Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 196,000 transacting service professionals actively sought consumer matches, completed jobs, or advertised work through Angi Inc. platforms during the three months ended December 31, 2023. Additionally, consumers turned to at least one of our brands to find a professional for approximately 23 million projects during the year ended December 31, 2023.
The Company has three operating segments: (i) Ads and Leads; (ii) Services; and (iii) International (consisting of businesses in Europe and Canada) and operates under multiple brands including Angi, HomeAdvisor, and Handy.
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Ads and Leads provides service professionals the capability to engage with potential customers, including quoting and invoicing services, and provides consumers with tools and resources to help them find local, pre-screened and customer-rated service professionals nationwide for home repair, maintenance and improvement projects. Services consumers can request household services directly through the Angi platform and Angi fulfills the request through the use of independently established home services providers engaged in a trade, occupation and/or business that customarily provides such services. The matching and pre-priced booking services and related tools and directories are provided to consumers free of charge.
In the U.S., the Company primarily markets its services to consumers through search engine marketing, affiliate agreements with third parties, and television advertising. The Company also markets its services to consumers through email, digital display advertisements, partnerships with other contextually related websites and, to a lesser extent, through relationships with certain retailers, direct mail and radio advertising. The Company markets subscription packages and time-based advertising to service professionals primarily through its sales force, as well as through search engine marketing, digital media advertising, and direct relationships with trade associations and manufacturers. We have made, and expect to continue to make, substantial investments in digital and traditional advertising (with continued expansion into new and existing digital platforms) to consumers and service professionals to promote our products and services and to drive traffic to our various platforms and service professionals.
Total Home Roofing, LLC Sale
On November 1, 2023, Angi Inc. completed the sale of 100% of its wholly-owned subsidiary, Total Home Roofing, LLC (“THR,” which comprised its Roofing segment), and has reflected it as a discontinued operation in its financial statements. The financial information for prior periods has been recast to conform to the current year presentation. For additional details, see “Note 16—Discontinued Operations” to the consolidated financial statements included in “Item 8. Consolidated Financial Statements and Supplementary Data.”
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:
•Ads and Leads Revenue primarily reflects domestic consumer connection revenue for consumer matches, revenue from service professionals under contract for advertising and membership subscription revenue from service professionals and consumers.
•Services Revenue primarily reflects domestic revenue from pre-priced offerings by which the consumer requests services through a Company platform and the Company connects them with a service professional to perform the service.
•International Revenue primarily reflects revenue generated within the International segment (consisting of businesses in Europe and Canada), including consumer connection revenue for consumer matches and membership subscription revenue from service professionals and consumers.
•Corporate primarily reflects costs for corporate initiatives, shared costs, such as executive and public company costs, and other expenses not allocated to the operating segments.
•Service Requests are (i) fully completed and submitted domestic service requests for connections with Ads and Leads service professionals, (ii) contacts to Ads and Leads service professionals generated via the service professional directory from unique users in unique categories (such that multiple contacts from the same user in the same category in the same day are counted as one Service Request) and (iii) requests to book Services jobs in the period.
•Monetized Transactions are (i) Service Requests that are matched to a paying Ads and Leads service professional in the period and (ii) completed and in-process Services jobs in the period; a single Service Request can result in multiple monetized transactions.
•Transacting Service Professionals (“Transacting SPs”) are the number of (i) Ads and Leads service professionals that paid for consumer matches or advertising and (ii) Services service professionals that performed a Services job, during the most recent quarter.
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•ANGI Group Senior Notes - On August 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 due August 15, 2028, with interest payable February 15 and August 15 of each year.
Components of Results of Operations
Sources of Revenue
Ads and Leads revenue includes consumer connection revenue, which comprises fees paid by service professionals for consumer matches (regardless of whether the service professional ultimately provides the requested service), revenue from service professionals under contract for advertising, membership subscription revenue from service professionals and consumers, and revenue from other services. Consumer connection revenue varies based upon several factors, including the service requested, product experience offered, and geographic location of service. Services revenue primarily reflects revenue from pre-priced offerings by which the consumer requests services through the Company’s platform and the Company engages a service professional to perform the service. International revenue primarily comprises consumer connection revenue for consumer matches and membership subscription revenue from service professionals and consumers.
From January 1, 2020 through December 31, 2022, Services recorded revenue on a gross basis. Effective January 1, 2023, we modified the Services terms and conditions so that the service professional, rather than Angi Inc., has the contractual relationship with the consumer to deliver the service and our performance obligation to the consumer is to connect them with the service professional. This change in contractual terms requires revenue to be reported as the net amount of what is received from the consumer after deducting the amounts owed to the service professional providing the service effective for all arrangements entered into after December 31, 2022. There is no impact to operating loss or Adjusted EBITDA from this change in revenue recognition. For the years ended December 31, 2022 and 2021, if Services revenue were recorded on a net basis, revenue would have been reduced by $242.6 million and $180.7 million, respectively.
Cost of Revenue and Gross Profit
Cost of revenue, which excludes depreciation, consists primarily of (i) payments made to independent third-party service professionals who perform work contracted under Services arrangements that were entered into prior to January 1, 2023 and the change to net revenue reporting, (ii) credit card processing fees, and (iii) hosting fees.
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, partners who direct traffic to our brands, and app platforms, and (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) service guarantee expense, (iv) software license and maintenance costs, and (v) outsourced personnel 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) provision for credit losses, (iii) software license and maintenance costs, (iv) outsourced personnel costs for personnel engaged in assisting in customer service functions, (v) fees for professional services, and (vi) 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, (ii) software license and maintenance costs, and (iii) outsourced personnel costs for personnel engaged in product development.
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
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loss attributable to Angi Inc. shareholders to operating loss to consolidated Adjusted EBITDA for the years ended December 31, 2023, 2022, and 2021.
COVID-19 Update
The COVID-19 pandemic and the various responses to it created significant volatility, uncertainty and economic disruption. Recently, there has been a return to normal societal interactions, including the way we operate our business.
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 we experienced a rebound in Service Requests in early 2021, Service Requests started to decline in May 2021 and continued to decline during 2022 due, in part, to COVID-19 measures that were more widely in place in prior periods. Our ability to monetize Service Requests rebounded modestly in the second half of 2021 and the first half of 2022; however, that improved monetization plateaued in the third quarter of 2022 returning to monetization rates similar to those experienced pre-COVID-19.
Outlook
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 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.
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Results of Operations for the Years Ended December 31, 2023, 2022, and 2021
The following discussion should be read in conjunction with Item 8. Consolidated Financial Statements and Supplementary Data. Included below are year-over-year comparisons between 2023 and 2022, as well as 2022 and 2021, reflecting our current segment structure following the sale of THR.
Revenue
Years Ended December 31,
$ % $ %
(Dollars in thousands)
Domestic
Ads and Leads:
International
Percentage of Total Revenue:
International 9 % 6 % 6 %
Years Ended December 31,
# % # %
(In thousands, rounding differences may occur)
Operating metrics:
For the year ended December 31, 2023 compared to the year ended December 31, 2022
Ads and Leads revenue decreased $157.2 million, or 12%, due primarily to a decrease in consumer connection revenue of $173.6 million, or 18%, and a decrease in membership subscription revenue of $8.1 million, or 13%, due to a decline in Monetized Transactions and a decline in service professionals in the Angi network, respectively, partially offset by an increase of $25.3 million, or 10%, in advertising revenue. The decrease in Monetized Transactions was a result of an effort to rationalize sales to service professionals that are unprofitable, as well as efforts to increase lead quality, including changes to certain demand channels, to enhance the user experience for both homeowners and service professionals. The increase in advertising revenue was primarily driven by continued growth in sales and improved retention.
