ANGI INC. GENERAL
Management Overview
Angi Inc. ("Angi," the "Company," "we," "our," or "us") connects quality home service professionals with consumers across more than 500 different categories, from repairing and remodeling homes to cleaning and landscaping. Approximately 256,000 transacting service professionals actively sought consumer matches, completed jobs, or advertised work throughAngi Inc. platforms during the three months endedJune 30, 2022 . Additionally, consumers turned to at least one of our brands to find a professional for approximately 31 million projects during the twelve months endedJune 30, 2022 . The Company has two operating segments: (i)North America (United States andCanada ), which includes Angi Ads, Angi Leads, and Angi Services; and (ii)Europe . InMarch 2021 , the Company rebranded its North American brands which operate as follows: Angi Ads operates under the Angi brand, Angi Leads operates primarily under the HomeAdvisor, powered by Angi brand, and Angi Services operates primarily under the Handy and Angi Roofing brands.
For a more detailed description of the Company's operating businesses, see the
Company's Annual Report on Form 10-K for the year ended
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, 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 during the most recent 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, which commencedFebruary 15, 2021 .
Components of Results of Operations
Sources of Revenue
Angi Ads and Leads Revenue is primarily derived from (i) advertising revenue,
which includes revenue from service professionals under contract for
advertising, (ii) 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), and (iii) membership
subscription revenue from service professionals and consumers. Consumer
connection revenue varies based upon several factors including the service
requested, product experience offered, and geographic location of service. Angi
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Services is primarily comprised of revenue from jobs (i) sourced through the
"Book Now" feature which allows consumers to book and schedule on demand (ii)
under managed projects (including Angi Roofing), which are larger home
improvement projects, and (iii) through retail partnerships for installation of
furniture or other household items.
Cost of Revenue and Gross Profit
Gross profit is revenue less cost of revenue. Gross margin is gross profit expressed as a percentage of revenue.
Operating Costs and Expenses:
•Selling and marketing expense - consists primarily of (i) advertising expenditures, which include marketing fees to promote the brand to Consumers and Service Professionals with (a) online marketing, including fees paid to search engines and other online marketing platforms, app platforms, and partners who direct traffic to our brands, (b) offline marketing, which is primarily television and radio advertising, (ii) compensation expense (including stock-based compensation expense) and other employee-related costs for our sales force and marketing personnel, (iii) software license and maintenance costs, and (iv) facilities costs. •General and administrative expense - consists primarily of (i) 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, (ii) fees for professional services (including transaction-related costs related to acquisitions), (iii) provision for credit losses, (iv) software license and maintenance costs, and (v) facilities costs. Our customer service function includes personnel who provide support to our service professionals and consumers. •Product development expense - consists primarily of (i) 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 and (ii) software license and maintenance 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 attributable to Angi Inc. shareholders to operating
loss to consolidated Adjusted EBITDA for the three and six months ended June 30,
2022 and 2021.
Brand Integration Initiative
InMarch 2021 , the Company changed its name toAngi Inc. and updated one of its leading websites and brands,Angie's List , to Angi, and since then, has 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 initially adversely affected the placement and ranking ofAngi Inc. websites, particularly Angi.com, in organic search results. We have now passed the anniversary of the rebranding, and organic search results in the second quarter of 2022 have improved relative to the same period in 2021. We expect this positive trend to continue. However, organic search results are still below pre-March 2021 levels. The shift of marketing to support Angi, away from HomeAdvisor, powered by Angi, has had and continues to have a negative effect on the efficiency of our search engine marketing efforts. We will continue to optimize the efficiency and conversion of marketing to HomeAdvisor to maintain profitable demand generation to that domain for the foreseeable future, but we do expect the trend of declining traffic to continue due to sustained marketing emphasis in favor of Angi. 25 -------------------------------------------------------------------------------- Table of ContentsAngi Services Investment Angi Services was launched inAugust 2019 , and we have invested and continue to invest significantly in Angi Services since then. However, we believe we reached the peak investment in Angi Services in the first quarter of 2022. The investment in Angi Services had a smaller negative impact on profits in the second quarter of 2022 than in the first quarter of 2022, and we expect this sequential trend to continue. However, we do not expect an impact on year-over-year profits until the fourth quarter of 2022 and we expect that positive year-over-year trend to continue into 2023.
