]. But we think that we will still exist and be able to grow in this environment. And we're just very excited to have competition at the top of the funnel and be able to diversify our channels.

Let's just talk briefly about then our role as the marketplace, some of the things that are being said about software out there in agentic coding fundamentally, let's focus on Angi as a marketplace, we are an agent. We have customers on one side. We have data and systems of record on the other side we are effectively the execution layer and the UI layer in between. And we get the homeowner's job done, which is finding a pro who can do their home job well, and we get the [ Pro ] shop done, which is finding a homeowner whose job they can do well and we act as an agent.

We believe that using agents will allow us to be even more effective at what we do, and again, use our proprietary data and systems of record and experience to be stronger and faster at development here in addition to the existing network and customers and the resulting network effects that we already have. A competitor may be able to build an alternate marketplace technology metaphorically overnight in their garage now, but they cannot build our network nor our homeowner reach or our brand.

So we think we're very well positioned. We think further that when you think about software, we think now we have the ability to extend our agents and actually integrate with all of the software out there that our customers use better. For example, we believe that we can act as the post lead communication between the Pro and the homeowner to clarify things for the Pro to book the appointment into the Pro calendar and perhaps even book the appointment into the homeowner calendar, follow-ups, et cetera.

We believe we can ultimately integrate also with ERP and HR systems and anything else that helps the Pro move through the chain to get the job done. And so we believe we're well positioned to actually extend our mission. Today if 5 homeowners come to us with a job, three of them hire a pro, which is not that different than what we study when homeowners call a pro.

We get to something more like 7 out of 10 higher Pro once they've made a phone call. But -- so that's pretty good. Of those 3 only one hires our pro. We believe that by using agents, we can drive that up to 2 and then towards 3, which will dramatically improve the value created, the retention, the repeat and our ability to extend the marketplace. So we're actually very excited about this.

And then the final piece, I'll just briefly state. Obviously, there's a lot changed even in the last week or so with a genetic coding and what's being written there and the possibilities. We're extremely excited here. Again, we can build something in our metaphorical garage over the weekend. We think this gives us great opportunities to extend oursoftware by using agents and invest and regrow our whole network and business.

So overall, we're very excited about the entire landscape. Let's talk a little bit about now. I'll talk a little bit about our business and revenue trajectory, and then I'm going to let Rusty talk a little bit about margins. and then we'll take questions. First, I'd say we're roughly in the same place we were before, maybe modestly lower. Previously, we were talking about getting to a little bit of growth in the first quarter and getting to mid-single digits for the year.

I think now we're looking at very modest negative growth, but still a material sequential acceleration in the first quarter and maybe low single digits for the year. What's the difference? The difference is, obviously, we had pressure. We discussed it on our last call from both Google SEO and our network channel in the third and fourth quarters.

Between our November call and now we think that, that pressure is extended and then so we have gotten more conservative on those channels in the year. What we've historically been able to do is take actions, do work on our product, et cetera, and actually change the trajectory of these channels. If you look at just Google SEO, we were down 35% to 40% year-over-year in mid-'24. We brought that into the double digits -- mid-double digits by the end of the year, and we expect it to continue that trend.

We were metaphorically punched in the mouth again in the spring and fell to the range of 35 to 40 again, but then we sequentially improved into the low to mid-20s by mid-year and we got hit again in the late summer and thus, we were where we were going into the year. What we've done is we've essentially said we don't think we're going to make that progress back again, and we're going to assume Google SEO stays down at that lower level for the year.

We're doing something similar with our network channel where we basically have assumed we're not going to improve it in the rest of the year, and we're just going to kind of get to the second half of the year and stay at that lower level we were in the second half of last year. So we've effectively gotten conservative. We think it's more prudent to look at our full year revenue that way.

And really, our focus is on our proprietary business, which, again, we grew 17% in 2025. We're expecting high single, low double digits in the first quarter there. We believe that, that business can be a solid mid-single-digit plus, ideally double-digit grower long term. We've put a great deal of investment there. We've executed very well. And frankly, we've seen our repeat growth turn in the fourth quarter. So we actually think that the high-quality branded traffic is coming back.

And with all of our improvements in the customer experience and what we see in customer behavior, we think it's time to lean back in to branded advertising, where we're running TV and streaming and social. We've done this effectively for years. We're basically going to return from the lower level we were at in 2025 to the level we're at in 2024, which is effective level for us to spend that, and we think we can do it well.

Just talking about the quarters briefly, and then I'll hand over to Rusty. In the first quarter, compares get more difficult February, March, in our proprietary channels. We ramped 2 areas of Google last year, first in February, March and then April, May, which was Google Display and then Google Search Partners, we got some effective revenue growth, but as we watch that traffic season, we actually saw lower win rates than the rest of our channels, and we effectively scaled them both down.

That makes the second quarter in particular difficult compare and a little bit more difficult compare in February, March. So we expect the first quarter with the kind of 60-ish network decline baked in to come in at minus 1% to minus 3%. We expect the second quarter to come in at flat, maybe a little bit down. And then we expect to get to mid-single digit in the second half of the year as the network channel stabilizes, it flattens out and we're able to grow our proprietary and effective long-term rate.

And we're optimistic we can do better, but that is prudently where we want to guide right now. Again, looking out over the course of the year, we basically think low single digits, let's call it 1% to 3%. That's impacted by a few hundred basis points worth of Google SEO and network outlook. It's impacted to the positive side by our brand spend.

And then in the first quarter, again, there's a little bit of delay in the product road map that came with a [ RIF ], sometimes you have to make a short-term sacrifice for the long-term good of the business. And the first quarter is going to be a bit negative at minus 1% to minus 3%. And -- so again, I think we're overall very pleased. It's not quite the size we want it to be, but again, 700 to 900 basis points of acceleration from Q4 to Q1, focused on growth in this year and very strong performance overall in our proprietary channels. And with that, I will let Rusty just talk about our margins and our EBITDA progressions.

Right. So starting with Q1, as Jeff mentioned, we're going to be deploying dollars for off-line marketing, which we had in Q1 of last year, we had pulled back on and spend virtually nothing as we were shipping to homeowner choice at that period of time.

So that includes increasing our spend in the U.S. It also includes some spend internationally, where historically, [ TV ] has worked well in Europe in Q1. We had backed off kind of during COVID and after COVID. And now we're reinvesting back behind the brands. And it also includes $3 million of new creative.

We're also -- we've also begun to ramp up online Pro marketing. All of that will drive revenue and profit but on a lag with only part of that returning in the quarter. And so quarter-over-quarter versus the fourth quarter, our sales and marketing goes up by about 8 points as a percent of revenue. Then revenue increases seasonally as you get into Q2 and Q3 with some benefit as well from the Q1 spend flowing into the future quarters.

Directionally, we should add $35 million to $40 million of incremental revenue into Q2 versus Q1. Where we'd expect also to spend kind of $10 million to $12 million more in marketing to acquire the extra SRs. But we won't have any additional creative to expense in the second quarter and both [ Pro ] acquisition and fixed costs will be directionally flat on a dollar basis, but better on a percentage basis as the higher revenue comes in Q2 and Q3.

So together, that will deliver incremental EBITDA in the kind of mid-$20 million range in Q2 versus Q1 EBITDA and gets you to overall EBITDA in the mid-40s for both Q2 and Q3. Then as we go from Q3 to Q4, if we look at last year, our revenue declined seasonally by about $25 million quarter-over-quarter. If we assume a similar dynamic this year and roughly kind of 50% margin flow-through. And on top of that, we typically expect to pull back on off-line marketing during the holidays, about $5 million to $10 million that directionally gets us back to low $40 million range for adjusted EBITDA in the fourth quarter.