Services revenue decreased $263.2 million, or 69%, due primarily to the change to net revenue reporting described above under “Sources of Revenue,” a decrease of $92.4 million due to the continued shift away from complex and less profitable offerings, and lower Service Requests.
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International revenue increased $14.8 million, or 15%, due primarily to a larger service professional network and higher revenue per service professional.
For the year ended December 31, 2022 compared to the year ended December 31, 2021
Ads and Leads revenue increased $55.0 million, or 4%, due primarily to an increase in consumer connection revenue of $56.3 million, or 6%, primarily as a result of price increases implemented during the second quarter of 2022 and an increase in advertising revenue driven by a growth in sales.
Services revenue increased $91.3 million, or 31%, due primarily to an increase in average revenue per Monetized Transaction due to higher average-order-value jobs in complex service categories and an increase in Monetized Transactions in 2022 relative to 2021, as well as price increases in certain job categories.
International revenue decreased $1.3 million, or 1%, due primarily to the unfavorable impact of the strengthening of the U.S. dollar relative to the Euro and the British Pound.
Cost of revenue
Years Ended December 31,
$ % $ %
(Dollars in thousands)
As a percentage of revenue 5% 19% 17%
For the year ended December 31, 2023 compared to the year ended December 31, 2022
Services cost of revenue decreased $274.8 million, or 93%, and decreased as a percentage of revenue, due primarily to a $248.8 million decrease in payments to third-party professional service providers due primarily to the change to net revenue reporting effective January 1, 2023, described above. Additionally, payments to third-party professional service providers decreased as a result of the shift away from complex and less profitable offerings.
For the year ended December 31, 2022 compared to the year ended December 31, 2021
Ads and Leads cost of revenue decreased $1.6 million, or 4%, and decreased as a percentage of revenue, due primarily to a $6.0 million decrease resulting from the disposition of a business in the second quarter of 2021, partially offset by increases of $3.1 million in transaction processing costs, and $2.8 million in website hosting fees.
Services cost of revenue increased $64.1 million, or 28%, due primarily to a $58.1 million increase in payments to third-party professional service providers, however, cost of revenue decreased as a percentage of revenue.
International cost of revenue increased $0.2 million, or 9%, and increased as a percentage of revenue, due primarily to increased website hosting fees.
Gross profit
Years Ended December 31,
$ % $ %
(Dollars in thousands)
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For the year ended December 31, 2023 compared to the year ended December 31, 2022
Angi gross profit decreased $130.8 million, or 9%, due primarily to the decrease in revenue described in the revenue discussion above.
For the year ended December 31, 2022 compared to the year ended December 31, 2021
Angi gross profit increased $82.3 million, or 6%, due primarily to the revenue growth described in the revenue discussion above, partially offset by the increased cost of revenue as a percentage of revenue described in the cost of revenue discussion above.
Selling and marketing expense
Years Ended December 31,
$ % $ %
(Dollars in thousands)
As a percentage of revenue 56% 50% 54%
For the year ended December 31, 2023 compared to the year ended December 31, 2022
Ads and Leads selling and marketing expense decreased $81.8 million, or 11%, driven by decreases of $82.0 million in advertising expense and $4.1 million in professional fees, partially offset by an increase of $5.0 million in compensation expense. The decrease in advertising expense was primarily due to a $107.5 million decrease in online marketing spend due to increased efficiency, partially offset by a $25.3 million increase in television spend due to efforts to build awareness of the Angi brand. The decrease in professional fees is primarily due to a decrease in marketing and branding consultancy fees. The increase in compensation expense is primarily due to increased sales commissions due to the immediate expensing of commissions for certain transactions beginning October 1, 2022.
Services selling and marketing expense decreased $34.8 million, or 47%, driven by decreases of $22.1 million in professional fees and third-party wages, $17.4 million in compensation expense, and $7.1 million of advertising expense, partially offset by an increase of $14.9 million in service guarantee expense. The decrease in professional fees and third-party wages is primarily due to $12.7 million less in phone-based sales wages primarily resulting from increased reliance on more profitable digital conversion channels and $6.1 million less due to streamlined fulfillment operations, partially driven by fewer complex services. The decrease in compensation expense is primarily due to a reduction in headcount. The decrease in advertising expense is primarily due to a decrease in service professional marketing spend. The increase in service guarantee expense is due to the aforementioned change in contractual terms and conditions such that this expense is no longer a component of cost of revenue, which is where the expense was recorded prior to January 1, 2023.
International selling and marketing expense decreased $5.8 million, or 14%, driven by a $10.2 million decrease in advertising expense, partially offset by an increase in compensation expense of $3.3 million. The decrease in advertising expense is primarily due to improved online efficiency and a decrease in television advertising expense. The increase in compensation expense is primarily driven by an increase in headcount.
For the year ended December 31, 2022 compared to the year ended December 31, 2021
Ads and Leads selling and marketing expense increased $11.9 million, or 2%, driven by increases in advertising expense of $20.9 million and software maintenance costs of $3.5 million partially offset by a decrease in compensation expense of $10.3 million. The increase in advertising expense was due primarily to an increase of $23.3 million in online marketing spend. The increase in online marketing spend was primarily due to lower organic traffic and increased cost per service request. The increase in software maintenance costs was due primarily to general maintenance. The decrease in compensation is primarily due to a decrease in headcount.
Services selling and marketing expense increased $13.6 million, or 22%, driven by increases of $17.6 million in compensation expense, $3.7 million in professional fees and $1.6 million of software maintenance costs, partially offset by a $9.5 million decrease in advertising expense. The increase of compensation expense was due primarily to an increase in headcount. The increase in professional fees is primarily from an increase of $4.1 million in outsourced personnel costs for
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improving the customer service experience offset by a decrease of $0.4 million in consulting costs primarily due to fees paid in 2021 that were a part of the investment in Services in 2021. The increase in software maintenance costs was due primarily to general maintenance. The decrease in advertising expense was primarily due to a decrease of $6.7 million in service professional marketing spend and $2.7 million search engine marketing spend primarily due to high advertising costs in 2021 to promote Services.
Corporate selling and marketing expense decreased $4.9 million, or 55%, driven by a decrease in lease expense of $5.4 million. The decrease in lease expense is a result of the Company repurposing its real estate space for general and administrative functions and reducing its real estate footprint in 2021.
International selling and marketing expense decreased $1.8 million, or 4%, driven by a decrease in compensation expense of $1.6 million, which was primarily due to lower headcount.
General and administrative expense
Years Ended December 31,
$ Change % Change $ Change % Change
(Dollars in thousands)
As a percentage of revenue 26% 25% 24%
For the year ended December 31, 2023 compared to the year ended December 31, 2022
Ads and Leads general and administrative expense decreased $69.9 million, or 24%, due primarily to decreases of $24.5 million in provision for credit losses, $21.4 million in professional fees, $12.9 million in compensation expense, and $8.6 million in third-party wages. The decrease in the provision for credit losses is primarily due to lower revenue and improved collection rates. The decrease in professional fees is primarily due to a decrease in legal fees, including a $10.9 million benefit in 2023 related to insurance coverage for previously incurred legal fees. The decrease in compensation expense is primarily due to a reduction in headcount. The decrease in third-party wages is primarily due to a reduction in third-party providers.
Services general and administrative expense decreased $22.7 million, or 34%, due primarily to decreases of $11.1 million in compensation expense, $8.6 million in professional fees, and $4.8 million in the provision for credit losses. The decrease in compensation expense is primarily due to a reduction in headcount. The decrease in professional fees is primarily due to a reduction in legal fees. The decrease in the provision for credit losses is primarily due to lower revenue and improved collection rates.