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. The impact of COVID-19 has been difficult to precisely identify and measure in 2021 and beyond because, as is described above, we launched the rebranding initiative inMarch 2021 . As previously disclosed the impact of COVID-19 initially 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 these businesses experienced a rebound in service requests from mid-2020 through early 2021, service requests started to decline inMay 2021 and continued to decline into early 2022 due to the launch ofAngi Inc.'s brand integration inMarch 2021 , and the Omicron variant surge in late 2021 and early 2022. Our ability to monetize service requests rebounded modestly in the second half of 2021, continued to increase in the first half of 2022, and is approaching levels experienced pre-COVID-19. No assurances can be provided that we will continue to be able to improve monetization, or that service professionals' businesses and, as a consequence, our revenue and profitability will not continue to be adversely impacted by COVID-19 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. 26
-------------------------------------------------------------------------------- Table of Contents Results of Operations for the three and six months endedJune 30, 2022 compared to the three and six months endedJune 30, 2021 Revenue Three Months Ended June 30, Six Months Ended June 30, 2022 $ Change % Change 2021 2022 $ Change % Change 2021 (Dollars in thousands)North America Angi Ads and Leads: Consumer connection revenue$ 259,037 $ 19,021 8%$ 240,016 $ 471,833 $ 10,387 2%$ 461,446 Advertising revenue 65,085 2,477 4% 62,608 128,861 5,506 4% 123,355 Membership subscription revenue 15,554 (1,511) (9)% 17,065 31,791 (2,156) (6)% 33,947 Other revenue 5,243 (2,188) (29)% 7,431 10,469 (4,240) (29)% 14,709 Total Angi Ads and Leads revenue 344,919 17,799 5% 327,120 642,954 9,497 1% 633,457 Angi Services revenue 150,895 78,070 107% 72,825 264,032 136,503 107% 127,529Total North America revenue 495,814 95,869 24% 399,945 906,986 146,000 19% 760,986 Europe 19,968 (1,075) (5)% 21,043 44,955 (2,076) (4)% 47,031 Total revenue$ 515,782 $ 94,794 23%$ 420,988 $ 951,941 $ 143,924 18%$ 808,017 Percentage of Total Revenue: North America 96 % 95 % 95 % 94 % Europe 4 % 5 % 5 % 6 % Total revenue 100 % 100 % 100 % 100 % Three Months Ended June 30, Six Months Ended June 30, 2022 Change % Change 2021 2022 Change % Change 2021 (In thousands, rounding differences may occur) Operating metrics: Service Requests 8,498 (921) (10)% 9,419 15,199 (1,929) (11)% 17,128 Monetized Transactions 4,740 (266) (5)% 5,006 8,629 (570) (6)% 9,199 Transacting SPs(a) 220 (5) (2)% 225 Advertising SPs 37 (3) (8)% 40
_________________________________________________________
(a) 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 during the most recent quarter.
For the three months ended
North America revenue increased$95.9 million , or 24%, driven by increases in Angi Services revenue of$78.1 million , or 107%, and Angi Ads and Leads revenue of$17.8 million , or 5%. Angi Services revenue growth is due primarily to Angi Roofing, acquiredJuly 1, 2021 , and to a lesser extent, organic growth. The increase in Angi Ads and Leads revenue is primarily due to an increase in consumer connection revenue of$19.0 million , or 8%, primarily as a result of price increases implemented during the three months endedJune 30, 2022 , the anniversary of the initial impact from the brand integration that began inMarch 2021 , and higher service professional engagement.
For the six months ended
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Cost of revenue
Three Months Ended June 30, Six Months Ended June 30,
2022 $ Change % Change 2021 2022 $ Change % Change 2021
(Dollars in thousands)
Cost of revenue
(exclusive of
depreciation shown
separately below) $ 127,771 $ 58,067 83% $ 69,704 $ 226,769 $ 103,237 84% $ 123,532
As a percentage of
revenue 25% 17% 24% 15%
For the three months ended
North America cost of revenue increased$58.1 million , or 84%, and increased as a percentage of revenue, due primarily to$31.4 million of costs attributable to Angi Roofing for roofing materials and third-party contractors. The remaining increase is primarily due to the growth of Angi Services including costs incurred for third-party service professionals for other Angi Services arrangements.