Next, I wanted to give a little bit more context as well about the restructuring and how the savings flow through in the context of our overall guide for the year. So the way to think about the restructuring at a high level is that the objectives were threefold. So one, get the cost structure in the right place to create room to make the meaningful investments we're talking about, while the also delivering profit growth on a year-over-year basis.

So the way to think about the $70 million to $80 million of savings then is that, first, it's on an annualized basis. So that results in year savings in the mid-60s with $25 million of that is cap labor. And the right reference point for that is what our total cost base was going to be for the year. So if you look at 2025, we had $223 million of fixed OpEx plus $60 million of CapEx, that gets you a total cash fixed cost basis of $283 million, which is how we kind of view our capital -- our cost structure.

Now prior to the restructuring, our exit rate, finishing the year would have had our fixed cost base increase by roughly $20 million year-over-year. And post restructuring, we now expect that number to be approximately $40 million lower year-over-year, which means $60 million in total of reduction off of the pace. That allowed us to free up capital now for long-term ROI positive investment in growth while still delivering the $10 million to $15 million of profit growth year-over-year we've guided to, in terms of higher adjusted EBITDA and lower capitalized wages.

And the key investment areas are, as Jeff said, first, the brand marketing. It's an area where you took our foot off the gas in 2025. We pulled back pretty significantly from our historical trend levels, and we are leaning in now with all the positive trends in the customer experience. Second, the online Pro marketing, which will be LTV positive as we drive growth in the new Pros acquired, but P&L negative in year as we ramp it up. And then third, sales in our large Pro segment where we already have a nice business but we're under indexed against the industry at large, and we have a big opportunity to grow there.

So these investments are key pillars that unlock incremental revenue growth, which will offset the trends in network and SEO traffic that we've been discussing for the past few quarters and which we're forecasting conservatively, as Jeff mentioned, so that there are no expectations of turnaround in these channels embedded in our guidance of low single-digit overall revenue growth for the year.

And if you fast forward to the end of the year, we'll be a mid-single-digit grower with proprietary growth higher than that and comprising over 90% of the business accelerating and now with better cost leverage than 2025 so that the top line growth can have more financial impact over the medium term. All right. So with that, why don't we open up, go to the queue, and we can open up for Q&A.

[Operator Instructions] Our first question today comes from Eric Sheridan at Goldman Sachs.

Just coming back to the broader discussion about AI, maybe 2, if I can. First, curious how we should be thinking about the rollout of AI features as you discussed on the customer side of the platform looking out over the next 12 months and how that gives you some visibility or confidence interval in some of what you're talking about with respect to a return to on the platform more generally. And the second would be, how does owning a consolidated supply side data sort of position you relative to what you want to accomplish when partnering with LLMs, curious on that.

On the first question, the main area where we put focus on AI and the customer path today is the AI helper in our SR path. What we are doing with that is we're continuing to experiment with how we have more homeowners use it effectively, because what we're interested in doing is driving up the number of homeowners who connect with the right pro. Again, 35% of our homeowners currently do it and at 3.3x is likely to actually choose a pro in our UX and UI. We'd love to drive that to 50% and 60% and 65% and we're currently actively running tests. We recently ran a test that picked up about 5%. And so we're pleased with that. And we're going to continue developing there.

We are looking at other applications such as what I referenced lead communication which we think can again help stabilize and get the homeowner to actually meet the Pro and move towards the job done well. And we're looking at how we might apply it in other areas of the product as well. That is, as I said, sort of a backdrop to integrating with LLM is, the more effective we are there. We're working with a white label LLM on our platform and the more effective we are there, the more trained our data and our AI implementation is when we interact with the context that comes to us from an LLM that a homeowners entered there. And your second question, what was the second question?

About the supply side.

Okay. The supply side, sorry. Again, the way we look at the world is -- you have customers. You have agents, which have generally historically been human agents or software algorithms with, again, UX and UI in between, and you have a system of record or a data layer. The system of record or the data layer is what allows you to perform the agentic tasks well.

If I have the data on the customers, I can be far more effective as an agent on the customer's behalf. If I'm a human agent and I don't know my customer, I can't really deliver my product or service well without understanding the customer. So we fundamentally already have a system of record about customer behavior, success, et cetera, where we can understand our customers.

And so when we go and we take our Pro customers and actually our broad homeowner experience, so when we go to an LLM and we see a set of context or searches or queries come in, we can take that and compare it to our customer data effectively run it through algorithms, use an agent and make the connection better than if we didn't have that. So that's a reasonable moat we have at the scale we operate at for the number of years we've operated at and we think it puts us in a very good position to effectively partner with the LLMs in the same way that we've effectively partnered with Google by taking clicks with some context from Google and matching the homeowners successfully on our platform. It's worked well for them in terms of monetization. It's worked well for us and it's ultimately working better and better in terms of the customer experience.

And our next question today comes from Sergio Segura with KeyBanc.

I had 2. First, just hoping you can explain the rationale for tripling the brand spend this year and why it's the right timing to do that now? And what kind of lag we should expect before that spend translates into incremental service requests? That's question number one.

And then question number two is just on the proprietary channel as you lap homeowners choice this year, how should we think about the normalized growth rate for that channel?

Thanks, Sergio. It's Rusty. So first on the brand spend, if you put into the context of what this company has spent on off-line marketing over its history. We're really now just going to be in 2026 returning to 2024 levels. So it's not -- last year, we took a step back as we're digesting the changes from homeowner choice. But we're not increasing to levels that are above anything where we've spent profitably in the past. I can talk a little bit about how our approach and how we get confident with our ROI.

So in TV, in particular, we have a data partner that has -- is connected through on a decent percentage of TV sets across America, and we're able to actually pair the IP addresses of people when they see our ads and pair that against the IP addresses of people who submit service requests. So we have pretty good visibility into kind of the uplift from our TV spend. It's not as precise as other digital channels, but we've honed this over a couple of years and we have pretty good visibility relatively to be able to measure the ROI from our TV spend.

And then kind of at the back half of last year when we were spending TV but at lower levels, we kind of dialed in changed our strategy a little bit and our channel and station daypart mixes. And so we're getting to pretty good ROIs on that spend. So between that, the results, our ability to measure this and having the strongest brand in the industry, we feel pretty confident that we can spend at these levels and be profitable.

Yes, I would just add, it takes a little while to build. So your first quarter incremental spend is going to pay back the lease well, but it's going to ultimately pay back long term. There's a tale of months on this stuff. And as we add the incremental is taking a little more to pay back. So we're pay back, I don't know, 3 quarters in year with the tail outside of the year.

But the other point I want to make is -- we kind of went on defense last year. We made a material change to the UX. We are working on correcting our customer experience. We wanted to ride through that in the first quarter, and then we wanted to deliver our target adjusted EBITDA last year, which we did. And so we pulled back our marketing spend to sort of make sure we would do all that.

I think with the way our customer experience has moved and with the upside we now have with not only homeowner and choice in, but we've rewritten most of the questions in our Q&A. We've implemented the AI helper in the Q&A. We've moved all our Pros into a product where they can choose Task and [ Zip ]. Our new pros who are coming in online are looking at the jobs before they opt into them. we have a multiplier effect on the level of matching, and we believe we should go back on offense, going back on office, just means going back to the 2024 spend, where over time, we believe we were better than breakeven, although, again, there is a tail on that. So we do feel pretty good about it, and it is baked in to our overall revenue growth.