For the year ended December 31, 2022 compared to the year ended December 31, 2021
Ads and Leads general and administrative expense increased $23.7 million, or 9%, due primarily to an increase of $16.4 million in provision for credit losses, $6.6 million in outsourced personnel costs, and $5.7 million in legal expense, partially offset by a decrease of $2.9 million in compensation expense. The increase in the provision for credit losses is due primarily to revenue growth. The increase in outsourced personnel costs is due primarily to the use of outsourced firms to support customer service needs. The increase in legal expense is primarily due to certain legal matters in the third and fourth quarters of 2022. The decrease in compensation expense is due to a $7.4 million decrease primarily due to lower headcount, offset with a $4.5 million increase in stock-based compensation.
Services general and administrative expense increased $27.8 million, or 71%, due primarily to an increase of $19.1 million in compensation expense, $5.3 million in professional fees, and $2.2 million in software license and maintenance expense. The increase in compensation expense is primarily due to an increase of $10.5 million in stock-based compensation expense and $8.6 million in wage-related expense from higher headcount. The increase in stock-based compensation expense is primarily due to management departures in the fourth quarter of 2022 and new awards granted. The increase in professional fees is due primarily to an increase in legal expense of $6.0 million due to certain legal matters in the current quarter. The increase in software license and maintenance expense is due primarily to general maintenance.
Corporate general and administrative expense increased $9.3 million, or 20%, due primarily to increases of $14.4 million in compensation expense and $1.5 million of software license and maintenance expense, partially offset by a decrease of $4.4
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million in lease expense. The increase in compensation expense is due to an increase of $12.9 million in wage-related expense from higher headcount and $1.6 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, management departures in the third quarter of 2022, and new awards granted in 2022. The increase in software license and maintenance expense is due primarily to increased spend on software to support our customer service function. The decrease in lease expense was due primarily to a decrease in impairments of right-of-use assets and related leasehold improvements, furniture, and equipment from the Company reducing its real estate footprint in 2021.
International general and administrative expense decreased $8.6 million, or 20%, due primarily to a 2021 charge of $7.0 million in compensation expense related to the acquisition of an additional interest in our MyBuilder business at a premium to fair value.
Product development expense
Years Ended December 31,
$ % $ %
(Dollars in thousands)
As a percentage of revenue 7% 4% 4%
For the year ended December 31, 2023 compared to the year ended December 31, 2022
Product development expense increased $22.7 million, or 31%. This contrasts with a $67.7 million, or 59%, decrease in capital expenditures, which primarily comprises internally developed software. The increase in product development expense was driven by a decrease in the percentage of internally developed software that was subject to capitalization.
For the year ended December 31, 2022 compared to the year ended December 31, 2021
Product development expense increased $2.9 million, or 4%. This increase is in addition to the increase in capital expenditures.
Depreciation
Years Ended December 31,
$ % $ %
(Dollars in thousands)
As a percentage of revenue 7% 4% 4%
For the year ended December 31, 2023 compared to the year ended December 31, 2022
Depreciation increased due primarily to investments in capitalized software which are being depreciated over an average useful life of two years.
For the year ended December 31, 2022 compared to the year ended December 31, 2021
Depreciation increased primarily due to $15.5 million in capitalized software impairments in addition to investments in capitalized software to support our employees, products, and services.
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Operating income (loss)
Years Ended December 31,
$ % $ %
(Dollars in thousands)
As a percentage of revenue (2)% (4)% (4)%
________________________
NM = Not meaningful
Operating losses decreased for fiscal year 2023 compared to fiscal year 2022 and increased for fiscal year 2022 compared to fiscal year 2021 due primarily to the factors described above in the revenue, cost of revenue, sales and marketing, general and administrative, product development, and depreciation expense discussions.
At December 31, 2023, there is $47.8 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 2.29 years.
Adjusted EBITDA
Years Ended December 31,
$ % $ %
(Dollars in thousands)
As a percentage of revenue 9% 4% 2%
For a reconciliation of net loss attributable to Angi Inc. shareholders to operating loss to consolidated Adjusted EBITDA, see “Principles of Financial Reporting.” For a reconciliation of operating income (loss) to Adjusted EBITDA for the Company’s reportable segments, see “Note 9—Segment Information” to the consolidated financial statements included in “Item 8. Consolidated Financial Statements and Supplementary Data.”
For the year ended December 31, 2023 compared to the year ended December 31, 2022
Ads and Leads Adjusted EBITDA decreased $21.6 million, or 13%, to $147.4 million, and decreased as a percentage of revenue, driven by lower gross profit due to a decrease in revenue, partially offset by lower general and administrative expense due to a decrease in the provision for credit losses, legal fees, and compensation costs and lower selling and marketing expense due to improved marketing efficiency.
Services Adjusted EBITDA increased $60.2 million, from a loss of $52.1 million to income of $8.1 million, and increased as a percentage of revenue, driven by higher gross profit due to pricing and fulfillment optimization efforts over the past year and lower operating expenses due to a reduced overall cost base as a result of exiting complex and less profitable offerings.
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International Adjusted EBITDA increased $13.6 million, from a loss of $0.5 million to income of $13.1 million, driven by an increase in revenue and lower selling and marketing expense due to more efficient marketing spend.
For the year ended December 31, 2022 compared to the year ended December 31, 2021
Ads and Leads Adjusted EBITDA increased $32.7 million, or 24%, to $169.0 million, and increased as a percentage of revenue, due primarily to higher revenue of $55.0 million, partially offset by an increase in general and administrative expense of $23.7 million.
Services Adjusted EBITDA loss increased $3.9 million, or 8%, to a loss of $52.1 million, and increased as a percentage of revenue, driven by higher revenue of $91.3 million, partially offset by increases in cost of revenue of $64.1 million, general and administrative expense of $27.8 million, and selling and marketing expense of $13.6 million.
Corporate Adjusted EBITDA loss increased $3.8 million, or 8%, to $49.9 million, primarily due to an increase in compensation expense, partially offset by a decrease in lease expense.
International Adjusted EBITDA loss decreased $6.1 million, or 93%, due to a decrease in general and administrative expense of $8.6 million, which was primarily due to the 2021 charge of $7.0 million related to the acquisition of an additional interest in MyBuilder at a premium to fair value. This was partially offset by a decrease of $1.3 million in revenue and an increase of $3.1 million in product development expense.
Interest expense
Interest expense relates to interest on the ANGI Group Senior Notes.
For a detailed description of long-term debt, net, see “Note 6—Long-term Debt” to the consolidated financial statements included in “Item 8. Consolidated Financial Statements and Supplementary Data.”
Years Ended December 31,
$ % $ %
(In thousands)
For the year ended December 31, 2023 compared to the year ended December 31, 2022
Interest expense was flat for the year ended December 31, 2023 compared to the year ended December 31, 2022.
For the year ended December 31, 2022 compared to the year ended December 31, 2021
Interest expense decreased primarily due to the repayment of the ANGI Group Term Loan during the second quarter of 2021.
Other income (expense), net
Years Ended December 31,
$ % $ %
(In thousands)
Other income, net in 2023 primarily includes interest income of $17.1 million and net foreign currency exchange gains of $1.2 million.
Other income, net in 2022 primarily includes interest income of $4.5 million, partially offset by net foreign currency exchange losses of $3.4 million.
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Other expense, net in 2021 primarily includes net foreign currency exchange losses of $1.7 million and 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 interest income of $0.2 million.