For the six months ended
North America cost of revenue increased$103.2 million , or 84%, and increased as a percentage of revenue, due primarily to factors described above in the three-month discussion. Gross profit Three Months Ended June 30, Six Months Ended June 30, 2022 $ Change % Change 2021 2022 $ Change % Change 2021 (Dollars in thousands) Revenue$ 515,782 $ 94,794 23%$ 420,988 $ 951,941 $ 143,924 18%$ 808,017 Cost of revenue (exclusive of depreciation shown separately below) 127,771 58,067 83% 69,704 226,769 103,237 84% 123,532 Gross profit$ 388,011 $ 36,727 10%$ 351,284 $ 725,172 $ 40,687 6%$ 684,485 Gross margin 75% (8)% 83% 76% (9)% 85%
For the three and six months ended
Gross profit increased for the three and six months endedJune 30, 2022 , primarily due to the revenue growth described in the Revenue discussions above. Gross margin decreased for the three and six months endedJune 30, 2022 , due primarily to increased cost of revenue factors described above in the Cost of Revenue discussions.
Selling and marketing expense
Three Months Ended June 30, Six Months Ended June 30,
2022 $ Change % Change 2021 2022 $ Change % Change 2021
(Dollars in thousands)Selling and marketing expense$ 251,159 $ 12,128 5%$ 239,031 $ 476,960 $ 32,089 7%$ 444,871 As a percentage of revenue 49% 57% 50% 55%
For the three months ended
North America selling and marketing expense increased$11.5 million , or 5%, driven by expense of$6.2 million from the inclusion of Angi Roofing, increases in consulting costs of$2.6 million , compensation expense of$2.4 million , and software maintenance costs of$1.1 million , partially offset by decreases in advertising expense of$1.7 million and lease expense of$1.3 million . The increase in compensation expense is primarily due to an increase in wage-related expense from higher headcount partially offset by a decrease in commissions expense. The increase in consulting and software maintenance costs was due primarily to various sales initiatives at Angi Services. The decrease in advertising expense is primarily due to decreases in fees 28 -------------------------------------------------------------------------------- Table of Contents paid to app platforms and service professional marketing as a part of the investment in Angi Services in 2021, offset by an increase in search engine marketing and television spend. The increase in search engine marketing spend is due to the continued brand integration initiative. The increase in television spend in 2022 reflects the return to historical spending levels as compared to the cost cutting initiatives during 2021 due to the impact of COVID-19 and is consistent with spend prior to COVID-19. The decrease in lease expense is a result of the Company reducing its real estate footprint in 2021.
For the six months ended
North America selling and marketing expense increased$30.7 million , or 7%, driven by expense of$12.4 million from the inclusion of Angi Roofing, increases in advertising expense of$7.3 million , consulting costs of$5.5 million , software maintenance costs of$2.8 million and compensation expense of$1.3 million , partially offset by a decrease in lease expense of$2.8 million . The increase in advertising expense was due primarily to increases of$12.5 million in television spend and$4.0 million in search engine marketing spend offset by decreases in fees paid to app platforms and service professional marketing that were a part of the investment in Angi Services in 2021. The increase in television spend in 2022 reflects the return to historical spending levels as compared to the cost cutting initiatives during 2021 due to the impact of COVID-19 and is consistent with spend prior to COVID-19. The increase in search engine marketing spend is due to the continued brand integration initiative. The increase in consulting and software maintenance costs was due primarily to various sales initiatives at Angi Services. The increase in compensation is primarily due to a general increase in wage-related expense from higher headcount partially offset by a decrease in commissions expense. The decrease in lease expense is a result of the Company reducing its real estate footprint in 2021.Europe selling and marketing expense increased$1.3 million , or 6%, driven by an increase in advertising expense of$1.7 million partially offset by a decrease in compensation expense of$0.4 million which was caused by lower headcount.
