Angi Inc. (formerly ANGI Homeservices Inc.) — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020; filed November 6, 2020. Angi connects home-service professionals and consumers through its North America and Europe businesses and brands. IAC held 84.5% of Angi’s economic interest and 98.2% of its voting interest.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $389.9m | $357.4m | $1,108.6m | $1,004.7m |
| Operating income (loss) | $(3.0)m | $24.7m | $(1.7)m | $32.5m |
| Adjusted EBITDA | $38.5m | $58.9m | $130.8m | $147.5m |
| Net earnings attributable to Angi shareholders | $4.5m | $18.0m | $8.2m | $34.9m |
| Diluted EPS | $0.01 | $0.04 | $0.02 | $0.07 |
- Q3 revenue rose 9%; North America revenue grew 10% to $372.2m, while Europe declined 3% to $17.7m. Nine-month revenue increased 10%, with North America up 11% and Europe down 7%.
- Q3 Adjusted EBITDA margin was about 9.9%, versus 16.5% a year earlier; nine-month margin was about 11.8%, versus 14.7%. Adjusted EBITDA is a company-defined non-GAAP measure.
- Q3 operating costs and expenses exceeded revenue, producing an operating loss. Cost of revenue increased to $48.3m from $13.3m, primarily reflecting gross revenue presentation for Handy and HomeAdvisor pre-priced jobs.
- Revenue increased by $20.8m in Q3 and $51.3m for the nine months because those offerings shifted from net to gross reporting effective January 1, 2020. The change also delayed recognition of revenue on HomeAdvisor pre-priced jobs until completion; reported growth is therefore not fully comparable.
- Marketplace service requests increased 29% in Q3 to 9.8m; monetized transactions increased 8% to 4.7m. For the nine months, requests rose 18% to 25.2m and monetized transactions rose 4% to 12.8m.
Cash flow, debt and liquidity
- At September 30, cash and cash equivalents were $855.0m, with an additional $50.0m of marketable debt securities. Total current assets were $1,026.3m and current liabilities $268.5m.
- Nine-month operating cash flow was $173.2m, down from $182.1m. Investing used $86.9m, including $37.6m in capital expenditures and $50.0m in marketable securities purchases. Financing provided $378.5m, chiefly from the new notes issuance.
- Angi issued $500m of 3.875% Senior Notes due 2028 in August. Total debt principal was $737.2m, including a $237.2m Term Loan; the $250m revolving facility had no borrowings. Cash and marketable securities exceeded debt principal by approximately $167.8m.
- The Term Loan carries a variable LIBOR-based rate, 1.66% at quarter-end. The company reported compliance with applicable debt limitations at September 30 and said it expected available liquidity and operating cash flows to fund foreseeable requirements.
- Angi repurchased 7.6m shares during the first nine months for approximately $53.4m; 20.1m shares remained authorized. No Class A shares were purchased during Q3.
Changes, outlook and risks
- Management attributed North America growth mainly to consumer connection revenue and increased service requests. Adjusted EBITDA fell despite revenue growth, principally due to higher cost of revenue, investment in fixed-price offerings, and higher credit losses. The nine-month credit-loss provision was $60.1m, versus $49.3m in 2019.
- COVID-19 initially reduced requests in March; demand rebounded in Q2 and remained strong in Q3. However, labor and material constraints and limited professional capacity impeded Angi’s ability to monetize requests. Management highlighted renewed COVID-19 outbreaks in the U.S. and Europe and uncertainty around demand and professional capacity.
- No formal revenue or earnings guidance is provided in the supplied filing text. Angi expected 2020 capital expenditures to be approximately 15%–20% below 2019’s $68.8m, mainly due to lower leasehold-improvement spending.
- Other disclosed risks include competition, service-professional supply and classification, search-engine traffic dependence, data security and privacy, acquisition integration, international operations, debt, and Angi’s relationship with controlling shareholder IAC. Management said COVID-19 made forecasting more difficult.
- A service-professional class action alleges deceptive lead and fee practices by HomeAdvisor. The court granted in part and denied in part defendants’ motions to dismiss on September 29, 2020; Angi said it considers the allegations without merit and will defend the case. Management stated that no pending legal matter was expected to have a material adverse effect, while acknowledging contingencies involve uncertainty.
- Q3 and nine-month tax benefits of $11.7m and $17.6m, respectively, were driven primarily by excess tax benefits from equity awards; the nine-month benefit also reflected a deferred-tax adjustment. These benefits supported reported net earnings despite pre-tax losses.
Investor verification points
- Separate underlying marketplace growth from the $20.8m Q3 and $51.3m nine-month gross-reporting uplift and consider the altered revenue-recognition timing.
- Track whether service-professional capacity constraints ease and whether strong service-request growth converts into monetized transactions and revenue.
- Assess sustainability of margins and Adjusted EBITDA amid rising cost of revenue, credit-loss provisions, marketing investment and Europe losses.
- Review debt covenants, variable-rate exposure, planned use of the $500m notes proceeds, and cash needs for equity-award tax withholding and repurchases.
- Monitor COVID-19 developments, the HomeAdvisor class action and tax examinations; the filing does not quantify a probable loss for the class action.