Income tax (provision) benefit
Years Ended December 31,
$ % $ %
(Dollars in thousands)
Effective income tax rate NM 6% 32%
In 2023, the Company recorded an income tax provision, despite pre-tax losses, due primarily to tax shortfalls generated by the vesting and exercise of stock-based awards, nondeductible executive compensation expense, and unbenefited foreign losses, partially offset by research credits.
In 2022, the effective income tax rate was lower than the statutory rate of 21% due primarily to unbenefited realized losses, foreign income subject to tax in the United States, and nondeductible stock-based compensation expense, partially offset by research credits.
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 and a change in judgment about the valuation allowance at the beginning of the year, partially offset by nondeductible stock-based compensation expense and foreign income taxed at different rates.
For further details of income tax matters, see “Note 12—Income Taxes” to the consolidated financial statements included in “Item 8. Consolidated Financial Statements and Supplementary Data.”
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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, and on which our internal budgets are based and may impact management compensation. 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 Angi Inc. shareholders to operating loss to consolidated Adjusted EBITDA:
Years Ended December 31,
(In thousands)
Add back:
Net earnings attributable to noncontrolling interests 629 468 884
Add back:
For a reconciliation of operating income (loss) to Adjusted EBITDA for the Company’s reportable segments, see “Note 9—Segment Information” to the consolidated financial statements included in “Item 8. Consolidated Financial Statements and Supplementary Data.”
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.
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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.
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, 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
(In thousands)
Cash and cash equivalents:
Long-term debt:
Less: unamortized debt issuance costs 3,953 4,716
At December 31, 2023, all of the Company’s international cash can be repatriated without significant consequences.
Cash Flow Information
In summary, the Company’s cash flows are as follows:
Years Ended December 31,
(In thousands)
Net cash provided by (used in):
Net cash provided by operating activities attributable to continuing operations consists of earnings adjusted for non-cash items and the effect of changes in working capital. Non-cash adjustments include depreciation, provision for credit losses, stock-based compensation expense, non-cash lease expense (including impairment of right-of-use assets), amortization of intangibles, and deferred income taxes.
2023
Adjustments to net loss attributable to continuing operations consist primarily of $93.6 million of depreciation, $79.4 million of provision for credit losses, $43.4 million of stock-based compensation expense, $11.9 million of non-cash lease expense, and $8.0 million of amortization of intangibles, partially offset by $10.0 million of deferred income taxes. The decrease from changes in working capital consists primarily of an increase of $58.2 million in accounts receivable, a decrease of $20.7 million in operating lease liabilities, an increase of $13.9 million of other assets, and a decrease of $8.0 million in accounts payable and other liabilities. The increase in accounts receivable is due primarily to timing of cash receipts. The decrease in operating lease liabilities is due to cash payments on leases net of interest accretion. The increase in other assets is due primarily to a $10.9 million receivable related to insurance coverage for previously incurred legal fees. The decrease in accounts payable and other liabilities is due to a decrease in accrued advertising.
Net cash used in investing activities attributable to continuing operations includes capital expenditures of $47.8 million primarily related to investments in capitalized software to support the Company’s products and services and purchases of marketable debt securities of $12.4 million, partially offset by maturities of marketable debt securities of $12.5 million and $1.0 million of proceeds for the sale of THR.
Net cash used in financing activities attributable to continuing operations includes $10.9 million for the repurchase of 4.4 million shares of Angi Inc. Class A common stock, on a settlement date basis, at an average price of $2.50 per share and $6.0 million for the payment of withholding taxes on behalf of employees for stock-based awards that were net settled.
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2022
Adjustments to net loss attributable to continuing operations consist primarily of $104.3 million of provision for credit losses, $77.5 million of depreciation, $50.8 million of stock-based compensation expense, $13.8 million of non-cash lease expense (including impairment of right-of-use assets), and $13.8 million of amortization of intangibles, partially offset by deferred income taxes of $9.8 million. The decrease from changes in working capital consists primarily of an increase of $111.9 million in accounts receivable, a decrease of $16.7 million in operating lease liabilities, and a decrease of $3.0 million in deferred revenue, partially offset by increases of $11.6 million in accounts payable and other liabilities and $3.2 million in income taxes payable and receivable. The increase in accounts receivable is due primarily to revenue growth, primarily attributable to Services. The decrease in operating lease liabilities is due to cash payments on leases net of interest accretion. The decrease in deferred revenue is due to lower annual membership count. The increase in accounts payable and other liabilities is due primarily to increases in accrued expenses related to the 2021 brand integration initiative. The increase in income taxes payables and receivable is due primarily to accrual of taxes in excess of payments.
Net cash used in investing activities attributable to continuing operations includes $115.5 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 attributable to continuing operations includes $8.8 million for the payment of withholding taxes on behalf of employees for stock-based awards that were net settled and $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.
2021
Adjustments to net loss attributable to continuing operations consist primarily of $86.6 million of provision for credit losses, $59.0 million of depreciation, $28.2 million of stock-based compensation expense, $20.5 million of non-cash lease expense, and $16.1 million of amortization of intangibles, partially offset by $34.2 million of deferred income taxes. The decrease from changes in working capital consists primarily of an increase of $107.0 million in accounts receivable, and a decrease of $16.6 million in operating lease liabilities, partially offset by an increase of $21.7 million in accounts payable and other liabilities. The increase in accounts receivable is due primarily to revenue growth, primarily attributable to Services. 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 advertising.
Net cash used in investing activities attributable to continuing operations includes $69.9 million of capital expenditures, primarily related to investments in capitalized software to support the Company’s products and services, partially offset by proceeds of $50.0 million from the maturities of marketable debt securities.
Net cash used in financing activities attributable to continuing operations includes $220.0 million for the prepayment of the ANGI Group Term Loan, which otherwise would have matured on November 5, 2023, $61.9 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 $27.9 million for the purchase of redeemable noncontrolling interests.
Discontinued Operations
Net cash provided by (used in) discontinued operations of $11.0 million, $(20.1) million, and $(44.0) million for the years ended December 31, 2023, 2022, and 2021, respectively, relates to the operations for THR. The Company does not expect cash flows from discontinued operations following the sale of THR on November 1, 2023.
Liquidity and Capital Resources
Share Repurchase Authorizations and Activity
During the year ended December 31, 2023, the Company repurchased 4.4 million shares, on a trade date basis, of its common stock at an average price of $2.50 per share, or $11.1 million in aggregate. During the fourth quarter of 2023, Angi Inc. put in place a share repurchase plan with the intent of utilizing the remaining shares in its stock repurchase authorization. The plan will be subject to price and volume limitations. From January 1, 2024 through February 9, 2024, the Company repurchased an additional 2.7 million shares at an average price of $2.36 per share, or $6.3 million in aggregate. The Company had 7.9 million shares remaining in its share repurchase authorization as of February 9, 2024. The Company may purchase its shares pursuant to its authorization over an indefinite period of time in the open market and in privately negotiated transactions,
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depending on those factors the Company’s 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 depending upon factors deemed relevant at the time, and if settledon 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 for U.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 of February 9, 2024;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:
(In thousands)
_______________
(a)Includes stock options 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
The Company enters into various contractual arrangements as a part of its continued operations.Material contractual obligations described in the accompanying notes to the financial statements within “Item 8. Consolidated Financial Statements and Supplementary Data” includes operating leases as described in “Note 5—Leases,” and principal and interest payments on long-term as debt described in “Note 6—Long-term Debt.”