General and administrative expense
Three Months Ended June 30, Six Months Ended June 30,
2022 $ Change % Change 2021 2022 $ Change % Change 2021
(Dollars in thousands)
General and administrative
expense $ 119,625 $ 12,139 11% $ 107,486 $ 229,280 $ 33,632 17% $ 195,648
As a percentage of revenue 23% 26% 24% 24%
For the three months ended
North America general and administrative expense increased$13.2 million , or 13%, due primarily to an increase of$7.1 million in compensation expense,$6.0 million of expense from the inclusion of Angi Roofing,$3.0 million in software maintenance costs,$1.8 million in professional fees and a$1.5 million increase in the provision for credit losses, partially offset by a decrease of$7.5 million in impairment charges of right-of-use assets and related leasehold improvements, furniture and equipment. The increase in compensation expense is due to an increase of$5.5 million in wage-related expense from higher headcount and$1.2 million in stock-based compensation expense. The increase in software license and maintenance expense is due primarily to increased spend on software to support our customer service function. The increase in professional fees is due primarily to an increase in legal and consulting fees, and to a lesser extent, outsourced personnel costs. The increase in the provision for credit losses is due primarily to higher receivable balances from revenue growth. The decrease in impairments of right-of-use assets and related leasehold improvements, furniture and equipment was due primarily to charges of$2.3 million in 2022 relative to$9.6 million in 2021, primarily due toAngi Inc. reducing its real estate footprint in 2021.Europe general and administrative expense decreased$1.0 million , or 13%, driven by a decrease in compensation expense of$0.9 million which was caused by lower headcount and lower average compensation.
For the six months ended
North America general and administrative expense increased$41.6 million , or 24%, due primarily to an increase of$22.0 million in compensation expense,$12.9 million of expense from the inclusion of Angi Roofing,$6.5 million in professional fees,$4.9 million in software maintenance costs and a$2.7 million increase in the provision for credit losses, 29
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partially offset by a decrease of$8.2 million in impairment charges of right-of-use assets and related leasehold improvements, furniture and equipment. The increase in compensation expense is due to an increase of$11.0 million in wage-related expense from higher headcount and$10.1 million in stock-based compensation expense. The increase in stock-based compensation expense is the result of the reversal of previously recognized stock-based compensation as a result of the forfeiture of unvested awards due to management departures in the first quarter of 2021 and new awards granted through Q2 2022. The increase in professional fees is due primarily to an increase in legal and consulting fees, and to a lesser extent, outsourced personnel costs. The increase in software license and maintenance expense is due primarily to increased spend on software to support our customer service function. The increase in the provision for credit losses is due primarily to higher receivable balances from revenue growth. The decrease in impairment charges is due primarily to factors described above in the three-month discussion.Europe general and administrative expense decreased$8.0 million , or 36%, due primarily to a 2021 charge of$6.0 million in compensation expense related to the acquisition of an additional interest in ourMyBuilder business at a premium to fair value and lower headcount and average compensation. This impact was partially offset by higher professional fees of$0.6 million related to restructuring of the European businesses.
Product development expense
Three Months Ended June 30, Six Months Ended June 30,
2022 $ Change % Change 2021 2022 $ Change % Change 2021
(Dollars in thousands)
Product development expense $ 20,954 $ 2,202 12% $ 18,752 $ 38,813 $ 2,014 5% $ 36,799
As a percentage of revenue 4% 4% 4% 5%
For the three months ended
North America product development expense increased$1.8 million , or 13%, due primarily to increases in software maintenance expense of$0.9 million , outsourced personnel and consulting costs of$0.7 million and compensation expense of$0.6 million , partially offset by a decrease in lease expense of$0.5 million . The increase in software maintenance expense is due primarily to increased spend on software licensing.
For the six months ended
North America product development expense increased$0.9 million , or 3%, due primarily to increases in software license and maintenance expense of$1.6 million and outsourced personnel and consulting costs of$1.2 million , partially offset by decreases in lease expense of$1.1 million and compensation expense of$0.9 million . The increase in software maintenance expense is due primarily to increased spend on software licensing.
Depreciation
Three Months Ended June 30, Six Months Ended June 30,
2022 $ Change % Change 2021 2022 $ Change % Change 2021
(Dollars in thousands)
Depreciation $ 13,354 $ (1,704) (11)% $ 15,058 $ 27,353 $ (3,674) (12)% $ 31,027
As a percentage of revenue 3% 4% 3% 4%
For the three and six months ended
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Operating loss
Three Months Ended June 30, Six Months Ended June 30,
2022 $ Change % Change 2021 2022 $ Change % Change 2021
(Dollars in thousands)North America$ (20,056) $ 12,071 38%$ (32,127) $ (49,710) $ (27,160) (120)%$ (22,550) Europe (830) (226) (37)% (604) (5,133) 4,939 49% (10,072) Total$ (20,886) $ 11,845 (36)%$ (32,731) $ (54,843) $ (22,221) NM$ (32,622) As a percentage of revenue (4)% (8)% (6)% (4)% ________________________ NM = Not meaningful
For the three months ended
North America operating loss decreased$12.1 million to a loss of$20.1 million due to an increase in Adjusted EBITDA of$15.3 million , described below, and a decrease of$0.9 million in depreciation expense, partially offset by an increase of$4.0 million in stock-based compensation expense and a$0.7 million loss from the inclusion of Angi Roofing. The decrease in depreciation primarily to the write-off of certain capitalized software projects subsequent toJune 30, 2021 . The increase in stock-based compensation expense was due primarily new awards granted through Q2 2022.