All right. And then your second question, Sergio, is about kind of normalized growth rate for proprietary. So we're now -- we're splitting out and we're showing you our proprietary and network revenue on a revenue basis now. So Q4 was 23% and for the full year of 2025, it was 17%. So that's good visibility into kind of the 2 pieces of our business. And for 2025, you have a grower like that and you have a decliner in network -- on the network side, that ends up combining to be a decliner overall.

But as we kind of progress forward on the proprietary side, we're saying overall revenue ending the year kind of in the mid-single-digit range, probably be high single digits, that means for the proprietary business. And going forward, proprietary revenue, we think, is high single digits, continues there or even low double digits depending on where we can get with pro capacity and continuing to make progress in our paid proprietary channels and the impact of the branded marketing.

Our next question comes from Dan Kurnos with [indiscernible].

Rusty, you actually just brought up the first question I had, which is since you guys are leaning back in now and we're starting to see this advancement in proprietary SARs, just curious since the network is still declining nominally, what is happening with Pro capacity. And then secondarily, you guys flagged on the last earnings call and in the shareholder letter that you're doing a global platform consolidation. So maybe, Jeff, just give us an update where you are on that front? Any disruptions that we might expect to see? I think you called out one in your prepared remarks, but I'm just curious if there's anything else we should be expecting on that front?

Let me take the second question first. By cutting the organization by 40%, we think we've extended by a quarter or 2 the time line in getting to our final single platform. But we have built our time line in a way that we do not believe there will be a disruption to the business. And what, in fact, we are doing is we are going to deliver in stages. So first up, on the rebuild is our new homeowner experience.

Our current homeowner experience, which comes from the start of what we call the SR path where the homeowner enters the funnel and starts answering questions choosing a pro and then managing their post-selection project in a projects space, that's the core homeowner experience. That's the first thing we're going to get rebuilt. It's rigid technology. It's old. It's very difficult to iterate quickly and improve and we are rebuilding in what we would call a [ componentized ] way. What the [ componentized ] and more flexible way is, is we can skip steps we can pick up from different channels at different stages of the flow.

If, for example, we had somebody in a hardware store and we had a QR code, and they were looking specifically at a mini split to do heating and cooling in their addition. We could pick up right there that they're in the mini split aisle and be very clear very quickly on where to drop the experience, which would boost conversion, it would boost matching, we cannot do that today. Somebody who scans a QR code with a mini [indiscernible] and for them has to start with what's your ZIP code, what's your category.

So it's going to enable a bunch of things, including making even better any integrations with LLM and other partners. That is the first thing we're going to deliver, and then we're going to move on to delivering the pro experience and so forth. Now we could change order. I think we're currently looking at software we might build with agentic coding and how that's going to work. But that being said, we don't anticipate disruption to the business.

We actually anticipate enhancing the business and the customer experience as we go and maybe we're a quarter or 2 later than we initially anticipated, but there's a lot of green left to cover there.

I'll cover pro capacity. So over the past couple of years, but in particular, last year, we've completely changed the way that we acquire Pros and organize our sales force, especially with the Single Pro initiative, where we're selling a single product or a single sales force on a single platform.

We've changed up the prospect mix and the kind of offer strategy. So we're selling much bigger Pros with bigger packages, but less Pros. So our nominal amount of average monthly active Pros is still down year-over-year. but the capacity per pro is up, our revenue per pro is up and the overall capacity of the network is actually up when you net those 2 factors against each other.

Now the complexion of that will change a little bit next year as we lean into selling more large pros, and we're talking large pros, we're talking quite large pros, so those will be fewer number but much, much bigger. So they'll have less of an impact on our kind of nominal counts, but they'll drive a lot of capacity.

And then on the completely flip side, as we ramp up online enrolled, we'd expect those to be kind of lower capacity, smaller pros, but we'll be able to acquire them at a much greater scale. So then when you look at our acquired Pros, you can see we've actually -- we were down 23% this quarter, but versus Q1, we were down 41%. So that -- those year-over-year declines have been narrowing.

And as we roll out online enroll and ramp up that, we expect our acquired Pros to flip over into year-over-year growth in 2026. And then that on a lag will result in the growth in our overall average monthly active pros in 2027. So that is how it all kind of comes together where we have capacity growth already right now in the network year-over-year just based on the mix shift in the Pro base, we'll get to acquire pro growth in 2026 due to online enroll and then overall kind of nominal network growth.

And our next question comes from Stephen Ju at UBS.

All right. Great. So Jeff, so instead of -- just thinking about AI as being a challenge. There's probably an opportunity for Angi to present the differentiated consumer experience going forward given the data that you have. So -- from a tech stack perspective, what do you need to build or change to take advantage and move up the marketing funnel and become that destination platform?

And secondarily, sort of a macro question here. We're, of course, getting different cross currents. So I was wondering if you can weigh in on what you're seeing.

Okay. I'll take the first question. I'll let Rusty take a shot at the second one and add if I could be helpful. Look, I think basically, in terms of the tech stack, what we said is we have legacy technology, which we've got to replace with modern technology as a single platform. We are doing this all, shall we say, AI first which means our intent is to integrate AI.

We've always used machine learning and algorithms, but we can use effectively conversational AI interfaces and obviously the advanced capabilities of LLMs to improve the customer experience. So anything we do new, we are doing with the idea of being AI first in the product. I think secondly, we are thinking about how we build new pieces of software with agentic code that may actually replace some of our legacy technology or augment. What we have to be able to do then is integrate effectively through APIs or otherwise to deploy that new software. So I think we have to put some thought into how we do that.

But this is actually sort of timely. We are in the middle of shifting to a new modern platform. At the same time, that really high-powered agentic coding has arrived and we are going AI first. So everything we are doing is with the thought of just as I described in response to Dan's question, we want to be able to deploy in a more componentized way to multiple surfaces and channels, and we want to be AI first in the deployment in order to drive the right matching and actually ultimate job done well, which drives value and actually growth and long-term resilience of the business.

Yes. And then on the macro, reflecting back on 2025, there was kind of April liberation day volatility. We recovered a little bit from there and then heading into the -- and at the end of the year, you can see in the consumer confidence surveys, kind of down 20% to 30% in the last couple of months of the year and pointing in the same direction for January. And so what we've seen and talking to partners and competitors and such is a little bit of weakness and pressure on volumes.

We see a little bit lower mix down in kind of job values and consideration overall is what we're seeing and what's embedded in our numbers and our outlook. Overall, what we tend to see if it gets into a recessionary environment is -- it gets a little bit harder to get SRs. It's a little bit easier to retain the pros and our business generally has a pretty material amount of ballast due to the fact that we're 2/3 of the business is in kind of nondiscretionary tasks whether you cut it by service requests, leads, revenue and pros.

And our next question today comes from Cory Carpenter at JPMorgan.

I had 2 as well. Just hoping you could talk a bit about the revenue per lead decline. I know you called out that in the shareholder letter. So just maybe expand on what you're seeing there? And then secondly, with share repurchases pause, I think you're not able to do share repurchases for a period of time going forward after the spin. So maybe just help us with how you're thinking about capital allocation in the coming quarters.

Thanks, Cory. Yes, so on the revenue per lead, we mentioned that it's -- we're delivering additional leads to subscription pros. The way the subscription product works is that pros pay kind of a fixed amount and we deliver leads up to that value if we're able to kind of optimally just get it exactly that amount, that's not really how it works. If we have a homeowner that comes in submits an SR and the only pros available are people who are already kind of at their subscription caps, we want to deliver the best experience.

