Angi Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022; filed November 8, 2022. Angi connects consumers with home-service professionals through North America and Europe platforms. IAC held 84.3% of Angi’s economic interest and 98.2% of its voting interest.
Financial performance
Amounts in millions except per-share data. Comparisons are with the same 2021 period.
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $498.0 | $461.6 | $1,450.0 | $1,269.6 |
| Gross profit / margin | $389.0 / 78% | $362.1 / 78% | $1,114.2 / 77% | $1,046.6 / 82% |
| Operating loss | $(11.1) | $(15.0) | $(65.9) | $(47.6) |
| Net loss attributable to Angi shareholders | $(17.5) | $(17.0) | $(75.1) | $(45.4) |
| Adjusted EBITDA | $22.9 | $12.4 | $29.4 | $31.1 |
| Operating cash flow | Not separately stated | Not separately stated | $11.4 | $25.9 |
| Capital expenditures | Not separately stated | Not separately stated | $95.5 | $52.1 |
| Basic and diluted loss per share | $(0.03) | $(0.03) | $(0.15) | $(0.09) |
Q3 operating margin was approximately -2.2% versus -3.2%; nine-month operating margin was approximately -4.5% versus -3.8%. Adjusted EBITDA is a non-GAAP measure excluding stock compensation, depreciation and certain acquisition-related items.
- Revenue mix: North America generated $479.6 million in Q3 (+8%) and $1,386.6 million for nine months (+15%). Europe generated $18.4 million in Q3 (+2%) and $63.4 million for nine months (-3%).
- North America lines: Q3 Angi Ads and Leads revenue was $347.7 million (+7%); Angi Services was $131.9 million (+12%). For nine months, Ads and Leads grew 3% to $990.7 million, while Services rose 62% to $395.9 million.
- Cash, debt and liquidity: Cash and cash equivalents were $328.8 million at September 30, down from $428.1 million at year-end 2021. Long-term debt, net, was $495.1 million, comprising $500 million principal of 3.875% senior notes due 2028. Current assets were $512.4 million and current liabilities $300.1 million.
- Cash movement: Nine-month cash used was $97.7 million, principally reflecting $95.5 million of capital expenditures. Operating cash generation was reduced by a $102.6 million increase in accounts receivable.
Material changes and management commentary
- Revenue growth outpaced gross profit growth in the first nine months, and gross margin declined to about 77% from 82%, reflecting higher service delivery costs and the fuller-year inclusion of Angi Roofing, acquired July 1, 2021.
- Q3 Adjusted EBITDA improved 85% to $22.9 million, but nine-month Adjusted EBITDA fell 6% to $29.4 million. Nine-month North America Adjusted EBITDA declined 16% to $31.2 million; Europe improved to a $1.8 million loss from a $5.9 million loss.
- Service requests fell 11% year over year in both Q3 and the first nine months; monetized transactions declined 10% in Q3 and 7% year to date. Transacting service professionals were 200,000 (-10%), and advertising professionals were 37,000 (-5%).
- Management said the Angi Services investment peaked in Q1 2022; its negative sequential profit impact had diminished in each quarter and was expected to diminish further in Q4. Management expected the positive year-over-year profit trend to continue in Q4 and into 2023.
- The brand integration continued to affect marketing efficiency. Organic search results were improving year over year but remained below pre-March 2021 levels; management expected declining HomeAdvisor traffic as marketing emphasis favored Angi.
Outlook, risks and unusual items
- Management expected 2022 capital expenditures to exceed 2021’s $70.2 million by approximately 70%, mainly for capitalized software. It stated existing cash and expected operating cash flows should fund normal requirements for the next 12 months; this is an assessment, not formal earnings guidance.
- COVID-19-related demand effects, economic conditions, consumer spending, labor and supply constraints, service-professional relationships, search and marketing effectiveness, brand integration, technology and cybersecurity, contractor classification, acquisitions, IAC control and debt are among the cited risks.
- Credit loss provision was $82.2 million for nine months, versus $66.1 million in 2021; the September 30 allowance for credit losses and revenue reserves totaled $50.8 million. Q3 G&A also included a $10.8 million year-over-year increase in credit loss provision and higher legal costs.
- Legal accruals were $10.5 million. The FTC administrative proceeding concerning HomeAdvisor leads and mHelpDesk practices remained ongoing, as did a service-professional class action in Colorado; outcomes were uncertain. Management said it was defending the matters and did not believe pending proceedings were expected to have a material adverse effect, while acknowledging uncertainty.
- Other expense included $6.6 million of foreign-exchange losses for nine months, partly offset by $2.1 million of interest income. The nine-month effective tax benefit rate was 13%, compared with 34% in 2021; stock-based compensation tax effects and nondeductible compensation contributed to the lower rate.
Important facts for investors to verify
- Whether declining service requests and monetized transactions stabilize, and whether price increases can offset lower volumes without weakening demand.
- Whether Angi Services growth and management’s expected profit improvement materialize, while tracking its costs, Angi Roofing performance and gross margin.
- Whether receivables, credit-loss provisions and capital spending remain manageable relative to operating cash flow and the $328.8 million cash balance.
- Developments in the FTC proceeding, service-professional class action and other legal matters, including any change to the $10.5 million legal accrual.
- Effects of IAC’s voting control, the $500 million senior notes, and stock-based award dilution or settlement costs.