The Company has material purchase obligations which represent legally binding agreements to purchase goods and services that specify all significant terms. Future payments under these agreements at December 31, 2023 are as follows:
Amount of Commitment Expiration Per Period
Less Than1 Year 1–3Years 3–5Years More Than5 Years Total
(In thousands)
Purchase obligations include (i) $13.0 million for the final payment related to a three-year cloud computing arrangement, with the final payment expected to be made by September 2024, (ii) $8.4 million related to technology contracts spend, and (iii) $3.5 million related to media spend to be made in 2024.
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Capital Expenditures
The Company’s 2024 capital expenditures are expected to be higher than 2023 capital expenditures of $47.8 million by approximately 15% to 30% due to an increase in the capitalization rate of software development projects.
Liquidity Assessment
The Company’s liquidity could be negatively affected by a decrease in demand for its products and services due to economic or other factors.
At December 31, 2023, IAC held all Class B shares of Angi Inc., which represent 84.2% of the economic interest and 98.1% 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 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. In addition, the Company’s existing indebtedness could limit its ability to obtain additional financing.
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The following disclosure is provided to supplement the descriptions of Angi’s accounting policies contained in “Note 2—Summary of Significant Accounting Policies” to the consolidated financial statements included “Item 8. Consolidated Financial Statements and Supplementary Data” in regard to significant areas of judgment. Management of the Company is required to make certain estimates, judgments and assumptions during the preparation of its consolidated financial statements in accordance with GAAP. These estimates, judgments and assumptions impact the reported amount of assets, liabilities, revenue and expenses and the related disclosure of assets and liabilities. Actual results could differ from these estimates. Because of the size of the financial statement elements to which they relate, some of our accounting policies and estimates have a more significant impact on our financial statements than others. What follows is a discussion of some of our more significant accounting policies and estimates.
Credit Losses
The Company makes judgments as to its ability to collect outstanding receivables and provides an allowance when it has determined that all or a portion of the receivable will not be collected. The Company maintains an allowance for credit losses to provide for the estimated amount of accounts receivable that will not be collected. The allowance for credit losses is based upon a number of factors, including the length of time accounts receivable are past due, the Company’s previous loss history, the specific customer’s ability to pay its obligation to the Company and any other forward-looking data regarding customers’ ability to pay that is available. The duration of time between the Company’s issuance of an invoice and payment due date is not significant. The carrying value of the credit loss allowance is $24.7 million and $38.8 million at December 31, 2023 and 2022, respectively. The provision for credit losses was $79.4 million, $104.3 million, and $86.6 million for the years ended December 31, 2023, 2022, and 2021, respectively.
Business Combinations
The Company made no acquisitions, which are generally referred to in GAAP as business combinations, in the years ended December 31, 2023 and 2022. The Company acquired THR in the year ended December 31, 2021, however, following its sale on November 1, 2023, it is reflected as a discontinued operation in the Company’s financial statements. The purchase price of each acquisition is attributed to the assets acquired and liabilities assumed based on their fair values at the date of acquisition, including identifiable intangible assets that either arise from a contractual or legal right or are separable from goodwill.
Management makes two critical determinations at the time of an acquisition: (1) the reporting unit(s) that will benefit from the acquisition and to which goodwill will be assigned and (2) the allocation of the purchase price of the acquired business to the assets acquired and the liabilities assumed based upon their fair values. The reporting unit determination is important beyond the initial allocation of purchase price because future impairment assessments of goodwill, as described below, are performed at the reporting unit level. At October 1, 2023, the Company had four reporting units: Ads and Leads, Services, Roofing (subsequently sold as described above) and International. Historically, the Company’s acquisitions have been complementary to these reporting units and the goodwill has been assigned to the reporting unit.
The allocation of purchase price to the assets acquired and liabilities assumed is based upon their fair values and is complex because of the judgments involved in determining these values. The determination of purchase price and the fair value of monetary assets acquired and liabilities assumed is typically the least complex aspect of the Company’s accounting for business combinations due to management’s experience and/or the inherently lower level of judgement required. Due to the higher degree of complexity associated with the valuation of acquired intangible assets, the Company usually obtains the assistance of outside valuation experts in the allocation of purchase price to the identifiable intangible assets acquired, which can be both definite-lived, such as acquired technology, customer and contractor relationships, or indefinite lived, such as acquired trade names and trademarks. While outside valuation experts may be used, management has the ultimate responsibility for the valuation methods, models and inputs used and the resulting purchase price allocation. The excess purchase price over the value of the net tangible and identifiable intangible assets acquired is recorded as goodwill and is assigned to the reporting unit(s) that is expected to benefit from the business combination as of the acquisition date.
Recoverability of Goodwill and Indefinite-Lived Intangible Assets
The carrying value of goodwill is $886.0 million and $882.9 million at December 31, 2023 and 2022, respectively. Indefinite-lived intangible assets, which consist of the Company’s acquired trade names and trademarks, have a carrying value of $170.8 million and $170.1 million at December 31, 2023 and 2022, respectively.
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Goodwill and indefinite-lived intangible assets are assessed annually for impairment as of October 1, or more frequently if an event occurs or circumstances change that would indicate that it is more likely than not that the fair value of a reporting unit or the fair value of an indefinite-lived intangible asset has declined below its carrying value. In performing its annual goodwill impairment assessment, the Company has the option under GAAP to qualitatively assess whether it is more likely than not that the fair value of a reporting unit is less than its carrying value; if the conclusion of the qualitative assessment is that there are no indicators of impairment, the Company does not perform a quantitative test, which would require a valuation of the reporting unit, as of October 1. GAAP provides a not all-inclusive set of examples of macroeconomic, industry, market and company specific factors for entities to consider in performing the qualitative assessment described above; management considers the factors it deems relevant in making its more likely than not assessments. While the Company also has the option under GAAP to qualitatively assess whether it is more likely than not that the fair values of its indefinite-lived intangible assets are less than their carrying values, the Company’s policy is to determine the fair value of each of its indefinite-lived intangible assets annually as of October 1, in part, because the level of effort required to perform the quantitative and qualitative assessments is essentially equivalent.
If the conclusion of our qualitative assessment is that there are indicators of impairment and a quantitative test is required, the annual or interim quantitative test of the recovery of goodwill involves a comparison of the estimated fair value of the Company’s reporting unit that is being tested to its carrying value. If the estimated fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is not impaired. If the carrying value of a reporting unit exceeds its estimated fair value, a goodwill impairment equal to the excess is recorded.
The Company’s annual assessment of the recovery of goodwill begins with management’s reassessment of its operating segments and reporting units. A reporting unit is an operating segment or one level below an operating segment, which is referred to as a component. This reassessment of reporting units is also made each time the Company changes its operating segments to the extent that this also results in a change in reporting units. If the goodwill of a reporting unit is allocated to newly formed reporting units, the allocation is usually made to each reporting unit based upon their relative fair values.
For the Company’s annual goodwill test at October 1, 2023, a qualitative assessment of the Ads and Leads, Services, and International reporting units was performed by the Company to evaluate whether it is more likely than not that the fair value of these reporting units was in excess of their respective carrying values. The primary factors that the Company considered in its qualitative assessment for each of these reporting units are described below:
•The Company considered the strong forecasted operating performance, in addition to actual operating results in the current year, of the Ads and Leads, Services, and International reporting units.
•The Company also considered the prior year annual valuations of the Ads and Leads, Services, and International reporting units prepared as of October 1, 2022, and valuations of the International reporting unit prepared approximate to, however, not as of, October 1, 2023, in connection with the issuance and/or settlement of equity awards that are denominated in the equity of this business.
Based on these factors we concluded that it is not more likely than not that the fair value of the reporting units is below their respective carrying amounts.
As of October 1, 2023, prior to its sale on November 1, 2023, the Roofing reporting unit had no goodwill or indefinite-lived intangible assets.