And so we still will deliver that lead to these products. So it's possible that subscription pros, get additional leads that we're not able to monetize. So that will show up as higher leads, even though we're not able to get additional revenue for it at the moment. And mechanically, that just results in downward pressure on revenue per lead.

What's going on beneath the surface is that we have the ability. We have features and functionality that we'll be rolling out to allow us to monetize, better monetize some of those additional leads similar to how the functionality and the product works in Europe. And just in terms of the phasing of how we rolled out Single Pro and the subscription product in 2025, it was on the road map, and it's just coming out over the next couple of months.

Okay. And then capital allocation, I think as you pointed out, we bought the prudent amount possible post spin. It's usually a 2-year window, so that would put us at next April 1. And I think there's a couple of things.

One is we have $500 million of debt on our balance sheet coming due in 2025. So we're keeping our eye on that and thinking about where we finance. We think we're in a great position with that. We think that between the cash flow we generate this year, our balance sheet and our credit line, we have that actually fully covered.

So that's just a consideration in terms of capital structure and capital deployment. We would not be against value-creating tuck-in acquisitions, but we don't have any in mind we would do them at appropriate multiples and make sure that they weren't creating too much complexity in creating, so we've never ruled that out. And then I think we have to see where things play over the next year and where we get to in terms of next April 1.

And I think long term, we would obviously, with our ability to generate cash, if our stock stays at the levels it's at, we would still think about buying in the stock, and I think you could never say that a dividend is off the table either. So there's nothing imminent on that. Again, we're more than a year away from doing more share buyback. But I think we're in a pretty stable position and I think that's how we're thinking about it.

And I'll just jump in for one second just because, Jeff, you said that the bonds are coming due in 2025, but --

2028.

I just wanted to correct the record. Sorry, I'll August of 2028.

Thank you. Yes, no problem.

And our next question is from Brad Erickson at RBC.

I had a couple follow-ups. Sorry, on the first one, I may have missed this, but can you just quantify what the current exposure is to the SEO headwinds at This point? And then just kind of how to think how that evolves over time. And then second, on the Google competitive front, can you just -- just remind us sort of describe a little bit what's having kind of the most acute impact, whether it's just kind of the usual run-of-the-mill algo changes in content versus maybe Google Advantaging some of their own service provider customers or maybe a bit of both? Just help us zoom in a bit closer on kind of what's happening there and how you manage that.

Yes. So on SEO, we're currently at around 7% of SRs leads revenue is coming through SEO. So that's kind of the current exposure that's obviously been coming down over the past couple of years. And the way -- as we mentioned, the way that we're thinking about it going forward is that will continue to treat that as a source of homeowners that we want to be able to continue to acquire. But generally, Google is [indiscernible] continue to capture as much of their own real estate as possible and not make it available to everybody else.

So we're planning the business accordingly to be able to take as much of that share as we can. But we're also focused primarily on growing our proprietary sources of traffic through every other channel. And that's how we've been able to continue to -- we've been able to grow our proprietary revenue, 17% overall this past year, notwithstanding that we've had kind of a piece of it, which was this SEO headwind working against us.

Yes. And I think if you look forward, you have to understand that there's a couple points of drag on our proprietary the next couple of years in our mid-single-digit plus outlook for proprietary that we gave for the back half of the year, and we're hoping to exit higher. And obviously, that number shrinks every year as the percentage goes down. I think the way we look at this is that unless there's some external intervention, we don't think Google has any incentive to give anybody any free traffic. It's obviously how they built their platform and their business, but they have somewhat aggressively moved away from it over the last period of years.

So I think, in general, the free real estate has received a great deal, and that's Google. I also think there's been some algorithm changes that have moved back and forth. I'm not sure that they've net impacted us a lot more than others over the last couple of years. And those are sort of always going back and forth, and we have a team who's always working to try and make sure we stay on the right side of those, understand them and react. But in general, our approach is to put out high-quality pages that get good engagement, and we think ultimately, Google's algorithms are designed to reward that.

That being said, we do not think they will increase free real estate. And not only do they have a disincentive to do so, but now I think they have outside competition. I think secondly, everybody knows 10 years ago or so, they moved more aggressively into the local services advertising space in addition to their [ MAP ] product. And so they actually created a product, which a lot of our pros use alongside of us. I don't think it's more effective than us. Some pros would argue we're better, maybe other progress we argued they are. But we've still effectively built our business with that going on, but they took more of the [ SURF ] that way. They've also pulled more paid ads up in the [ surf].

And then I think finally, obviously, AI overviews are a different matter. We're actually surfacing really well there but not getting the clicks. Again, Google doesn't have right now a lot of incentive to have people leave the AI overview or the Google AI mode ecosystem. They are working towards selling ads there, and we are actively engaged in understanding how to buy ads there. I referenced their [ AI Max ] product on the last call and how we're expanding gradually wherever it makes sense into using that product versus the TRS and the TCPA or some of their other bidding products and they would tell us that it gives us better exposure to potential paid ads in AI mode, and so we continue to lean in there.

Again, we've been extremely effective buying on Google. We grew our SCM well over 50%. And in the last year, and we think we can be effective that we don't think they're taking ads away. So we do think that we'll be able to continue to buy, but we also think they have no incentive to let anybody drive down the highway for free anymore because they are trying to grow and be a business.

And our next question comes from Youssef Squali with Truist.

So maybe just a follow-up on that last question around AI and LLMs. Can you just remind us what are the various platforms you're integrated with today in the process of being integrated with -- and any early learnings or any early insights into kind of how that traffic is kind of behaving and kind of the cost of customer acquisition through that, again, understanding it's pretty early.

And then Rusty, [indiscernible] again of the difference in margin profile of service requests and leads across proprietary versus network channel, please?

So Youssef, we're not going to name names publicly until we name names publicly. We have literally had some dialogue with every one of the major players. We've submitted an app to one of them. We're working actively on an integration with another one. We did make an announcement about Amazon Alexa, who is in turn, talking to another LLM, and we've talked to the other. So we are looking across all of them. We do not have anything live right now, and we are getting a little bit of modest traffic free from some of the platforms, but it's sort of hard to parse and it's performing the same way as other organic traffic, I would say. So we don't have a lot to report either naming names or we don't have much data because we don't have much actual flow.

But we are actively in the mode of getting our app up and working. And we've been able to test those in controlled environments. And we think it's going to work very well. We think the best proof of concept there is what's happening when we deploy with an LLM on our site where we -- 3.3x our conversion to an actual pro selected.

Yes. And then on the profit profile the SRs through the different channels, it used -- it previously was the network channels were more profitable prior to homeowner choice. By introducing homeowner choice, part of the dynamic was intentionally was that we want to bring that experience to be to parity with our proprietary experience, which involves some intentional -- an extra step of choice where you have to choose the Pros and it makes it -- by doing that, we reduced some of the profitability of the network experience. And now it's pretty comparable between the 2 channels. maybe a little bit higher on the network channel, but it's pretty comparable.

All right. I think we have time for one more question. One more, though, it's not a multi-question.

Yes, our next question comes from Matt Condon at Citizens.

Great. I just wanted to ask maybe a follow-up on an earlier question, just the leads per service request that increased pretty meaningfully in 4Q. And I was just wondering if you could help explain the underlying dynamics there. And then maybe just a quick follow-up, just on consumer marketing expense. I know that they were leaning into brand spend in 2026, but 4Q also saw a pretty big step-up or acceleration in consumer marketing expense. Just wanted to hear any thoughts or anything that you guys are seeing that maybe led to lean in, in 4Q.