AtJune 30, 2022 , there is$120.5 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 2.9 years.
For the six months ended
North America operating loss increased$27.2 million to a loss of$49.7 million due to a decrease in Adjusted EBITDA of$15.5 million , described below, an increase in stock-based compensation expenses of$15.0 million , and a$3.7 million loss from the inclusion of Angi Roofing, partially offset by decreases of$2.2 million in depreciation and$1.2 million in amortization of intangibles. The increase in stock-based compensation expense was due primarily due to the reversal of previously recognized stock-based compensation due to forfeitures from management departures in the first quarter of 2021 and new awards granted through Q2 2022, noted above. The decrease in depreciation primarily to the write-off of certain capitalized software projects subsequent toJune 30, 2021 . The decrease in the amortization of intangibles was due primarily to certain intangible assets becoming fully amortized during 2021.
Adjusted EBITDA
Three Months Ended June 30, Six Months Ended June 30,
2022 $ Change % Change 2021 2022 $ Change % Change 2021
(Dollars in thousands)
North America $ 10,019 $ 15,321 NM $ (5,302) $ 10,360 $ (15,503) (60)% $ 25,863
Europe (330) (1,190) NM 860 (3,840) 3,279 46% (7,119)
Total $ 9,689 $ 14,131 NM $ (4,442) $ 6,520 $ (12,224) (65)% $ 18,744
As a percentage of revenue 2% (1)% 1% 2%
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For a reconciliation of net loss attributable toAngi Inc. shareholders to operating loss to consolidated Adjusted EBITDA, see " Principles of Financial Reporting ." 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 ."
For the three months ended
North America Adjusted EBITDA increased$15.3 million , to$10.0 million , and increased as a percentage of revenue, primarily due to higher revenue of$95.9 million , offset by increases in cost of revenue of$58.1 million , general and administrative expense of$13.2 million , and selling and marketing expense of$11.5 million as well as growth of Angi Services due to factors described above in the cost of revenue and selling and marketing discussions. Europe Adjusted EBITDA decreased$1.2 million to a loss of$0.3 million , due primarily to the decrease in revenue of$1.1 million , the increase in selling and marketing expenses of$0.6 million , and the increase in product development expenses of$0.4 million which was partially offset by a$1.0 million decrease in general and administrative expenses, each of which are described above.
For the six months ended
North America Adjusted EBITDA decreased$15.5 million , or 60%, to$10.4 million , and decreased as a percentage of revenue, despite higher revenue of$146.0 million , due primarily to increases in cost of revenue of$103.2 million , general and administrative expense of$41.6 million , and selling and marketing expense of$30.7 million as well as growth of Angi Services due to factors described above in the cost of revenue and selling and marketing discussions. Europe Adjusted EBITDA increased$3.3 million , or 46%, due to an decrease in general and administrative expense of$8.0 million which was primarily due to the 2021 charge of$6.0 million related the acquisition of an additional interest inMyBuilder at a premium to fair value. This was partially offset by a decrease of$2.1 million in revenue, an increase of$1.7 million in advertising expense and an increase of$1.1 million in product development expense.
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 June 30, Six Months Ended June 30,
2022 $ Change % Change 2021 2022 $ Change % Change 2021
(In thousands)Interest expense$ 5,026 $ (788) (14)%$ 5,814 $ 10,048 $ (2,383) (19)%$ 12,431
For the three and six months ended
Interest expense decreased primarily due to the repayment of the ANGI Group Term Loan during the second quarter of 2021.
Other expense, net
Three Months Ended June 30, Six Months Ended June 30,
2022 $ Change % Change 2021 2022 $ Change % Change 2021
(In thousands)Other expense, net$ (1,750) $ (1,114) (175)%$ (636) $ (2,141) $ (738) (53)%$ (1,403) 32
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For the three months ended
Other expense, net in 2022 primarily includes a net foreign currency exchange
loss of
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, partially offset by a net foreign currency exchange gain of$0.4 million and interest income of$0.1 million .
