ANGI INC. GENERAL
Management OverviewAngi Inc. , formerlyANGI Homeservices, Inc. , ("Angi Inc. ," the "Company," "we," "our," or "us") connects quality home service professionals with consumers across 400 different categories, from repairing and remodeling homes to cleaning and landscaping. Over 260,000 domestic service professionals actively sought consumer matches, completed jobs, or advertised work throughAngi Inc. platforms during the three months endedSeptember 30, 2021 . Additionally, consumers turned to at least one of our brands to find a professional for approximately 33 million projects during the twelve months endedSeptember 30, 2021 . The Company has two operating segments: (i)North America (United States andCanada ), which includes Angi Ads and Leads and Angi Services; and (ii)Europe . The brands operate as follows: Angi Ads operates under theAngi (formerlyAngie's List ) brand, Angi Leads operates primarily under the HomeAdvisor, powered by Angi brand, and Angi Services operates primarily under the Handy brand. For a more detailed description of the Company's operating businesses, see the Company's Annual Report on Form 10-K for the year endedDecember 31, 2020 .
Defined Terms and Operating Metrics:
Unless otherwise indicated or as the context otherwise requires, certain terms, which include the principal operating metrics we use in managing our business, used in this quarterly report are defined below: •Angi Ads and Leads Revenue primarily reflects domestic ads and leads revenue, including consumer connection revenue for consumer matches, revenue from service professionals under contract for advertising and membership subscription revenue from service professionals and consumers. •Angi Services Revenue primarily reflects domestic revenue from pre-priced offerings by which the consumer purchases services directly from the Company and the Company engages a service professional to perform the service and includes revenue fromTotal Home Roofing, Inc. ("Angi Roofing"), which was acquired onJuly 1, 2021 . •Angi Service Requests ("Service Requests") are fully completed and submitted domestic customer service requests and includes Angi Services requests in the period. •Angi Monetized Transactions are fully completed and submitted domestic customer service requests that were matched to and paid for by a service professional and includes completed and in-process Angi Services jobs in the period. •Angi Transacting Service Professionals ("Transacting SPs") are the number of service professionals that paid for consumer matches through Angi Leads or performed an Angi Services job in the quarter. •Angi Advertising Service Professionals ("Advertising SPs") are the number of service professionals under contract for advertising at the end of the period. •Senior Notes - OnAugust 20, 2020 ,ANGI Group, LLC ("ANGI Group "), a direct wholly-owned subsidiary of the Company, issued$500.0 million of its 3.875% Senior Notes dueAugust 15, 2028 , with interest payableFebruary 15 andAugust 15 of each year, commencingFebruary 15, 2021 . Components of Results of Operations Sources of Revenue Angi Ads and Leads Revenue is primarily derived from (i) consumer connection revenue, which is comprised of fees paid by service professionals for consumer matches (regardless of whether the service professional ultimately provides the requested service), (ii) advertising revenue, which includes revenue from service professionals under contract for advertising, and (iii) membership subscription revenue from service professionals and consumers. Consumer connection revenue varies based upon 25 -------------------------------------------------------------------------------- Table of Contents several factors, including the service requested, product experience offered, and geographic location of service. Angi Services is comprised of revenue from jobs (i) sourced through the "Book Now" feature which lets consumers consummate the entire transaction digitally for work that's completed physically, (ii) under managed projects (including Angi Roofing) which are home improvement projects, and (iii) through retail partnerships for delivery and installation of furniture or other items. Operating Costs and Expenses: •Cost of revenue - consists primarily of payments made to independent service professionals who perform work contracted under Angi Services arrangements, credit card processing fees, hosting fees, and roofing materials costs associated with Angi Roofing. •Selling and marketing expense - consists primarily of advertising expenditures, which include online marketing, including fees paid to search engines; offline marketing, which is primarily television advertising; and partner-related payments to those who direct traffic to our brands; compensation expense (including stock-based compensation expense) and other employee-related costs for our sales force and marketing personnel; and facilities costs. •General and administrative expense - consists primarily of compensation expense (including stock-based compensation expense) and other employee-related costs for personnel engaged in executive management, finance, legal, tax, human resources and customer service functions, fees for professional services (including transaction-related costs related to acquisitions), provision for credit losses, software license and maintenance costs, and facilities costs. Our customer service function includes personnel who provide support to our service professionals and consumers. •Product development expense - consists primarily of compensation expense (including stock-based compensation expense) and other employee-related costs that are not capitalized for personnel engaged in the design, development, testing and enhancement of product offerings and related technology, software license and maintenance costs, and facilities costs. Non-GAAP financial measure Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") is a non-GAAP financial measure. See " Principles of Financial Reporting " for the definition of Adjusted EBITDA and a reconciliation of net (loss) earnings attributable toAngi Inc. shareholders to operating loss to consolidated Adjusted EBITDA for the three and nine months endedSeptember 30, 2021 and 2020. Brand Integration Initiative OnMarch 17, 2021 , the Company updated one of its leading websites and brands,Angie's List , toAngi , and concentrated its marketing investment in the Angi brand in order to focus its marketing, sales, and branding efforts on a single