If and when a quantitative test is performed, the fair value of the Company’s reporting units is determined using both an income approach based on discounted cash flows (“DCF”) and a market approach. Determining fair value using a DCF analysis requires the exercise of significant judgment with respect to several items, including the amount and timing of expected future cash flows and appropriate discount rates. The expected cash flows used in the DCF analyses are based on the Company’s most recent forecast and budget and, for years beyond the budget, the Company’s estimates, which are based, in part, on forecasted growth rates. The discount rates used in the DCF analyses are intended to reflect the risks inherent in the expected future cash flows of the respective reporting units. Assumptions used in the DCF analyses, including the discount rate, are assessed based on the reporting units' current results and forecasted future performance, as well as macroeconomic and industry specific factors. Determining fair value using a market approach considers multiples of financial metrics based on both acquisitions and trading multiples of a selected peer group of companies. From the comparable companies, a representative market multiple is determined which is applied to financial metrics to estimate the fair value of a reporting unit. To determine a peer group of companies for our respective reporting units, we considered companies relevant in terms of consumer use, monetization model, margin and growth characteristics, and brand strength operating in their respective sectors.
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The Company determines the fair value of indefinite-lived intangible assets using an avoided royalty DCF valuation analysis. Significant judgments inherent in this analysis include the selection of appropriate royalty and discount rates and estimating the amount and timing of expected future cash flows. The discount rates used in the DCF analyses are intended to reflect the risks inherent in the expected future cash flows generated by the respective intangible assets. The royalty rates used in the DCF analyses are based upon an estimate of the royalty rates that a market participant would pay to license the Company’s trade names and trademarks. The future cash flows are based on the Company's most recent forecast and budget and, for years beyond the budget, the Company’s estimates, which are based, in part, on forecasted growth rates. Assumptions used in the avoided royalty DCF analyses, including the discount rate and royalty rate, are assessed annually based on the actual and projected cash flows related to the asset, as well as macroeconomic and industry specific factors. The discount rates used in the Company’s annual indefinite-lived impairment assessment ranged from 15.0% to 17.0% in 2023 and 12.0% to 18.5% in 2022, and the royalty rates used ranged from 2.5% to 4.5% in 2023 and 2.0% to 4.5% in 2022.
The October 1, 2023 and 2021 annual assessments of goodwill and indefinite-lived intangible assets did not identify any impairments. The October 1, 2022 annual assessment identified a $26.0 million goodwill impairment at the Roofing reporting unit, which is reflected as a discontinued operation in the Company’s financial statements.
Software Development Costs
We capitalize internally developed software costs (including employee payroll costs, stock-based compensation and benefit costs as well as third party production and other content costs), subsequent to identifying technological feasibility of the software project. Significant management judgement is required in assessing when technological feasibility is established.
Depreciation of internally developed software commences when the software is available for release for its intended use and is recorded on a straight-line basis over the estimated useful life of the software, which is typically 2-3 years. The net carrying value of capitalized software is $92.3 million and $128.5 million at December 31, 2023 and 2022, respectively.
Income Taxes
The Company is included within IAC’s tax group for purposes of federal and consolidated state income tax return filings. In all periods presented, the income tax provision and/or benefithas been computed for the Company on an as if standalone, separate return basis and payments to and refunds from IAC for the Company’s share of IAC’s consolidated federal and state tax return liabilities/receivables calculated on this basis have been reflected within cash flows from operating activities in the accompanying consolidated statement of cash flows. The tax sharing agreement between the Company and IAC governs the parties’ respective rights, responsibilities and obligations with respect to tax matters, including responsibility for taxes attributable to the Company, entitlement to refunds, allocation of tax attributes and other matters and, therefore, ultimately governs the amount payable to or receivable from IAC with respect to income taxes. Any differences between taxes currently payable to or receivable from IAC under the tax sharing agreement and the current tax provision computed on an if standalone, separate return basis for GAAP are reflected as adjustments to additional paid-in capital in the consolidated statement of shareholders’ equity and financing activities within the consolidated statement of cash flows. The portion of the December 31, 2023 deferred tax assets that will be payable to IAC pursuant to the tax sharing agreement, upon realization, is $92.9 million.
The Company accounts for income taxes under the liability method, and deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying values of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided if it is determined that it is more likely than not that the deferred tax asset will not be realized. At December 31, 2023 and 2022, the balance of the Company’s net deferred tax asset is $145.4 million and $135.5 million, respectively.
The Company evaluates and accounts for uncertain tax positions using a two-step approach. Recognition (step one) occurs when the Company concludes that a tax position, based solely on its technical merits, is more-likely-than-not to be sustainable upon examination. Measurement (step two) determines the amount of benefit that is greater than 50% likely to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. De-recognition of a tax position that was previously recognized would occur when the Company subsequently determines that a tax position no longer meets the more-likely-than-not threshold of being sustained. This measurement step is inherently difficult and requires subjective estimations of such amounts to determine the probability of various possible outcomes. At December 31, 2023 and 2022, the Company has unrecognized tax benefits, including interest, of $8.1 million and $6.2 million, respectively. We consider many factors when evaluating and estimating our tax positions and unrecognized tax benefits, which may require periodic adjustment and which may not accurately anticipate actual outcomes. Although management currently believes changes to unrecognized tax benefits from period to period and differences between amounts paid, if any, upon resolution of issues raised in audits and
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amounts previously provided will not have a material impact on the liquidity, results of operations, or financial condition of the Company, these matters are subject to inherent uncertainties and management’s view of these matters may change in the future.
The ultimate amount of deferred income tax assets realized and the amounts paid for deferred income tax liabilities and unrecognized tax benefits may vary from our estimates due to future changes in income tax law, state income tax apportionment or the outcome of any review of our tax returns by the various tax authorities, as well as actual operating results of the Company that vary significantly from anticipated results.
The Company regularly assesses the realizability of deferred tax assets considering all available evidence including, to the extent applicable, the nature, frequency and severity of prior cumulative losses, forecasts of future taxable income, tax filing status, the duration of statutory carryforward periods, available tax planning and historical experience. As of December 31, 2023, the Company is in a three-year cumulative loss position. The Company’s most significant net deferred tax asset relates to U.S. federal net operating loss (“NOL”) carryforwards of $101.0 million. The Company expects to generate future taxable income of at least $480.9 million prior to the expiration of these NOLs, $266.7 million of which expire between 2033 and 2037, and the remainder of which never expire, to fully realize this deferred tax asset.
Stock-Based Compensation
Stock-based compensation at the Company is inherently complex. Our desire is to attract, retain, inspire and reward our management team and employees at the Company, including those employed by recently acquired companies, as applicable, by allowing them to benefit directly from the value they help to create. We accomplish these objectives, in part, by issuing equity awards denominated in the equity of our subsidiaries as well as in Angi Inc. We further refine this approach by tailoring certain equity awards to the applicable circumstances. For example, we issue certain equity awards for which vesting is linked to the achievement of a performance target such as revenue or profits; these awards are referred to as performance-based awards. In other cases, we link the vesting of equity awards to the achievement of a value target for a subsidiary or Angi Inc.’s stock price, as applicable; these awards are referred to as market-based awards. The nature and variety of these types of equity-based awards creates complexity in our determination of stock-based compensation expense.
Business combinations may result in the modification of equity awards, which may create additional complexity and additional stock-based compensation expense. Also, our internal reorganizations can also lead to modifications of equity awards and may result in additional complexity and stock-based compensation expense.