For the six months ended
Other expense, net in 2022 primarily includes net foreign currency exchange
losses of
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$0.5 million , partially offset by interest income of$0.1 million . Income tax benefit Three Months Ended June 30, Six Months Ended June 30, 2022 $ Change % Change 2021 2022 $ Change % Change 2021 (Dollars in thousands) Income tax benefit$ 3,665 $ (5,464) (60)%$ 9,129 $ 9,748 $ (8,670) (47)%$ 18,418 Effective income tax rate 13% 23% 15% 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
In 2022, the effective income tax rate was lower than the statutory rate of 21%, due primarily to unbenefited foreign losses and tax shortfalls generated by the exercise and vesting of stock-based awards.
In 2021, the effective income tax rate was higher than the statutory rate of 21% due primarily to the benefit of the change in the annual expected effective income tax rate, partially offset by nondeductible stock-based compensation expense.
For the six months ended
In 2022, the effective income tax rate was lower than the statutory rate of 21% due primarily to tax shortfalls generated by the exercise and vesting of stock-based awards and unbenefited foreign losses.
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.
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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 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 attributable to
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(In thousands)
Net loss attributable to Angi Inc. shareholders $
(24,232)
235 241 338 324
Income tax benefit (3,665) (9,129) (9,748) (18,418)
Other expense, net 1,750 636 2,141 1,403
Interest expense 5,026 5,814 10,048 12,431
Operating loss (20,886) (32,731) (54,843) (32,622)
Add back:
Stock-based compensation expense 13,417 9,543 26,402 11,577
Depreciation 13,354 15,058 27,353 31,027
Amortization of intangibles 3,804 3,688 7,608 8,762
Adjusted EBITDA $ 9,689 $ (4,442) $ 6,520 $ 18,744 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 RESOURCES
Financial Position
June 30, 2022 December 31, 2021
(In thousands)
Cash and cash equivalents:
United States $ 335,468 $ 404,277
All other countries 25,482 23,859
Total cash and cash equivalents $ 360,950 $ 428,136
Long-term debt:
Senior Notes $ 500,000 $ 500,000
Total long-term debt 500,000 500,000
Less: unamortized debt issuance costs 5,087 5,448
Total long-term debt, net $ 494,913 $ 494,552
At
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:
Six Months Ended June 30,
2022 2021
(In thousands)
Net cash (used in) provided by:
Operating activities $ 7,079 $ 6,209
Investing activities $ (61,974) $ (45,072)
Financing activities $ (11,657) $(345,168)
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.
2022
Adjustments to earnings consist primarily of$47.9 million of provision for credit losses,$27.4 million of depreciation,$26.4 million of stock-based compensation expense,$6.6 million of non-cash lease expense, and$7.6 million of amortization of intangibles. The decrease from changes in working capital consists primarily of an increase of$84.2 million in accounts receivable, an increase of$11.1 million in other assets, an increase of$1.6 million in income taxes payable and receivable, and a decrease of$8.6 million in operating lease liabilities, partially offset by increases of$52.7 million in accounts payable and other liabilities. The increase in accounts receivable is due primarily to revenue growth, primarily attributable to Angi Services. The increase in other assets is due to an increase in capitalized commissions. The increase in income taxes payable and receivable is due to accruals in excess of payments. The decrease in operating lease liabilities is due to cash payments on leases net of interest accretion. The increase in accounts payable and other liabilities is due primarily to increases in accrued expenses related to the factors described in the "Brand Integration Initiative" and accrued roofing material costs related to Angi Roofing.
Net cash used in investing activities includes
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Net cash used in financing activities includes $8.1 million for the repurchase
of 1.0 million shares of Angi Inc. Class A common stock, on a settlement date
basis, at an average price of $7.80 per share and $3.5 million for the payment
of withholding taxes on behalf of employees for stock-based awards that were net
settled.
2021
Adjustments to earnings consist primarily of $42.7 million of provision for
credit losses, $31.0 million of depreciation, $12.3 million of impairment
charges on long-lived and right-of-use assets, $11.6 million of stock-based
compensation expense, $8.8 million of amortization of intangibles, and $4.7
million of revenue reserves, partially offset by $20.3 million of deferred
income taxes. The decrease from changes in working capital consists primarily of
an increase of $63.2 million in accounts receivable partially offset by
increases of $51.4 million in accounts payable and other liabilities and $5.3
million of deferred revenue. The increase in accounts payable is due primarily
to revenue growth in North America . The increase in accounts payable and other
liabilities is due primarily to an increase in accrued advertising and related
payables. The increase in deferred revenue is driven primarily by increases in
membership payments.