brand. We rely heavily on free, or organic, search results from search engine optimization, and paid search engine marketing to drive traffic to our websites. Our brand integration initiative has adversely affected the placement and ranking ofAngi Inc. websites, particularly Angi.com, in organic search results asAngi does not have the same domain history asAngie's List . In addition, we shifted marketing to supportAngi , away from HomeAdvisor, which has negatively affected the efficiency of our search engine marketing efforts. Since the beginning of the integration process, these efforts had a pronounced negative impact on service requests from organic search results and via our mobile applications, which in turn has resulted in increased paid search engine marketing to generate service requests. The combined effect of this during the three months endedSeptember 30, 2021 , has reduced revenue and increased marketing spend, materially more than expected at the launch of the brand initiative in the first quarter of 2021 and more significantly than our forecasts at the beginning ofMay 2021 . We expect the pronounced negative impact to organic search results, the increased paid search engine marketing costs and the reduced monetization from our mobile applications to continue until such time as the new brand establishes search engine optimization ranking and consumer awareness is established. 26 -------------------------------------------------------------------------------- Table of ContentsAngi Services Investment Angi Services was launched inAugust 2019 and we have invested significantly in Angi Services and expect to continue to do so going forward. In the fourth quarter of 2021, we expect significant revenue growth as we expand the business, refine the overall experience, and increase penetration in certain geographies. This increased investment in Angi Services has contributed to lower profitability for the Company for the three and nine months endedSeptember 30, 2021 and is expected to continue to negatively impact profits through the remainder of 2021. COVID-19 Update The impact on the Company from the COVID-19 pandemic and the measures designed to contain its spread has been varied and volatile. As previously disclosed, the initial impact of COVID-19 on the Company resulted in a decline in demand for service requests, driven primarily by decreases in demand in certain categories of jobs (particularly discretionary indoor projects). While we experienced a rebound in service requests in the second half of 2020 and through early 2021, service requests did start to decline inMay 2021 compared to the comparable months of 2020 as a result of the surge in 2020 and due to impacts of the "Brand Integration Initiative" discussed above. Moreover, many service professionals' businesses had been adversely impacted by labor and material constraints and many service professionals had limited capacity to take on new business, which negatively impacted our ability to monetize the increased level of service requests through the first quarter of 2021. Although our ability to monetize service requests rebounded modestly in the second and third quarters of 2021, we still have not returned to levels we experienced pre-COVID-19. No assurances can be provided that we will continue to be able to improve monetization, or that service professionals' businesses will not be adversely impacted in the future. The extent to which developments related to the COVID-19 pandemic and measures designed to curb its spread continue to impact the Company's business, financial condition and results of operations will depend on future developments, all of which are highly uncertain and many of which are beyond the Company's control, including the continuing spread of COVID-19, the severity of resurgences of COVID-19 caused by variant strains of the virus, the effectiveness of vaccines and attitudes toward receiving them, materials and supply chain constraints, labor shortages, the scope of governmental and other restrictions on travel, discretionary services and other activity, and public reactions to these developments. 27
-------------------------------------------------------------------------------- Table of Contents Results of Operations for the three and nine months endedSeptember 30, 2021 compared to the three and nine months endedSeptember 30, 2020 Revenue Three Months Ended September 30, Nine Months Ended September 30, 2021 $ Change % Change 2020 2021 $ Change % Change 2020 (Dollars in thousands)North America Angi Ads and Leads: Consumer connection revenue$ 238,421 $ (5,763) (2)%$ 244,184 $ 699,867 $ 5,063 1%$ 694,804 Advertising revenue 63,953 7,736 14% 56,217 187,308 20,576 12% 166,732 Membership revenue 17,079 (681) (4)% 17,760 51,026 (5,784) (10)% 56,810 Other revenue 6,703 (2,219) (25)% 8,922 21,412 (3,732) (15)% 25,144 Total Angi Ads and Leads revenue 326,156 (927) -% 327,083 959,613 16,123 2% 943,490 Angi Services revenue 117,375 72,232 NM 45,143 244,904 134,619 NM 110,285Total North America revenue 443,531 71,305 19% 372,226 1,204,517 150,742 14% 1,053,775 Europe 18,034 347 2% 17,687 65,065 10,216 19% 54,849 Total revenue$ 461,565 $ 71,652 18%$ 389,913 $ 1,269,582 $ 160,958 15%$ 1,108,624 Percentage of Total Revenue: North America 96 % 95 % 95 % 95 % Europe 4 % 5 % 5 % 5 % Total revenue 100 % 100 % 100 % 100 % Three Months Ended September 30, Nine Months Ended September 30, 2021 Change % Change 2020 2021 Change % Change 2020
(In thousands, rounding differences may occur) Operating metrics: Service Requests
8,707 (1,130) (11)% 9,837 25,835 649 3% 25,186
Monetized Transactions 4,783 67 1% 4,716 13,982 1,161 9% 12,821
Transacting SPs 222 15 7% 207
Advertising SPs 39 - 1% 39
________________________
NM = Not meaningful
For the three months ended September 30, 2021 compared to the three months ended
September 30, 2020
North America revenue increased $71.3 million , or 19%, driven by growth of $72.2
million , or 160%, in Angi Services revenue, while Angi Ads and Leads remained
relatively flat. Approximately half of the Angi Services revenue growth is due
to organic growth and approximately half of the revenue growth is due to Angi
Roofing, acquired July 1, 2021 . Angi Ads and Leads revenue had relatively flat
growth, despite the decline in Service Requests during the quarter of 11%, which
impacted consumer connection revenue and was primarily attributable to the brand
integration initiative described above under "Brand Integration Initiative."