Finally, the means by which we settle our equity-based awards also introduces complexity into our financial reporting. We provide a path to liquidity by settling the subsidiary denominated awards in IAC or Angi Inc. shares. In addition, certain former Angi Inc. stock appreciation rights can be settled in IAC or Angi Inc. awards at IAC’s election. These features increase the complexity of our earnings per share calculations.
Stock-based compensation expense reflected in our statements of operations includes expense related to the Company’s RSU awards, including those that are linked to the achievement of the Company’s stock price, known as market-based awards (“MSUs”) and those that are linked to the achievement of a performance target, known as performance-based awards (“PSUs”), stock options, stock appreciation rights, equity instruments denominated in shares of subsidiaries, and an allocation of expense related to IAC denominated restricted stock.
The Company recorded stock-based compensation expense of $43.4 million, $50.8 million, and $28.2 million for the years ended December 31, 2023, 2022, and 2021, respectively. Included in stock-based compensation expense in the year ended December 31, 2022, the Company recognized a net decrease of $2.1 million due to management departures. Also included in stock-based compensation expense in the year ended December 31, 2021 is $1.0 million related to the modification of previously issued HomeAdvisor equity awards and Angie’s List equity awards, both of which were converted into Angi’s equity awards when the businesses combined on September 29, 2017. These modified awards finished vesting in the first quarter of 2021, therefore, there was no modification charge for the awards in the years ended December 31, 2023 and 2022. Additionally, in the first quarter of 2021, the Company recognized 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.
The Company issues RSUs, PSUs and MSUs. For RSUs, the value of the instrument is measured at the grant date as the fair value of the underlying Angi’s common stock and expensed as stock-based compensation expense over the vesting term. For PSUs, the value of the instrument is measured at the grant date as the fair value of the underlying Angi’s common stock and expensed as stock-based compensation over the vesting term when the performance targets are considered probable of being achieved. For MSUs, a lattice model is used to estimate the value of the awards. The Company also issues stock options and stock appreciation rights. The Company estimates the fair value of newly granted or modified stock appreciation rights and
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stock options, including equity instruments denominated in shares of subsidiaries, using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires the use of highly subjective and complex assumptions, the most significant of which include expected term, expected volatility of the underlying shares, risk-free interest rates and the expected dividend yield. In addition, the recognition of stock-based compensation expense is impacted by our estimated forfeiture rates, which are based, in part, on historical forfeiture rates. For stock appreciation rights and stock options, including equity instruments denominated in shares of subsidiaries, the grant date fair value of the award is recognized as an expense on a straight-line basis, net of estimated forfeitures, over the requisite service period, which is the vesting period of the award.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, see “Note 2—Summary of Significant Accounting Policies” to the consolidated financial statements included in “Item 8. Consolidated Financial Statements and Supplementary Data.”
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
The Company’s exposure to market risk for changes in interest rates relates primarily to the Company’s long-term debt.
At December 31, 2023, the principal amount of the Company’s outstanding debt comprises $500.0 million of ANGI Group Senior Notes, which bears interest at a fixed rate. If market rates decline relative to interest rates on the ANGI Group Senior Notes, the Company runs the risk that the related required interest payments will exceed those based on market rates. A 100-basis point increase or decrease in the level of interest rates would, respectively, decrease or increase the fair value of the fixed-rate debt by $20.0 million. Such potential increase or decrease in fair value is based on certain simplifying assumptions, including an immediate increase or decrease in the level of interest rates with no other subsequent changes for the remainder of the period, nor changes in the credit profile.
Foreign Currency Exchange Risk
The Company has operations in certain foreign markets, primarily in various jurisdictions within the European Union and the United Kingdom. The Company has exposure to foreign currency exchange risk related to its foreign subsidiaries that transact business in a functional currency other than the U.S. dollar. As a result, as foreign currency exchange rates fluctuate, the translation of the statement of operations of the Company’s international businesses into U.S. dollars affects year-over-year comparability of operating results.
In addition, certain of the Company’s U.S. operations have customers in international markets. International revenue, including revenue of our operations located outside the U.S., which is measured based upon where the customer is located, accounted for 9%, 6%, and 6% for the years ended December 31, 2023, 2022 and 2021, respectively.
The Company is also exposed to foreign currency transaction gains and losses to the extent it or its subsidiaries conduct transactions in and/or have assets and/or liabilities that are denominated in a currency other than the entity’s functional currency. The Company recorded foreign exchange gains and (losses) of $1.2 million, $(3.4) million, and $(1.7) million for the year ended December 31, 2023, 2022 and 2021, respectively.
The Company’s exposure to foreign currency exchange gains or losses have not been material to the Company; therefore, the Company has not hedged its foreign currency exposures. Any growth and expansion of our international operations increases our exposure to foreign exchange rate fluctuations. Significant foreign exchange rate fluctuations, in the case of one currency or collectively with other currencies, could have a significant impact on our future results of operations.
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Item 8. Consolidated Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Angi Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Angi Inc. and subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive operations, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 29, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
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Revenue Processed By Highly Automated Proprietary Systems - Leads and Services
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2017.
New York, New York
February 29, 2024
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CONSOLIDATED BALANCE SHEET
December 31,
(In thousands, except par value amounts)
ASSETS
Current assets of discontinued operations — 26,750
Capitalized software, leasehold improvements and equipment, net 109,527 152,559
Non-current assets of discontinued operations — 10,058
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES:
Accrued expenses and other current liabilities 179,329 182,794
Current liabilities of discontinued operations — 18,468
Non-current liabilities of discontinued operations — 919
Commitments and contingencies
SHAREHOLDERS’ EQUITY:
Accumulated other comprehensive income (loss) 1,187 (1,172)
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31,
(In thousands, except per share data)
Operating costs and expenses:
Loss from continuing operations before income taxes (28,208) (94,558) (93,912)
Loss from discontinued operations, net of tax (10,264) (38,814) (6,476)
Net earnings attributable to noncontrolling interests (629) (468) (884)
Per share information from continuing operations:
Basic loss per share $ (0.06) $ (0.18) $ (0.13)
Diluted loss per share $ (0.06) $ (0.18) $ (0.13)
Per share information attributable to Angi Inc. shareholders:
Basic loss per share $ (0.08) $ (0.26) $ (0.14)
Diluted loss per share $ (0.08) $ (0.26) $ (0.14)
Stock-based compensation expense by function:
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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CONSOLIDATED STATEMENT OF COMPREHENSIVE OPERATIONS
Year Ended December 31,
(In thousands)
Other comprehensive income (loss):
Change in foreign currency translation adjustment 2,501 (5,028) (1,219)
Net earnings attributable to noncontrolling interests (629) (468) (884)
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
Years Ended December 31, 2023, 2022, and 2021
Accumulated Other Comprehensive Income (Loss) TotalShareholders’Equity
$ Shares $ Shares $ Shares
(In thousands)
Purchase of noncontrolling interest (28,318) — — — — — — — — — — — (160) (160)
Purchase of treasury stock — — — — — — — — — — (8,144) (8,144) — (8,144)
Other — — — — — — — (4) — — — (4) — (4)
Other — — — — — — — (37) — — — (37) (24) (61)
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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CONSOLIDATED STATEMENT OF CASH FLOWS
Years Ended December 31,
(In thousands)
Cash flows from operating activities attributable to continuing operations:
Less: Loss from discontinued operations, net of tax (10,264) (38,814) (6,476)
Cash flows from investing activities attributable to continuing operations:
Purchases of marketable debt securities (12,362) — —
Proceeds from maturities of marketable debt securities 12,500 — 50,000
Net proceeds from the sale of a business 1,000 — 750
Proceeds from sales of fixed assets 85 162 —
Cash flows from financing activities attributable to continuing operations:
Principal payments on Term Loan — — (220,000)
Purchase of noncontrolling interests — — (27,857)
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1—ORGANIZATION
Nature of Operations
Angi Inc. connects quality home service professionals with consumers across more than 500 different categories, from repairing and remodeling homes to cleaning and landscaping. Approximately 196,000 transacting service professionals actively sought consumer matches, completed jobs, or advertised work through Angi Inc. platforms during the three months ended December 31, 2023. Additionally, consumers turned to at least one of our businesses to find a service professional for approximately 23 million projects during the year ended December 31, 2023.