So in terms of the fourth quarter, I think we saw a couple of hundred basis points of accelerated as a percent of revenue, but it was actually consistent with the second quarter. So I don't think it was a material acceleration, either, it was a decline in total spend and a modest increase, but consistent with the second quarter.

I would say, overall through the year, as we lose SEO, and we lean into our paid channels where we're effective, we have seen an increase in marketing as a percent of revenue just as you follow through the year. I think that's how we think about the third to the fourth quarter. And then the first question ...

Yes, the leads per SR, Matt, it's very similar to the response to Cory's question where we have additional leads that we're sending to subscription pros, right? So when the homeowners come in, we have subscription pros on the platform, and they they're available even though that we've kind of capped them out and they're maxed out on what their contract values are. We're continuing to connect them to the homeowners and that just results in kind of mechanically more leads on HSR.

So look, let me just wrap up with a couple of key points, which is when we started this year, I think we said revenue growth would be minus 12% to minus 16%, really driven by homeowner choice. We landed the plane, gave up over $250 million of the network revenue. We landed the plan at minus 13%. The center of our range was kind of $140 million to $145 million of adjusted EBITDA. That did include too high confidence, $5 million onetime income items, we delivered $140 million without those 2 tens.

As we look out to next year, our $145 million to $150 million excludes those [ 2 10s ], which we still think are coming in. So if you added them back in, we'd be at $155 million to $160 million. The other thing I'd just sort of point out in terms of profitability is we finished last year with $140 million of adjusted EBITDA and $60 million of CapEx. The delta is $80 million when you take the CapEx away from the adjusted EBITDA and we're going to $145 million to $150 million, minus 55, which means we're going to be solidly at mid-teens growth on modest revenue growth, but we are returning to revenue growth, we've actually done it in January.

We're just not forecasting it because of comparisons and product slippage in the first quarter. And then we're going to proceed essentially on the same path with some more conservative expectations going forward. So we entered the new year having taken the action we took in January with the reduction in force and the restructuring with more durable margin back to historical investment in our long-term brand asset.

We are the leading brand in the industry. We let the investment slip last year for very specific reasons. But we're going back on offense because we feel extremely good about the movement we made in our customer experience. We believe we have a tailwind with all of the change that came in through the year. We believe we have material opportunity on the large Pro side of the business.

If you look at PROS with 10, 20 employees or more, they're 2/3 to 3/4 of the market, we're under 1% penetrated there. we're 4% plus penetrated in the small Pro. We think we have a very significant opportunity, and we're investing there -- and we think we have all kinds of opportunity. I won't go through my whole opening remarks on AI. And I think we're super excited and optimistic, and we think we're on the same trajectory but stronger in terms of profit and cash flow than we were before. And we think we have a nice, solid, durable business here that as an agent, as we've always been, can really accelerate in the AI world.

So with that, thanks, everybody, for coming. Appreciate you listening, and we look forward to working with you and talking to you in the quarters to come.

Thank you. That concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.

Good day, and thank you for standing by. Welcome to the Angi Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that today's event is being recorded.

I would now like to turn the conference over to Andrew Russakoff, Chief Financial Officer. Please go ahead, sir.

Good morning, everyone. Rusty here, CFO of Angi Inc., and welcome to the Angi Inc. Third quarter earnings call. Joining me today is Jeff Kip, CEO of Angi. Angi has also published a shareholder letter, which is currently available on the Investor Relations section of Angi's website.

We will not be reading the shareholder letter on this call. I'll soon pass it over to Jeff for a few introductory remarks and then open it to Q&A.

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 filed 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, include adjusted 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 GAAP measures and full reconciliations for all material non-GAAP measures.

Now I'll pass it off to Jeff.

Thanks, Rusty. Good morning, everybody. We know you're all exceptionally busy and working very hard in this earnings season, and we very much appreciate you taking the time to join us this morning.

As you know, our mission at Angi is to deliver more jobs done well to our customers, our commitment to our shareholders to return to growth in 2026 and beyond, and generate more value. In the third quarter, we again posted the key markers for both. The most important metrics we look at to judge our customer experience are: one, our hire rate, the rate at which a homeowners submitting a service request on our platform Angi pro paying for that lead on our platform.

A pro win rate, which is the rate at which pro wins the leads they pay for on our platform. Three, our homeowner Net Promoter Score, which we survey on a rolling basis. And four our pro retention. We again delivered improvement across these metrics in the third quarter as we have all year. Our estimated hire rate is up double digits. Our estimated win rate is up nearly 30%. Our Net Promoter Score is up nearly 10 points year-over-year and nearly 30 over the last 2 years.

The pro retention continues to improve with overall churn better by 7% in the last 12 months year-over-year and up 26% versus 2 years ago. And we're not done yet. We're continuing to invest to get the better, better in customer experience.

We also continue to post the key markers for our return to profitable revenue growth. Proprietary service request growth accelerated in the third quarter to positive 11%, and with proprietary lead growth at 16% and revenue per lead growth at 11%, the blue line to growth in 2027 is clearer and clear to us and hopefully to all of you.

Our network channel has gone from nearly 40% of our leads a year ago to less than 10% this year, third quarter over third quarter, making the rate of growth or decline there, and impact on our overall growth. But that will change trajectory as we start to compare next year. Our strong proprietary growth is mathematically the key marker for 2026 growth. We'll likely talk about this a little bit more in response to questions later.

We're also generating materially more value for the business with our sales channel in Pro acquisition. We have only about half the sales head count we had a year ago, but we're actually producing more overall lifetime margins, meaning the margin for pro and the lifetime capacity for pro and materially up. So with the step change that we've delivered in our sales effectiveness and our recent launch, and now ramp up of online enroll, we have the key pieces to grow our overall growth capacity in 2026, and we expect returned to nominal active pro growth by the end of the year and the beginning of 2027.

So with all these key markers in place, we're accelerating our platform transformation. Today, we operate on 4 platforms, bringing the United States to 1 internationally. U.S. platforms, in particular, have significant tech debt in legacy code, which has materially slowed the speed and efficiency of our product innovation and the business in the U.S. And with the rate of change in the landscape increasing with the rapidly growing presence of AI, we have to move forward and get on to a modern technology stack and get off pieces of software, which are in some cases is 20 years old.

We've been progressively already rebuilding key pieces of our architecture over the last couple of years, but we're now leaning in with the target of getting to a single modern global and AI-first platform by 2027. We've been and will be delivering new AI first and AI-enabled software and improving the customer experience with it and our business efficiency as well as we go. So this is going to be a progressive improvement.

There's no big bang here. And this effort isn't going to hinder our trajectory. It's all built into our outlook. And if anything, the platform work will allow us to accelerate our efforts in the business as we go forward and hit our milestones.

Again, with all of this in place, we are looking forward very optimistically to 2026 and beyond. We're never going to be happy with everything, but we do feel very good about where Angi is, and we have even higher confidence that we're going to deliver against our mission and goals going forward.

So with that, I think, operator, we're ready to take questions.

[Operator Instructions] Today's first question comes from Dan Kurnos with The Benchmark Company.

Nice to see progress on the prop lead side. But Jeff, last quarter, you suggested -- you expected mid-single-digit growth in '26. So given that we're seeing much stronger trends in proprietary and obviously, the weaker in network, plus all the migration work you're doing, has anything changed with regards to your 2026 outlook? And then I have a follow-up.