Europe revenue increased $0.3 million , or 2%, due to the favorable impact of the
weakening of the U.S dollar relative to the Euro and the British Pound.
For the nine months ended September 30, 2021 compared to the nine months ended
September 30, 2020
North America revenue increased $150.7 million , or 14%, driven by increases in
Angi Services revenue of $134.6 million , or 122%, and Angi Ads and Leads revenue
of $16.1 million , or 2%. The increase in Angi Services revenue is due primarily
to organic growth and to a lesser extent from Angi Roofing, acquired July 1,
2021 . The increase in Angi Ads and Leads revenue is due primarily to an increase
in Advertising revenue of $20.6 million , or 12%.
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Europe revenue increased $10.2 million , or 19%, due to strong growth across its
markets due to increased consumer demand and the favorable impact of the
weakening of the U.S dollar relative to the Euro and the British Pound.
Cost of revenue
Three Months Ended September 30, Nine Months Ended September 30,
2021 $ Change % Change 2020 2021 $ Change % Change 2020
(Dollars in thousands)
Cost of revenue
(exclusive of
depreciation shown
separately below) $ 99,467 $ 51,214 NM $ 48,253 $ 222,999 $ 100,475 82% $ 122,524
As a percentage of
revenue 22% 12% 18% 11%
For the three months ended September 30, 2021 compared to the three months ended
September 30, 2020
North America cost of revenue increased $51.1 million , or 107%, and increased as
a percentage of revenue, due primarily to the growth of Angi Services, including
$25.8 million of costs attributable to Angi Roofing acquired July 1, 2021 ,
primarily for third-party contractors and roofing materials. The remaining
increase is for payments to third-party professional service providers for other
Angi Services arrangements.
For the nine months ended September 30, 2021 compared to the nine months ended
September 30, 2020
North America cost of revenue increased $100.4 million , or 83%, and increased as
a percentage of revenue, due primarily to factors described above in the
three-month discussion.
Selling and marketing expense
Three Months Ended September 30, Nine Months Ended September 30,
2021 $ Change % Change 2020 2021 $ Change % Change 2020
(Dollars in thousands)
Selling and marketing
expense $ 237,755 $ 27,584 13% $ 210,171 $ 682,626 $ 92,512 16% $ 590,114
As a percentage of
revenue 52% 54% 54% 53%
For the three months ended
North America selling and marketing expense increased$29.5 million , or 15%, driven by increases in advertising expense of$11.6 million , compensation expense of$9.6 million , expense of$7.2 million from inclusion of Angi Roofing and an increase in consulting costs of$3.2 million . The increase in advertising expense was due primarily to an increase in television spend of$11.6 million . The increase in television spend in 2021 reflects the return to historical spending levels as compared to the cost cutting initiatives during the third quarter of 2020 due to the impact of COVID-19 as well as continued efforts related to the brand integration initiative described above under "Brand Integration Initiative." The increase in compensation expense was due primarily to increased commission expense, in addition to an increase in sales force headcount. The increase in consulting costs was due primarily to various sales initiatives at Angi Services.Europe selling and marketing expense decreased$1.9 million , or 23%, driven by a decrease in compensation expense of$2.1 million primarily due to severance costs recorded in the third quarter of 2020 associated with headcount reductions inFrance . For the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 North America selling and marketing expense increased$93.9 million , or 17%, driven by increases in advertising expense of$46.6 million , compensation expense of$32.9 million , outsourced personnel and consulting costs of$10.4 million , and$7.2 million in expense from the inclusion of Angi Roofing. The increase in advertising expense was due primarily to increases of$42.7 million in online marketing spend and$3.7 million in television spend. The increase in online marketing spend was attributable to the brand integration initiative described above under "Brand Integration Initiative." The increases in television spend, compensation expense, and outsourced personnel and consulting costs were due primarily to the factors described above in the three-month discussion. 29 -------------------------------------------------------------------------------- Table of ContentsEurope selling and marketing expense decreased$1.4 million , or 5%, driven by a decrease in compensation expense of$3.2 million , partially offset by an increase in advertising expense of$2.0 million . The decrease in compensation expense was primarily due to severance costs recorded in the third quarter of 2020 associated with headcount reductions inFrance and lower headcount in 2021. The increase in advertising expense was due, in part, to decreased advertising expense in 2020 to mitigate the negative impact of COVID-19 on revenue.
General and administrative expense
Three Months Ended September 30, Nine Months Ended September 30,
2021 $ Change % Change 2020 2021 $ Change % Change 2020
(Dollars in thousands)
General and administrative
expense $ 103,086 $ 12,964 14% $ 90,122 $ 298,734 $ 28,605 11% $ 270,129
As a percentage of revenue 22% 23% 24% 24%
For the three months ended September 30, 2021 compared to the three months ended
September 30, 2020
North America general and administrative expense increased $15.4 million , or
19%, due primarily to an increase of $7.5 million in professional fees, $6.0
million of expense from the inclusion of Angi Roofing, increases of $2.2 million
in software license and maintenance expense and $1.7 million in the provision
for credit losses, partially offset by a $4.0 million decrease in compensation
expense. The increase in professional fees is due primarily to an increase in
outsourced personnel costs, and to a lesser extent, legal fees, consulting
costs, and recruiting fees. The increase in outsourced personnel costs is due
primarily to an increase in call volume related to our customer service
function. The increase in software license and maintenance expense is due
primarily to increased investment in software to support our customer service
function. The increase in the provision for credit losses is primarily due to
higher Angi Services revenue as the provision for credit losses as a percentage
of revenue has remained relatively flat. The decrease in compensation expense
was due primarily to a decrease in stock-based compensation expense.
