ANGI Homeservices Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; the filing also reports fourth-quarter results. The registrant connects consumers with home-service professionals through HomeAdvisor, Angie’s List, Handy and other brands. Its reportable segments are North America and Europe.
Financial and operating results
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Revenue | $1,467.9 million | $1,326.2 million | +11% |
| Operating income (loss) | $(6.4) million | $38.6 million | Down $45.0 million |
| Net income (loss) attributable to ANGI shareholders | $(6.3) million | $34.8 million | Declined to a loss |
| Adjusted EBITDA | $172.8 million | $202.3 million | Down 15% |
| Cash from operating activities | $188.4 million | $214.2 million | Down $25.7 million |
| Cash and marketable debt securities | $862.7 million | $390.6 million | Up $472.1 million |
| Debt principal outstanding | $720.0 million | $247.5 million | Up $472.5 million |
Revenue was 95% North America ($1,395.4 million, up 12%) and 5% Europe ($72.5 million, down 5%). Marketplace revenue grew 14% to $1,131.3 million; Advertising and Other revenue rose 3% to $264.1 million. Marketplace service requests increased 18% to 32.4 million, while monetized transactions rose 4% to 16.7 million. The filing reports approximately 208,000 transacting Marketplace service professionals.
GAAP operating margin was approximately negative 0.4%, versus 2.9% in 2019; Adjusted EBITDA margin was approximately 11.8%, versus 15.3%. The filing does not provide a directly comparable gross margin: cost of revenue increased to $173.3 million from $46.5 million, reflecting a change in revenue presentation as well as growth in pre-priced services.
Fourth quarter: Revenue was $359.3 million, versus $321.5 million in Q4 2019. Operating loss was $4.7 million, compared with operating income of $6.2 million; net loss attributable to ANGI shareholders was $14.5 million, compared with a $0.1 million loss.
Material changes and financial position
- Effective January 1, 2020, Handy and HomeAdvisor pre-priced service revenue shifted from net to gross presentation. This added $73.8 million to reported 2020 revenue, with related costs also recorded; it should not be treated as equivalent to underlying growth.
- North America Adjusted EBITDA fell 14% to $178.9 million despite revenue growth, chiefly reflecting higher cost of revenue and credit-loss provisions. Europe Adjusted EBITDA loss was $6.1 million, slightly wider than in 2019.
- Provision for credit losses was $78.2 million, up from $64.3 million. Selling and marketing expense was $762.6 million, up 4%; general and administrative expense was $374.1 million, up 7%.
- Cash and cash equivalents were $812.7 million, with a further $50.0 million in marketable securities. Debt comprised $500.0 million of 3.875% senior notes due 2028 and a $220.0 million variable-rate term loan due 2023. The $250.0 million revolving facility had no borrowings outstanding.
- Operating cash flow declined partly due to a $79.8 million increase in accounts receivable. Capital expenditures were $52.5 million, principally for software development. The company repurchased 8.4 million shares during 2020 for approximately $62.6 million on a trade-date basis.
Outlook, commentary, risks and unusual items
- Management gave no specific revenue or earnings guidance in the provided filing text. It expected 2021 capital expenditures to be approximately 40%–45% above 2020’s $52.5 million, primarily for capitalized software.
- Management said existing cash, marketable securities, available revolving capacity and expected operating cash flow should fund foreseeable operating needs, capital expenditures and debt service; it also described access to capital as ample. These are forward-looking statements, not guarantees.
- COVID-19 initially reduced demand, particularly for discretionary indoor projects; demand then rebounded and remained strong. Labor and materials constraints limited service professionals’ capacity, restricting the company’s ability to monetize increased requests. Resurgent infections and restrictions in North America and Europe could adversely affect results.
- Reported results include $83.6 million of stock-based compensation, including a $14.1 million modification charge related to the December 2020 departure of the president and COO. The audit report identified stock-based compensation as a critical audit matter. No goodwill or indefinite-lived intangible impairment was recorded in the 2020 annual assessment.
- Key risks include competition and reliance on search and paid marketing channels; service-professional capacity, quality and independent-contractor classification; privacy, cybersecurity and regulatory exposure; and possible further effects of COVID-19. A putative service-professional class action against HomeAdvisor remains in discovery; class certification remains unresolved. The company said it would defend the case and did not identify a currently pending proceeding expected to have a material adverse effect, while noting litigation outcomes are uncertain.
- IAC held approximately 84.3% of ANGI’s economic interest and 98.2% of its voting power at year-end. This control, related-party arrangements and tax-sharing obligations may affect governance, financing and strategic flexibility. The company does not expect to pay cash dividends in the foreseeable future.
Important facts for investors to verify
- How much of revenue growth reflects underlying demand and monetization versus the $73.8 million gross-reporting change.
- Whether monetized transactions and service-professional capacity can keep pace with service requests, and whether credit losses stabilize.
- The sustainability of Adjusted EBITDA and operating cash flow after considering stock compensation, working-capital needs and capital spending.
- Debt amortization, variable-rate exposure, covenant headroom and the use of proceeds from the 2020 senior-note issuance.
- Developments in the HomeAdvisor litigation, contractor-classification matters, COVID-related operating conditions and IAC’s control and related-party arrangements.