Daniel, let's go past. But we are tracking the same target for 2026 revenue growth, as we discussed on the last call. You referenced the mid-single-digit target and that's about right. We expect modest overall service growth with the strong performance in proprietary being offset by the network comparisons. I think you made the right comment that the proprietary looks a little stronger and the network looks a little weaker, and we probably net out around the same.

We are delivering this all through very strong paid proprietary channel execution, and we're going to reinvest in branded advertising next year. We expect to double-ish our TV spend given what we've seen on the strength of our branded traffic and our TV performance this year. If you look at overall brand search metrics, which is something some of the larger companies out there are looking at to gauge their overall campaigns, we were only down in the low to mid-single digits in the third quarter versus the prior year, despite year-to-date cutting our TV spend by 70%, which is not, I think, from relationship you often see, that will bolster our growth.

And we think our significantly improved customer experience and the solid ROI there is, I think, attributing to that.

I think revenue growth rates will likely vary through the year, likely a little lower in the first half of the year as we compare to higher network service request volume, and evening out over the course of the year. I think it's also just worth mentioning what we said on the last call that we expect a little leverage from revenue to EBITDA growth as we keep our strong fixed cost discipline next year.

That's super helpful. And then just, look, second, there's a lot of moving pieces on EBITDA in Q3 and Q4, including the shift to CapEx along with what you guys called out the resolution of two matters that could result in some slippage into '26. Can you just talk through those pieces and also how we should think about CapEx running in Q4, and next year?

Yes. Sure. Dan, this is Rusty. Yes. So our believe versus the guidance, it was a mix of a couple of different things, partly some contribution margin outperformance, partly less expense from less hiring, and then partly some timing of expenses. You'll notice -- I think you're referencing that our international EBITDA bumped up quarter-over-quarter, mostly due to changes in the product organization that Jeff mentioned in the shareholder letter. So we combined domestic and international into one team, so that we can focus on consolidating onto one unified technology platform, which is an initiative that we have been orchestrating for a while.

What this meant in Q3 was that the international folks shifted their work towards building out the new platform, which due to the accounting rules resulted in less expense being allocated to the International segment and more capitalized wages these financial dynamics were in line with what we've anticipated with this.

Expectations going forward are that capitalization rates in Q4 should be a little bit higher than in Q3 as we continue to ramp up the platform work, and then we'll continue at a similar run rate through the first half of 2026 before it tapers off as we start to complete some of that platform work in the back half of next year. What that looks like on a full year basis, it will be around $60 million of CapEx this year, around a similar amount next year, but will be front-loaded next year as opposed to backloaded this year.

Got it. And just, Rusty, I just -- could you just clarify what the two matters were? I know it's just timing stuff, but just helpful color on EBITDA, maybe some shift there?

Sure. So we have two vendor-related matters that are from prior years that we had high confidence would resolve much earlier in the year. Both remain under discussion and thus, we're not really at liberty to give more detail on them. There's a chance either or both of them might resolve in Q4, but we're obviously running up against the end of the year. So at this point, that seeming less likely. But we still expect to prevail ultimately, which might be the impact will slide into 2026.

Our next question is from Andrew Watts with JPMorgan.

First, could you give us an update on what the response has been from service pros to the ads migration? And second, could you expand on what you saw in the network channel this quarter, and how that impacts your outlook going forward?

Sure. I'll take those. So first of all, the ads migration is more than half done this morning. It consists of 2 30-day rolling migrations. We're doing them over 30 days because we want to match the contract renewal date. It just makes a lot more sense to the business and the customer. We'll be about 3/4 done on November 15 and then start a second 30 day.

We've had zero disruptions or problems so far. We've got good feedback from our customers. As you probably recall that ad pros really have no choice as to which tests within a category they received, and no choice beyond their initial allocation, ZIP codes. So it's positive. It will make life better for them, and it will also improve our matching because you'll have pros actually receiving the things they specifically want. So we're getting good feedback.

The migration is one of the planks to this all progressive global platform work that we've embarked on. We'll power down the legacy ads platform following the migration, saving money and allowing us to put resources elsewhere. There hasn't been any disruption of any kind of materiality in the P&L. And we really expect that on all of this work, given the way we're working and given our experience. This is our fifth migration. We did 5 in the European business. And so this is kind of a continuation of the work we've been doing for a while now.

I would just say that having something like this come off seamlessly is still impressive that the teams that have been working on this thing tirelessly for over a year deserve a real tip of the hat on the effort and the quality work they've done. Eden, [ Yugo ], Dave, Joe and everyone else. Thank you very much and if you're listening, tip of the hat to you guys.

Let me go to the network channel. A year ago, just recall, our network channel was almost 40% of our leads. It also had in the range of half the win rate of the rest of our channels. Today, the channel is less than 10% of our leads and the win rates materially increase to be in the same range as the other channels. All of this was planned. We made a conscious decision to implement homeowner choice in January, which means that the affiliate homeowners were previously auto matched to available pros are now choosing each pro.

Our data internally has said that homeowners who choose a pro were 60% more likely to hire a Pro. And indeed, we've seen that kind of lift in the affiliate hire rates. So it has been a win for our homeowners and our Pros.

We also anticipated as a result that the volume of our leads would come down quite a bit, both because homeowners are going to choose fewer pros than they were automatched to and because there's less revenue for SR to spend on acquiring more SRs. So we expected that. It was in our guidance. We're kind of on track there with a little bump here in the third quarter.

We also expected volatility in the ecosystem. When we launched into this, we weren't sure exactly if everything would play out. I think net over the course of the year, we've gotten a bit less volume and a bit more profit than we expected. In the third quarter, we had three of our larger affiliates have bumps down in volume. One of them had to do with quality of SRs in their affiliate network. A second one told us they had operational issues. The volume came down. And in the third one, we just didn't have as much volume available.

Now we've gotten back, a chunk in this volume, but not all of it. So we are at a lower run rate. Again, we didn't expect these things, and we also still expect that there will be some bumping up and down as we add network partners and some drop off. So at the end of the day, as we look forward, our current view is that we've kind of come back off our bumps.

We're at our new run rate. We're constantly farming and looking for appropriate partners. And we think that, again, we're stable. We could go up. We could bump down. We'll see. It's now less than 10% of our traffic. It's not a strategic channel. We're going to take the right traffic that we can match the right Pros and get jobs done well. But this is not something that we bank on as a source of future growth in particular. We're happy to have it and make it work and keep deploying there.

Next question is from Ms. Sergio Segura with KeyBanc.

Maybe starting with AI helper. I thought it was interesting that statistic you gave that it converts at a 2.7x higher level than the traditional flow. Now that's the default experience. Just how should we think about modeling the impact? And I guess, is that informing your view of maybe investing even more into marketing for 2026? And then I have a follow-up.

So let me step back. Let's just talk about our approach with AI generally. So first of all, we commented in the letter that we made the move to AI first. And what we're doing is we're looking to implement AI across our customer workflows and our team workflows as well. And we are looking to, as we build new software build an AI data.

The AI helper is really sort of one of the first prototypes where we are taking an LLM off the shelf. And our approach is to produce a fine-tuned LLM in each case. So this is the first application. We're fine-tuned LLM means that we have a set of proprietary knowledge, which is structured in a certain way. In this case, it's our conditional set of service request questions by a task, which we can use to feed and change the way the LLM flows and the conversation with the customer.

Secondly, we have a bunch of proprietary data on customer behavior through the product. And in terms of the interaction between the homeowner pros that we can also feed. And then as we deploy these products, we get new data. And through all of this, we've created a learning loop, which differentiates our experience from what somebody might get on an LLM with our proprietary knowledge, or proprietary data. So this is our core approach.