Europe general and administrative expense decreased $2.5 million , or 29%, driven
by a decrease in compensation expense of $2.6 million primarily due to severance
costs recorded in the third quarter of 2020 associated with headcount reductions
in France .
For the nine months ended September 30, 2021 compared to the nine months ended
September 30, 2020
North America general and administrative expense increased $22.3 million , or 9%,
due primarily to an increase of $18.9 million in professional fees, $9.6 million
in one-time costs related to the Company reducing its real estate footprint,
$6.0 million of expense from the inclusion of Angi Roofing, increases of $4.9
million in the provision for credit losses, and $4.4 million in software license
and maintenance costs, partially offset by a decrease of $26.0 million in
compensation expense. The increase in professional fees, provision for credit
losses, and software license and maintenance costs were due primarily to the
factors described above in the three-month discussion above. The real estate
related costs are the result of impairments of right-of-use lease assets,
leasehold improvements and furniture and equipment associated with office space
we are vacating. The decrease in compensation expense was due primarily to a
decrease of stock-based compensation expense of $34.6 million , partially offset
by an increase of $8.0 million in wage related expenses resulting primarily from
annual wage increases and certain department's headcount now being aligned to
general and administrative functions under the brand integration initiative,
attributing to $2.8 million of the increase. The decrease in stock-based
compensation expense was due primarily to $22.4 million in stock appreciation
rights expense recognized during the nine months ended September 30, 2020 , which
was not incurred in 2021 as the awards became fully vested in 2020, and a net
decrease of $7.7 million due to the reversal of previously recognized expense
related to unvested awards that were forfeited due to management departures in
the first quarter of 2021, partially offset by the issuance of new equity awards
since 2020.
Europe general and administrative expense increased $6.3 million , or 29%, due
primarily to a charge of $6.0 million related to the acquisition of an
additional 21% interest in our MyBuilder business at a premium to fair value and
a $1.9 million increase in professional fees related to corporate restructuring,
partially offset by a $3.9 million decrease in compensation expense driven by
severance costs recorded in the third quarter of 2020 associated with headcount
reductions in France .
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Product development expense
Three Months Ended September 30, Nine Months Ended September 30,
2021 $ Change % Change 2020 2021 $ Change % Change 2020
(Dollars in thousands)
Product development expense
1%$ 17,577 $ 54,474 $ 4,406 9%$ 50,068 As a percentage of revenue 4% 5% 4% 5% For the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 North America product development expense decreased$1.3 million , or 9%, due primarily to decreases in compensation expense of$1.3 million , partially offset by an increase in software license and maintenance expense of$0.3 million . The decrease in compensation expense is due to certain departments' headcount that were previously included within product development now being aligned to general and administrative functions under the brand integration initiative. This change resulted in a$2.4 million decrease in compensation expense. Excluding this change, compensation expense would have increased by$1.1 million driven by higher salary expense.Europe product and development expense increased$1.4 million , or 53%, due to an increase in compensation expense of$1.3 million as a result of fewer projects being capitalized. For the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 North America product development expense decreased$0.4 million , or 1%, due primarily to decreases in compensation expense of$1.3 million , partially offset by increases in outsourced personnel and consulting costs of$0.8 million and software license and maintenance expense of$0.7 million . The decrease in compensation expense is due to the factor described above in the three-month discussion. The increase in outsourced personnel and consulting costs were in support of projects for the Angi brand change.Europe product and development expense increased$4.8 million , or 59%, due to an increase in compensation expense of$4.4 million due primarily to factors described above in the three-month discussion. Depreciation Three Months Ended September 30, Nine Months Ended September 30, 2021 $ Change % Change 2020 2021 $ Change % Change 2020 (Dollars in thousands) Depreciation$ 14,701 $ 780 6%$ 13,921 $ 45,728 $ 7,114 18%$ 38,614 As a percentage of revenue 3% 4% 4% 3% For the three and nine months endedSeptember 30, 2021 compared to the three and nine months endedSeptember 30, 2020 North America andEurope depreciation in 2021 increased from 2020 due primarily to investments in capitalized software to support our products and services. Operating (loss) income Three Months Ended September 30, Nine Months Ended September 30, 2021 $ Change % Change 2020 2021 $ Change % Change 2020 (Dollars in thousands) North America$ (14,719) $ (15,014) NM$ 295 $ (37,269) $ (45,646) NM$ 8,377 Europe (254) 3,060 92% (3,314) (10,326) (278) (3)% (10,048) Total$ (14,973) $ (11,954) NM$ (3,019) $ (47,595) $ (45,924) NM$ (1,671)
As a percentage of revenue (3)% (1)% (4)% -%
31-------------------------------------------------------------------------------- Table of Contents For the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 North America operating income decreased$15.0 million to a loss of$14.7 million due to a decrease in Adjusted EBITDA of$29.2 million , described below, and an increase of$0.6 million in depreciation, partially offset by decreases of$8.9 million in amortization of intangibles and$5.9 million in stock-based compensation expense. The increase in depreciation was due primarily to the investments in capitalized software to support our products and services. The decrease in the amortization of intangibles was due primarily to certain intangible assets becoming fully amortized during 2020. The decrease in stock-based compensation expense was due primarily to$6.8 million for stock appreciation rights and options expense recognized in the third quarter of 2020 which were not incurred in 2021 as the awards became fully vested.