Net cash provided by investing activities includes proceeds of $50.0 million
from the maturities of marketable debt securities, partially offset by $35.7
million of capital expenditures, primarily related to investments in capitalized
software to support the Company's products and services.
Net cash used in financing activities includes $220.0 million for the prepayment
of the remaining balance of the ANGI Group Term Loan, which otherwise would have
matured on November 5, 2023 , $54.6 million for the payment of withholding taxes
on behalf of employees for stock-based awards that were net settled, $22.9
million for the purchase of redeemable noncontrolling interests, and $5.6
million for the repurchase of 0.5 million shares of Angi Inc. Class A common
stock, on a settlement and trade date basis, at an average price of $11.87 per
share.
Liquidity and Capital Resources
Financing Arrangements
The ANGI Group Senior Notes were issued onAugust 20, 2020 . At any time prior toAugust 15, 2023 , these notes may be redeemed at a redemption price equal to the sum of the principal amount thereof, plus accrued and unpaid interest and a make-whole premium. Thereafter, these notes may be redeemed at the redemption prices set forth in the indenture governing the notes, plus accrued and unpaid interest thereon, if any, to the applicable redemption date. The indenture governing theANGI Group Senior Notes contains a covenant that would limitANGI Group's ability to incur liens for borrowed money in the event a default has occurred orANGI Group's secured leverage ratio exceeds 3.75 to 1.0, provided thatANGI Group shall be permitted to incur such liens under certain permitted credit facilities indebtedness notwithstanding the ratio, all as defined in the indenture. AtJune 30, 2022 there were no limitations pursuant thereto.
During the six months ended
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 six months endedJune 30, 2022 , the Company repurchased 1.0 million shares, on a trade date basis, of its common stock at an average price of$7.80 per share, or$8.1 million in aggregate. The Company has 15.0 million shares remaining in its share repurchase authorization as ofAugust 5, 2022 . The Company may purchase shares over an indefinite period of time on the open market and in privately negotiated transactions, depending on those factors the Company's management deems relevant at any particular time, including, without limitation, market conditions, share price and future outlook. 37 -------------------------------------------------------------------------------- Table of Contents Outstanding Stock-based Awards The Company may settle equity awards on a gross or a net basis depending upon factors deemed relevant at the time, and if settled on a net basis, Angi remits withholding taxes on behalf of the employee. At IAC's option, certain Angi stock appreciation rights can be settled in either Class A shares of Angi 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 of Angi 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 of Angi Class A Common Stock for no compensation, which Angi would be obligated to assume and which would be dilutive to Angi's stockholders. The following table summarizes the aggregate intrinsic value of all awards outstanding as ofAugust 5, 2022 ; 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 $ 1,265 $ 633 109 Other equity awards(a)(b) 136,321 66,881 11,931 Total outstanding employee stock-based awards $ 137,586 $ 67,514 12,040 _______________
(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.
Contractual Obligations
At
Capital Expenditures
The Company's 2022 capital expenditures are expected to be higher than 2021 capital expenditures of$70.2 million by approximately 20% to 25%, 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. AtJune 30, 2022 , IAC held all Class B shares ofAngi Inc. , which represent 84.5% of the economic interest and 98.2% of the voting interest of the Company. As a result, IAC has the ability to control Angi's financing activities, including the issuance of additional debt and equity securities by Angi or any of its subsidiaries, or the incurrence of other indebtedness generally. While Angi is expected to have the ability to access debt and equity markets if needed, such transactions may require the 38 -------------------------------------------------------------------------------- Table of Contents approval of IAC due to its control of the majority of the outstanding voting power of Angi's capital stock and its representation on the Angi board of directors. 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 next twelve months. We may elect to raise additional capital through the sale of additional equity or debt financing to fund business activities such as strategic acquisitions, share repurchases, or other purposes beyond the next twelve months. Additional financing may not be available on terms favorable to the Company or at all, and may also be impacted by any disruptions in the financial markets caused by COVID-19 or otherwise. In addition, the Company's existing indebtedness could limit its ability to obtain additional financing. 39
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