What we've done with the AI helper is we first deployed it as an open box that effectively said, how can we help you on the side? Or tell us in your own words? And when people enter that, and that's ultimately 1/3 of the customers who post service requests with us. They're more likely to convert. They're more likely to choose a pro, and thus, they're more likely to get a job done well.

This started as a deprecation in conversion and the learning loop is sped up and now it looks accretive, and we believe we're seeing some of this in our proprietary growth. I think when you go to the next step, which is, [ gee ] how much work can this be? We don't actually expect that the other 2/3 of traffic will triple in conversion because there's a causation and causality. So you've got to do a split test to actually see what the shift is. But we do believe there's upside in getting more customers through the AI helper. And we do believe that, that's important going forward.

We don't have a big win baked into our numbers because we've actually just gotten the next phase in this test into play. And so the core of this is when you look at LLM technology, we think it's a huge opportunity for us because we can take an application like the SR path, which is fundamentally a conversation between Angi and the homeowner. And we can deploy the LLM to have more effective natural language conversations against a larger body of data than our previously somewhat rigid conditional path. And we could end up delivering a better match on our core asset, which is the 100,000 Pros who are ready to get jobs done well for the homeowner.

Because at the end of the day, we have always taken this conversation with a homeowner in the conversation with the pro, turned it into a conversation between the two of them because we have the largest supplier for us, and delivered the offline experience that people want. Done this on Google. We've done it on social, and now we're going to do it on LLM. And we're doing it within our product as well.

The next question comes from Stephen Ju with UBS.

So Jeff, Rusty, I think I'll ask the AI question in a slightly different way. And I guess, Angi's relationship with the broader world, I suppose. So I think we're all looking at shifting traffic patterns because the usage of LLMs has taken up across the globe. So how does this change your traffic acquisition strategy? What's working? What's not working as you think about customer acquisition and service grow acquisition?

And narrowing down the scope of the question a little bit. I think as we've gone through the restructuring over the last couple of years, I think you've taken a pretty conscious effort to walk away from the traffic that was lower ROI. I would have thought that in the third quarter, we be bouncing off the bottom, but I think there's sort of a directional quarter-on-quarter decline here that we're noticing in terms of the overall activity. So I'm just wondering if you can kind of walk us through what you're seeing in the third quarter?

So the first question on traffic shifting. There are some indicators out there, the traffic is moving around, statistically getting produced. There's also, what I would call the walking around research of everybody you talk to doing searches in places that sound a lot like LLMs, or actually our LLMs.

Look, our view on this is, again, what I said earlier, we think this is a great opportunity. We're in the middle of building our own proprietary app, deploy by the end of the year on one of the major LLMs, and we're in discussions with a couple of the others about deploying our current and then new technology there. So we think it's a great opportunity because we think that our domain knowledge and our proprietary data and the context we have is going to allow us to enter the chat, midstream in the LLM and read the context from the customer and get them more accurately and with more expertise to the pro they want. So we think it's a great opportunity.

Obviously, there's a bunch of cards. It's very early in the Texas Hold'em hand. So there's a bunch of cards left to come on to the table. But between our development capabilities, our AI team and the ongoing conversations we're having in the nature of our product, we think that we are very well positioned there. We're also, at the same time, kind of rebuilding our content approach, the structure of content that gets serviced in AI is a bit different, although there's a lot of correlations to the way it gets surfaced in Google SEO, but we're actively looking at what we do and how we do it to make sure we're in play there. And at a minimum, we get the brand impressions.

I think then finally, we're actively working with Google on everything they're doing in terms of how they deploy ad space and AI mode and elsewhere. The AI MAX product, which is meant to sort of focus on getting to the right spot against the AI is now over 10% of our spend. So we're literally -- we're literally trying to stay on the cutting edge of everything about where traffic is, where it is going and keep our team and our technology deployed in the right way there.

And we see this as opportunity, not as something bad. We see this is actually very good. Your next question was about third quarter trends. And thinking maybe we should have been bouncing off the bottom.

I think what we said is we get sequentially some improvement. We were minus 12% in the second quarter on revenue, and we said minus 8% to 11% on the third, and we came in at minus 10.5%. We had these bumps in the affiliate network, which its a nonstrategic channel. Our core strategic channels are growing incredibly healthily. I think all of our proprietary -- SRs are going 11%, our leads are growing 16% and then our revenue per lead is plus 11%. So if affiliate wasn't there, you had the lead growth and the revenue per lead, you have very healthy growth. So I think in some ways, you argue that our core business, the best part of our business is growing very healthily. It is well up off the bottom.

I think the network channel is a quirky channel. It's a group of affiliates who we're working with to try and buy homeowners traffic that's going to match into our network and work well. It's not a big canvas. It's not quite a sort of algorithmically approachable as Google is. It's not as big as the social channels are. And so we got a couple of surprises at once.

This will continue to be a theme. We do think we're going to offset it with this incredibly strong proprietary execution that you've seen growing every quarter. We do think that our TV is now performing better than it was, so we're ready to lean in. And we also think that our branded social organic is contributing to what we think is an incredibly strong performance in overall Google brand searches. So I think we feel pretty good about all the good parts.

We've got a little bit of noise in affiliate. We got a little bit of noise in SEO. And again, nobody can bank on either of these as the key to their business anymore, I think, and they're both less than 10% of our traffic.

And look, we're pretty optimistic. We actually feel very good despite a little bump. I take my family skiing every year at Christmas, and we have to connect because we're going to Idaho. And sometimes there's a delay. We've missed the connection, but we always get to Idaho and have a great time skiing and put on the matching pajamas that my wife buys, and have a family picture. So we are feeling pretty good right now.

Next question is from Eric Sheridan with Goldman Sachs.

Maybe one, if I can, against all of the investments you're making across the business. We noticed you also increased the authorization around the buyback. How should we be thinking about capital allocation back into the return profile for shareholders on either a linear level, or elements of you being more opportunistic against the stock price in deploying that authorization?

Great. Yes. Thanks, Eric. So since Q2 earnings, you saw we bought back the remaining shares in the authorization that was outstanding. That amounted to 1.3 million shares at about $20 million. So year-to-date, that takes us to $111 million representing just under 15% of the company. And then in mid-September, the board authorized us to repurchase another 3.2 million shares.

We haven't yet repurchased any shares out of that authorization, and we'll utilize that as Board deems. That's an appropriate use of capital. Importantly, as we've mentioned previously, there are limits related to the amount of share repurchases in the 2 years following a tax-free spin-off. And so if we repurchase all of the shares under the current authorization, that would take us just under that limit.

And our next question is from Youssef Squali with Truist.

So maybe, Jeff, just stepping back a little bit, can you just talk about the broader picture, the health of the consumer right now, maybe just given the current macro? Has it changed at all on the margin? Maybe any difference between lower DMA versus higher DMA type of customers?

And then on the...

Sorry, can you just tell me what -- I apologize, DMA?

DMA, just like higher -- I guess, various ZIP codes, like higher-income ZIP codes versus maybe lower income ZIP codes? .

Okay. Thanks.

And then just on going back to the need to consolidate from 4 platforms into one. Maybe can you double-click on that a little bit? How heavy a lift is it? And how much of the turnaround in the business and the growth starting in Q1 of 2026 is predicated on that move to the single platform. Just trying to see what potentially could go wrong could delay that inflection?

On the overall macro, I think our view is there's a big disruption in April connected to macro events. And that kind of hung a little bit through May. We saw a pickup in June, and we feel like we've been kind of steady since then. Not a runaway homeowner demand like we had in COVID, but not a falling off homeowner demand like we had in the financial crises. So we think it's kind of stable.