AtSeptember 30, 2021 , there is$135.5 million of unrecognized compensation cost, net of estimated forfeitures, related to all equity-based awards, which is expected to be recognized over a weighted average period of approximately 3.2 years. For the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 North America operating income decreased$45.6 million to a loss of$37.3 million due to a decrease in Adjusted EBITDA of$99.8 million , described below, and an increase of$6.1 million in depreciation, partially offset by decreases of$34.3 million in stock-based compensation expense and$26.0 million in amortization of intangibles. The increase in depreciation and the decreases in stock-based compensation and amortization of intangibles were driven by the factors described above in the three-month discussion.Europe operating loss increased$0.3 million , or 3%, due primarily to an increase in Adjusted EBITDA loss of$0.1 million , described below, and an increase of$1.0 million in depreciation expense, partially offset by decreases of$0.4 million in stock-based compensation expense and$0.3 million in amortization of intangibles. Adjusted EBITDA Three Months Ended September 30, Nine Months Ended September 30, 2021 $ Change % Change 2020 2021 $ Change % Change 2020 (Dollars in thousands) North America$ 11,213 $ (29,241) (72)%$ 40,454 $ 37,076 $ (99,810) (73)%$ 136,886 Europe 1,182 3,149 NM (1,967) (5,937) 129 2% (6,066) Total$ 12,395 $ (26,092) (68)%$ 38,487 $ 31,139 $ (99,681) (76)%$ 130,820
As a percentage of revenue 3% 10% 2% 12% For a reconciliation of net (loss) earnings attributable toAngi Inc. shareholders to operating loss to consolidated Adjusted EBITDA, see " Principles of Financial Reporting ." For a reconciliation of operating (loss) income to Adjusted EBITDA for the Company's reportable segments, see " Note 7-Segment Information " to the consolidated financial statements included in " Item 1. Consolidated Financial Statements ." For the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 North America Adjusted EBITDA decreased$29.2 million , or 72%, to$11.2 million , and decreased as a percentage of revenue, despite higher revenue of$71.3 million , due primarily to an increase in selling and marketing expense of$29.5 million as well as growth of Angi Services due to factors described above in the cost of revenue and selling and marketing three-month discussions. Europe Adjusted EBITDA increased$3.1 million , as higher revenue of$0.3 million was more than offset by the increases in general and administrative expense of$2.4 million (excluding stock-based compensation expense), selling and marketing expense of$1.9 million , and product development expense of$1.4 million ; each of which are described above. For the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 North America Adjusted EBITDA decreased$99.8 million , or 73%, to$37.1 million , and decreased as a percentage of revenue, despite higher revenue of$150.7 million , due primarily to an increase in selling and marketing expense of$93.9 32 -------------------------------------------------------------------------------- Table of Contents million as well as growth of Angi Services due to factors described above in the cost of revenue and selling and marketing nine-month discussions. Europe Adjusted EBITDA loss decreased$0.1 million , or 2%, due primarily to an increase of$10.2 million in revenue, mostly offset by the increase in general and administrative expense of$6.7 million (excluding stock-based compensation expense), which included a charge of$6.0 million related to the acquisition of an additional 21% interest inMyBuilder at a premium to fair value, and the increase in product development expense of$4.8 million .
Interest expense
Interest expense relates to interest on theANGI Group Senior Notes,ANGI Group Term Loan, and commitment fees on the ANGI Group Revolving Facility. As ofMay 6, 2021 , the outstanding balance of the ANGI Group Term Loan was repaid in its entirety. The ANGI Group Revolving Facility was terminated effectiveAugust 3, 2021 . No amounts were ever drawn under the ANGI Group Revolving Facility prior to its termination. For a detailed description of long-term debt, net, see " Note 4-Long-term Debt " to the consolidated financial statements included in " Item 1. Consolidated Financial Statements ." Three Months Ended September 30, Nine Months Ended September 30, 2021 $ Change % Change 2020 2021 $ Change % Change 2020 (In thousands) Interest expense$ 6,032 $ 2,333 63%$ 3,699 $ 18,463 $ 10,870 NM$ 7,593 For the three and nine months endedSeptember 30, 2021 compared to the three and nine months endedSeptember 30, 2020 Interest expense increased due primarily to the issuance of theANGI Group Senior Notes inAugust 2020 and the write-off of deferred debt issuance costs associated with the termination of the ANGI Group Revolving Facility, partially offset by a decrease in interest expense due to the repayment of theANGI Group Term Loan during the second quarter of 2021.
Other (expense) income, net
Three Months Ended September 30, Nine Months Ended September 30,
2021 $ Change % Change 2020 2021 $ Change % Change 2020
(In thousands)Other (expense) income, net$ (479) $ (702) NM$ 223 $ (1,882) $ (2,738) NM$ 856 For the three months endedSeptember 30, 2021 and 2020 Other expense, net in 2021 principally includes a net foreign currency exchange loss of$0.5 million . Other income, net in 2020 principally includes interest income of$0.1 million and foreign currency exchange gains of$0.1 million . For the nine months endedSeptember 30, 2021 and 2020 Other expense, net in 2021 primarily includes the write-off of$1.1 million of deferred debt issuance costs related to the ANGI Group Term Loan which was repaid in its entirety during the second quarter of 2021 and net foreign currency exchange losses of$1.0 million , partially offset by interest income of$0.2 million . Other income, net in 2020 primarily includes interest income of$1.6 million , partially offset by net foreign currency exchange losses of$0.3 million , and a$0.2 million mark-to-market charge for an indemnification claim related to the Handy acquisition that was settled inAngi Inc. shares during the first quarter of 2020. 33 --------------------------------------------------------------------------------
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Income tax benefit
Three Months Ended September 30, Nine Months Ended September 30,
2021 $ Change % Change 2020 2021 $ Change % Change 2020
(Dollars in thousands)
Income tax benefit $ 4,791 $ (6,907) (59)% $ 11,698 $ 23,209 $ 5,571 32% $ 17,638
Effective income tax
rate 22% NM 34% NM
For further details of income tax matters, see " Note 2-Income Taxes " to the
consolidated financial statements included in " Item 1. Consolidated Financial
Statements ."
For the three months ended September 30, 2021 compared to the three months ended
September 30, 2020
In 2021, the effective income tax rate was higher than the statutory rate of
21%, due primarily to the benefit from the change in the annual expected
effective income tax rate driven by the reduced impact of forecasted
nondeductible stock-based compensation expense had on the increase in forecasted
ordinary pre-tax losses, partially offset by foreign income taxed at different
tax rates.
In 2020, the income tax benefit was due primarily to excess tax benefits
generated by the exercise and vesting of stock-based awards.
For the nine months ended September 30, 2021 compared to the nine months ended
September 30, 2020
In 2021, the effective income tax rate was higher than the statutory rate of 21%
due primarily to excess tax benefits generated by the exercise and vesting of
stock-based awards, partially offset by foreign income taxed at different tax
rates.
In 2020, the Company recorded an income tax benefit of $17.6 million . The income
tax benefit was due primarily to excess tax benefits generated by the exercise
and vesting of stock-based awards and a reduction to deferred taxes due to the
true-up of the state tax rate of an indefinite-lived intangible asset.
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PRINCIPLES OF FINANCIAL REPORTING
We report Adjusted EBITDA as a supplemental measure to U.S. generally accepted
accounting principles ("GAAP"). This measure is one of the primary metrics by
which we evaluate the performance of our businesses, on which our internal
budgets are based and by which management is compensated. We believe that
investors should have access to, and we are obligated to provide, the same set
of tools that we use in analyzing our results. This non-GAAP measure should be
considered in addition to results prepared in accordance with GAAP, but should
not be considered a substitute for or superior to GAAP results. We endeavor to
compensate for the limitations of the non-GAAP measure presented by providing
the comparable GAAP measure with equal or greater prominence and descriptions of
the reconciling items, including quantifying such items, to derive the non-GAAP
measure. We encourage investors to examine the reconciling adjustments between
the GAAP and non-GAAP measure, which we discuss below.
Definition of Non-GAAP Measure
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization
("Adjusted EBITDA") is defined as operating income (loss) excluding:
(1) stock-based compensation expense; (2) depreciation; and
(3) acquisition-related items consisting of amortization of intangible assets
and impairments of goodwill and intangible assets, if applicable. We believe
this measure is useful for analysts and investors as this measure allows a more
meaningful comparison between our performance and that of our competitors.
Adjusted EBITDA has certain limitations because it excludes the impact of these
expenses.
The following table reconciles net (loss) earnings attributable to Angi Inc.
shareholders to operating loss to consolidated Adjusted EBITDA:
Three Months Ended September
30, Nine Months Ended September 30,
2021 2020 2021 2020
(In thousands)
Net (loss) earnings attributable to
302 731 626 1,049
Income tax benefit (4,791) (11,698) (23,209) (17,638)
Other expense (income), net 479 (223) 1,882 (856)
Interest expense 6,032 3,699 18,463 7,593
Operating loss (14,973) (3,019) (47,595) (1,671)
Add back:
Stock-based compensation expense 8,813 14,697 20,390 55,031
Depreciation 14,701 13,921 45,728 38,614
Amortization of intangibles 3,854 12,888 12,616 38,846
Adjusted EBITDA $ 12,395 $ 38,487 $ 31,139 $ 130,820
For a reconciliation of operating loss to Adjusted EBITDA for the Company's
reportable segments, see " Note 7-Segment Information " to the consolidated
financial statements included in " Item 1. Consolidated Financial
Statements ."
Non-Cash Expenses That Are Excluded from Our Non-GAAP Measure
Stock-based compensation expense consists of expense associated with the grants,
including unvested grants assumed in acquisitions, of stock appreciation rights,
restricted stock units ("RSUs"), stock options, performance-based RSUs ("PSUs")
and market-based awards. These expenses are not paid in cash and we view the
economic costs of stock-based awards to be the dilution to our share base; we
also include the related shares in our fully diluted shares outstanding for GAAP
earnings per share using the treasury stock method. PSUs and market-based awards
are included only to the extent the applicable performance or market
condition(s) have been met (assuming the end of the reporting period is the end
of the contingency period). The Company is currently settling all stock-based
awards on a net basis and remits the required tax-withholding amounts from its
current funds.