We can't say we pull anything different in trends on different ZIP codes. There are ZIP codes where we perform better, and ZIP codes where we don't. But we can't say that there's been some kind of step change there. So that's, I think, the macro. I think things look steady as she goes right now.

I think secondly, on your platform question, as I said, we don't have any wins from platform integration, particularly built in. And we don't particularly expect disruptions. We're in the middle of our fifth migration of a significant pro network. And for the fifth time, we see it the same, and I think we've seen less post in other migrations. So we think this improves the customer experience, and it's also going to improve the efficiency of our commercial engine.

You can already see the improved efficiency in our consolidation, the sales force to sell only the new product which is a result, which has been part of the success of selling significantly more capacity for pro and generating a lot more value.

Could we see some lift, yes? There are progressively going to be rollout. You're seeing the first one in this migration. We're going to see some impacts on our homeowner- facing side, which we think will be net improvements over the course of the first half of the year, and we will progressively be delivering platform pieces, which both have the chance to improve conversion and the customer experience, and will allow our team to test, develop and deploy faster and iterate faster.

I think we've been very much held back on our ability to move the speed across the product and the customer experience for multiple years here by the legacy technology and tech debt.

So I think we are -- the way we look at this is we kind of roll forward our run rate and build in our knowns. And then we go execute, and we're always anticipating what we know versus what we might not know and handicap. And I think right now, we've got a pretty even outlook over the course of next year. And we don't expect -- we're not building in a massive lift from some piece of new technology, and we're not expecting because we haven't -- in now 6 -- we're on our 6 migrations to date. We haven't had a major disruption in any of them. And we've got some -- we have some pros working on this. So our own internal technology pros, not our external construction, specialty construction and home services pros.

The next question is from Matt Condon with Citizens.

My first one is just -- can you just talk about the sustainability and the acceleration of service requests. I believe the acceleration is partly due to the transition and spend away from the network channel into the proprietary channel. Is there an upper bound on marketing efficiency and your ability to drive growth through that channel?

And then my second question is just on competitive intensity. Just what are we seeing...

Can you just hold on -- can you just -- can you back up, I apologize. There's something about the sound where I didn't fully grasp your whole first question.

Yes. I can repeat. I'm just talking about just the acceleration service requests and if it's sustainable from here? And specifically, just as you transition spend from the network channel into the proprietary channel. Is there an upward balance just on marketing efficiency? Like can you continue to push on spend there to drive that service request volume?

And then just the second question is just on competitive intensity and if that's changed here over the past several months?

Okay. So we may get accelerated a bit in the fourth quarter, maybe even in the first quarter. We're not necessarily predicting that on our proprietary growth. But we're actually -- what I said earlier is we're going to have tougher compares as we go into the second, third and fourth on the proprietary. So we're actually thinking that if you have mid-single-digit revenue growth and you have -- we expect maybe modest net SR growth across all the channels next year and a little bit of variability around the mean through the quarters because of different compares.

And then we also expect to continue to get revenue or service request growth and we'll see how the mix of leads per service request and revenue per lead comes in, depending on the allocation of leads between our paper lead and our subscriber pros. But we basically think modest service request growth, modest revenue per service request growth. And so we're not actually saying we're going to accelerate through next year.

Now what I will say is that the team -- again, sorry about the standout team, the online performance marketing team has had a couple of great years, dramatically improving profit growth in 2023 and really turning it on with volume growth this year. So I'll tip my hat to them, too. But they have a list of initiatives and their product and technology partners have a list of initiatives. By the way, they've been a big part of that acceleration and win as part of the new platform work effectively over the last couple of years. So there's a list of initiatives. There's a level of execution, and we think we can continue to grow.

I think the other key point is growing pro capacity which we're going to be back doing next year. If you look at what we've been able to do in terms of growing the lifetime value per Pro acquired, we expect to be able to continue to drive up lifetime value per Pro acquired as we shift from smaller Pro to larger Pro acquisition with our sales because we've gotten much better at prospect segmenting and targeting. We just added more talent to that team. We're pretty excited about it. We think there's a pretty big opportunity in larger Pros.

We think we're 3 to 4x the penetration in Pros with 10 or less employees as we are with Pros with 10 or more. And so we have a big opportunity to keep shifting and getting that capacity for Pro up. And I think you roll out online enrollment, that gets you another whole pool of Pro capacity. And the more pros I have, the more revenue that's available if I can buy the SRs.

So I think we have our online execution. I mentioned the TV coming in earlier, and then we have the ability to grow our network and have more demand in order to buy into. So yes, I think we can growing -- keep growing. And I think there's new tools available. We have to hit all of the major platform channels and the LLM channels, our real potential new area of opportunity for us that, again, we're working right now on proprietary technology that plays directly into our core strength. So we're very optimistic there, too.

So we do think we can continue to grow SRs. We have net modest expectations next year. And in an ideal world, we beat that soundly, but I can't predict that right now.

So in terms of the competitive set, we have some strong competitors out there. We continue to think that on a revenue basis, we're probably the size of the next 2 combined, but we don't have exact data. And the largest competitor is probably Google with their direct-to-pro advertising, and they've been probably the most formidable because when you own the highways, you can decide who drives on it, over the last several years for us. We do think our competitors are real. We're watching carefully what they're doing.

We want to -- at the end of the day, we want to present the best solution to our homeowners and our Pros, and differentiate ourselves by providing the highest quality of experience. And I think by doing that, we can continue to grow and stay keep our competitive position and be the top choice.

Our key assets are, number one, our network and the quality and skill of our network. Number two, our brand, which has been built over 30 years from the ground up by our Founder, Angie Hicks and everybody else. So we've had 30 years of successfully connecting homeowners to Pros for jobs done well. That's not an asset that any of our competitors have.

And then finally, I do think we have a commercial machine and a reach between our online marketing expertise and our ability to call and sell Pros that we've got to the scale we have that others don't have. And I think -- we have these advantages. We've got to keep improving our customer experience. We think we're very well positioned with our team. We're going to pivot our technology. And I think we feel very good about where we are and our opportunities going forward.

We have any other questions operator?

There are no -- there is one more question that is queued up, if you'd like to take it?

Sure. Let's go.

The last question is from Ygal Arounian with Citi.

This is Max on for Ygal. Just one maybe on the 2026 EBITDA. I think the language maybe shifted a little better from similar to modest to that more modest higher end from last quarter. So just curious what's driving that? Is that some of the expected efficiencies from the platform migration, or some of those AI efficiencies from the internal tools you're using that you called out in the letter.

So I don't have our transcript from last quarter in front of me. I think we said mid-single-digit revenue growth and a little bit of margin leverage. I'm not sure if you said a modest, similar or what we said. I think when we look at our margins next year, we're not predicting contribution margin leverage because we're going to invest up in the branded area. We think we get our leverage by holding our fixed cost discipline, which I think if you look at the P&L over the last couple of years. Rusty and the team have done a very nice job with.

So we do think we're able to get efficiency by being AI first. We think you put a multiplier on human productivity, whether it's coding, or processing sales scripts or doing customer research. So we think we're going to be able to hold our head count and keep our fixed costs down and realize the leverage at the fixed cost line as a baseline.

And at this time, there are no further questioners in the queue. This does end today's Q&A session and as well as today's conference. Thank you for attending today's presentation, and you may now disconnect your lines.

Thank you very much, everybody. We're very optimistic looking forward. Thanks for coming this morning, and thanks for listening to us. We'll talk to you all soon.