Depreciation is a non-cash expense relating to our capitalized software,
leasehold improvements and equipment and is computed using the straight-line
method to allocate the cost of depreciable assets to operations over their
estimated useful lives, or, in the case of leasehold improvements, the lease
term, if shorter.
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Amortization of intangible assets and impairments of goodwill and intangible
assets are non-cash expenses related primarily to acquisitions. At the time of
an acquisition, the identifiable definite-lived intangible assets of the
acquired company, such as service professional relationships, technology,
memberships, customer lists and user base, and trade names, are valued and
amortized over their estimated lives. Value is also assigned to acquired
indefinite-lived intangible assets, which comprise trade names and trademarks,
and goodwill that are not subject to amortization. An impairment is recorded
when the carrying value of an intangible asset or goodwill exceeds its fair
value. We believe that intangible assets represent costs incurred by the
acquired company to build value prior to acquisition and the related
amortization and impairments of intangible assets or goodwill, if applicable,
are not ongoing costs of doing business.
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FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCESFinancial Position
September 30 ,December 31, 2021 2020
(In thousands)
Cash and cash equivalents and marketable debt securities:
$ 449,687 $ 793,679 All other countries 26,938 19,026 Total cash and cash equivalents 476,625 812,705 Marketable debt securities (United States) - 49,995 Total cash and cash equivalents and marketable debt securities$ 476,625 $ 862,700 Long-term debt: Senior Notes$ 500,000 $ 500,000 Term Loan - 220,000 Total long-term debt 500,000 720,000 Less: unamortized debt issuance costs 5,627 7,723 Total long-term debt, net$ 494,373 $ 712,277 The Company's international cash can be repatriated without significant tax consequences. For a detailed description of long-term debt, see " Note 4-Long-term Debt " to the consolidated financial statements included in " Item 1. Consolidated Financial Statements ." Cash Flow Information In summary, the Company's cash flows are as follows: Nine Months Ended September 30, 2021
2020
(In thousands)
Net cash provided (used in) by:
Operating activities $ 25,888 $ 173,185
Investing activities $ (26,663) $ (86,894)
Financing activities $ (335,046) $ 378,450
Net cash provided by operating activities consists of earnings adjusted for
non-cash items and the effect of changes in working capital. Non-cash
adjustments include stock-based compensation expense, provision for credit
losses, amortization of intangibles, depreciation, impairment of long-lived and
right-of-use assets, non-cash lease expense, and deferred income taxes.
2021
Adjustments to earnings consist primarily of $66.1 million of provision for
credit losses, $45.7 million of depreciation, $20.4 million of stock-based
compensation expense, $12.6 million of amortization of intangibles, $12.3
million of impairment charges on long-lived and right-of-use assets, $9.6
million of non-cash lease expense, and $6.4 million of revenue reserves,
partially offset by $25.4 million of deferred income taxes. The decrease from
changes in working capital consists primarily of an increase of $106.2 million
in accounts receivable partially offset by increases of $23.3 million in
accounts payable and other liabilities and $4.6 million of deferred revenue. The
increase in accounts receivable is due primarily to revenue growth, primarily
attributable to Angi Services. The increase in accounts payable and other
liabilities is due primarily to increases in accrued advertising and related
payables and accrued roofing material costs related to Angi Roofing, partially
offset by the reduction in lease liabilities. The increase in deferred revenue
is primarily driven by increases in annual membership payments and an increase
in customer deposits for Angi Services jobs.
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Net cash used in investing activities includes $52.1 million of capital
expenditures, primarily related to investments in capitalized software to
support the Company's products and services, $25.4 million of cash principally
related to the acquisition of Angi Roofing, partially offset by proceeds of
$50.0 million from the maturities of marketable debt securities.
Net cash used in financing activities includes $220.0 million for the prepayment
of the ANGI Group Term Loan, which otherwise would have matured on November 5,
2023 , $56.1 million for the payment of withholding taxes on behalf of employees
for stock-based awards that were net settled, $35.4 million for the repurchase
of 3.2 million shares of Angi Inc. Class A common stock, on a settlement date
basis, at an average price of $11.06 per share, and $23.5 million for the
purchase of redeemable noncontrolling interests.
2020
Adjustments to earnings consist primarily of $60.1 million of provision for
credit losses, $55.0 million of stock-based compensation expense, $38.8 million
of amortization of intangibles, and $38.6 million of depreciation, and $10.2
million of non-cash lease expense, partially offset by $18.1 million of deferred
income taxes. The decrease from changes in working capital consists primarily of
an increase in accounts receivable of $70.7 million , partially offset by an
increase in accounts payable and other liabilities of $46.9 million . The
increase in accounts receivable is due primarily to revenue growth. The increase
in accounts payable and other liabilities is due primarily to an increase in
accrued advertising and related payables, and accrued compensation costs due, in
part, to the deferral of payroll tax payments under the Coronavirus Aid, Relief,
and Economic Security Act, partially offset by the reduction in lease
liabilities..
Net cash used in investing activities includes purchases of marketable debt
securities of $50.0 million and capital expenditures of $37.6 million , primarily
related to investments in capitalized software to support the Company's products
and services, and leasehold improvements.
Net cash provided by financing activities includes $500.0 million of proceeds
from the issuance of the Senior Notes and a $3.1 million payment from
IAC/InterActiveCorp ("IAC") pursuant to the tax sharing agreement, partially
offset by $54.4 million for the repurchase of 7.7 million shares of Class A
common stock, on a settlement date basis, at an average price of $7.02 per
share, $50.0 million for the payment of withholding taxes on behalf of employees
for stock-based awards that were net settled, $10.3 million in principal
payments on the Term Loan, $5.6 million for debt issuance costs, and $4.3
million for the purchase of redeemable noncontrolling interests.
Liquidity and Capital Resources
Financing Arrangements
The ANGI Group Senior Notes were issued on August 20, 2020 , the proceeds of
which have been used for general corporate purposes, including the acquisition
of Angi Roofing, and treasury share purchases.
As of
The$250.0 million ANGI Group Revolving Facility, which otherwise would have expired onNovember 5, 2023 , was terminated effectiveAugust 3, 2021 . No amounts were ever drawn under the ANGI Group Revolving Facility prior to its termination. Share Repurchase Authorizations and Activity During the nine months endedSeptember 30, 2021 , the Company repurchased 3.2 million shares, on a trade date basis, of its common stock at an average price of$11.06 per share, or$35.4 million in aggregate.Angi Inc. has 16.1 million shares remaining in its share repurchase authorization as ofSeptember 30, 2021 . The Company may purchase shares over an indefinite period of time on the open market and in privately negotiated transactions, depending on those factorsAngi Inc. management deems relevant at any particular time, including, without limitation, market conditions, share price and future outlook. Outstanding Stock-based Awards The Company may settle equity awards on a gross or a net basis upon factors deemed relevant at the time, and if settled on a net basis, withAngi remits withholding taxes on behalf of the employee. At IAC's option, certainAngi stock appreciation 38 -------------------------------------------------------------------------------- Table of Contents rights can be settled in either Class A shares ofAngi or shares of IAC common stock. If settled in IAC common stock, the Company reimburses IAC in either cash or through the issuance of Class A shares to IAC. The Company currently settles all equity awards on a net basis. Pursuant to the employee matters agreement, in the event of a distribution ofAngi capital stock to IAC stockholders in a transaction intended to qualify as tax-free forU.S. federal income tax purposes, the Compensation Committee of the IAC Board of Directors has the exclusive authority to determine the treatment of outstanding IAC equity awards. Such authority includes (but is not limited to) the ability to convert all or part of IAC equity awards outstanding immediately prior to the distribution into equity awards denominated in shares ofAngi Class A Common Stock for no compensation, whichAngi would be obligated to assume and which would be dilutive toAngi's stockholders. The following table summarizes the aggregate intrinsic value of all awards outstanding as ofOctober 29, 2021 ; assuming these awards were net settled on that date, the withholding taxes that would be paid by the Company on behalf of employees upon exercise or vesting that would be payable (assuming these equity awards are net settled with a 50% tax rate), and the shares that would have been issued are as follows: Aggregate intrinsic Estimated Estimated shares to value of awards withholding taxes be issued outstanding payable (In thousands) Stock appreciation rights $ 9,375 $ 4,687 374 Other equity awards(a)(b) 190,775 94,491 7,684 Total outstanding employee stock-based awards $ 200,150 $ 99,178 8,058 _______________ (a)Includes stock options, RSUs, and subsidiary denominated equity. (b)The number of shares ultimately needed to settle subsidiary denominated equity awards and the cash withholding tax obligation may vary significantly as a result of the determination of the fair value of the relevant award at the time of exercise. In addition, the number of shares required to settle these awards will be impacted by movement in the Company's stock price. Capital Expenditures The Company's 2021 capital expenditures are expected to be higher than 2020 capital expenditures of$52.5 million by approximately 25% to 30%, due primarily to increased investment in capitalized software to support the development of our products and services. Liquidity Assessment The Company's liquidity could be negatively affected by a decrease in demand for its products and services due to COVID-19 or other factors. As described in the "COVID-19 Update" section above, to date, the COVID-19 outbreak and measures designed to curb its spread have adversely impacted the Company's business. AtSeptember 30, 2021 , IAC held all Class B shares ofAngi Inc. , which represent 84.6% of the economic interest and 98.2% of the voting interest of the Company. As a result, IAC has the ability to controlAngi Inc.'s financing activities, including the issuance of additional debt and equity securities byAngi Inc. or any of its subsidiaries, or the incurrence of other indebtedness generally. WhileAngi Inc. is expected to have the ability to access debt and equity markets if needed, such transactions may require the approval of IAC due to its control of the majority of the outstanding voting power ofAngi Inc.'s capital stock and its representation on theAngi Inc. board of directors. Additional financing may not be available on terms favorable to the Company or at all. In addition, the Company's existing indebtedness could limit its ability to obtain additional financing. The Company believes its existing cash, cash equivalents, and expected positive cash flows generated from operations will be sufficient to fund its normal operating requirements, including capital expenditures, debt service, the payment of withholding taxes paid on behalf of employees for net-settled stock-based awards, and investing and other commitments, for the foreseeable future. 39
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CONTRACTUAL OBLIGATIONS
During the nine months ended September 30, 2021 , other than the repayment of the
outstanding balance of the ANGI Group Term Loan of $220.0 million , there have
been no material changes to the Company's contractual obligations since the
disclosure in our Annual Report on Form 10-K for the year ended December 31,
2020 .
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