The Company has three operating segments: (i) Ads and Leads; (ii) Services; and (iii) International (consisting of businesses in Europe and Canada) and operates under multiple brands including Angi, HomeAdvisor, and Handy.
Ads and Leads provides service professionals the capability to engage with potential customers, including quote and invoicing services, and provides consumers with tools and resources to help them find local, pre-screened and customer-rated service professionals nationwide for home repair, maintenance and improvement projects. Services consumers can request household services directly through the Angi platform and Angi fulfills the request through the use of independently established home services providers engaged in a trade, occupation and/or business that customarily provides such services. The matching and pre-priced booking services and related tools and directories are provided to consumers free of charge.
As used herein, “Angi,” the “Company,” “we,” “our,” “us,” and similar terms refer to Angi Inc. and its subsidiaries (unless the context requires otherwise).
At December 31, 2023, IAC Inc. (“IAC”) owned 84.2% and 98.1% of the economic and voting interests, respectively, of the Company.
Total Home Roofing, LLC Sale
On November 1, 2023, Angi Inc. completed the sale of 100% of its wholly-owned subsidiary, Total Home Roofing, LLC (“THR,” which comprised its Roofing segment), and has reflected it as a discontinued operation in its financial statements. See “Note 16—Discontinued Operations” for additional details. The financial information for prior periods has been recast to conform to the current year presentation.
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation
The Company prepares its consolidated financial statements (referred to herein as “financial statements”) in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”). The financial statements include the accounts of the Company, all entities that are wholly-owned by the Company and all entities in which the Company has a controlling financial interest. All intercompany transactions and balances between and among the Company and its subsidiaries have been eliminated.
In the opinion of management, the assumptions underlying the historical financial statements, including the basis on which the expenses have been allocated from IAC, are reasonable. However, the allocations may not reflect all of the expenses that Angi Inc. may have incurred as a standalone public company for the periods presented.
See “Note 17—Related Party Transactions with IAC” for information on transactions between Angi and IAC.
COVID-19 Update
The COVID-19 pandemic and the various responses to it created significant volatility, uncertainty and economic disruption. Recently, there has been a return to normal societal interactions, including the way we operate our business.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 we experienced a rebound in service requests in early 2021, service requests started to decline in May 2021 and continued to decline during 2022 due, in part, to COVID-19 measures that were more widely in place in prior periods. Our ability to monetize service requests rebounded modestly in the second half of 2021 and the first half of 2022; however, that improved monetization plateaued in the third quarter of 2022 returning to monetization rates similar to those experienced pre-COVID-19.
Outlook
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 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.
Accounting Estimates
Management of the Company is required to make certain estimates, judgments, and assumptions during the preparation of its financial statements in accordance with GAAP. These estimates, judgments, and assumptions impact the reported amounts of assets, liabilities, revenue, and expenses and the related disclosure of assets and liabilities. Actual results could differ from these estimates.
On an ongoing basis, the Company evaluates its estimates and judgments, including those related to: the fair values of cash equivalents and marketable debt securities; the carrying value of accounts receivable, including the determination of the allowance for credit losses; the determination of the customer relationship period for certain costs to obtain a contract with a customer; the recoverability of right-of-use assets (“ROU assets”); the useful lives and recoverability of capitalized software, leasehold improvements, equipment, and definite-lived intangible assets; the recoverability of goodwill and indefinite-lived intangible assets; contingencies, unrecognized tax benefits; the liability for potential refunds and customer credits; the valuation allowance for deferred income tax assets; and the fair value of and forfeiture rates for stock-based awards, among others. The Company bases its estimates and judgments on historical experience, its forecasts and budgets, and other factors that the Company considers relevant.
Revenue Recognition
The Company accounts for a contract with a customer when it has approval and commitment from all authorized parties, the rights of the parties and payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Revenue is recognized when control of the promised services or goods is transferred to our customers and in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services or goods.
The Company’s disaggregated revenue disclosures are presented in “Note 9—Segment Information.”
Ads and Leads Revenue
Ads and Leads revenue includes consumer connection revenue, which comprises fees paid by service professionals for consumer matches (regardless of whether the service professional ultimately provides the requested service), revenue from service professionals under contract for advertising, membership subscription revenue from service professionals and consumers, and revenue from other services. Consumer connection revenue varies based upon several factors, including the service requested, product experience offered, and geographic location of service. Consumer connection revenue is generally billed one week following a consumer match, with payment due upon receipt of invoice. The Company maintains a liability for potential credits issued to services providers. Angi service professionals generally pay for advertisements in advance on a monthly or annual basis at the option of the service professional, with the average advertising contract term being approximately one year. Angi website, mobile and call center advertising revenue is recognized ratably over the contract term. Revenue from the sale of advertising in the Angie’s List Magazine is recognized in the period in which the publication is distributed. Service professional membership subscription revenue is initially deferred upon receipt of payment and is
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
recognized using the straight-line method over the applicable subscription period, which is typically one year. Angi prepaid consumer membership subscription fees are recognized as revenue using the straight-line method over the term of the applicable subscription period, which is typically one year.
Services Revenue
Services revenue primarily reflects revenue from pre-priced offerings by which the consumer requests services through the Company’s platform and the Company engages a service professional to perform the service. Consumers are billed when a job is scheduled through the Services platform. Billing practices are governed by the contract terms of each project as negotiated with the consumer. Billings do not necessarily correlate with revenue recognized over time as this is based on the timing of when the consumer receives the promised services.
From January 1, 2020 through December 31, 2022, Services recorded revenue on a gross basis. Effective January 1, 2023, Angi Inc. modified the Services terms and conditions so that the service professional, rather than Angi, Inc., has the contractual relationship with the consumer to deliver the service and our performance obligation to the consumer is to connect them with the service professional. This change in contractual terms requires revenue to be reported as the net amount of what is received from the consumer after deducting the amounts owed to the service professional providing the service effective for all arrangements entered into after December 31, 2022. There is no impact to operating loss or Adjusted EBITDA from this change in revenue recognition. For the years ended December 31, 2022 and 2021, if Services revenue were recorded on a net basis, revenue would have been reduced by $242.6 million and $180.7 million, respectively.
International Revenue
International revenue primarily comprises consumer connection revenue for consumer matches and membership subscription revenue from service professionals and consumers.
Transaction Price
The objective of determining the transaction price is to estimate the amount of consideration the Company is due in exchange for its services or goods, including amounts that are variable. Contracts may include sales incentives, such as rebates, which are accounted for as variable consideration when estimating the transaction price. The Company also maintains a liability for potential future refunds and customer credits, which is recorded as a reduction of revenue. All estimates of variable consideration are based upon historical experience and customer trends. The Company determines the total transaction price, including an estimate of any variable consideration, at contract inception and reassesses this estimate each reporting period.
The Company excludes from the measurement of transaction price all taxes assessed by governmental authorities that are both (i) imposed on and concurrent with a specific revenue-producing transaction and (ii) collected from customers. Accordingly, such tax amounts are not included as a component of revenue or cost of revenue.
Arrangements with Multiple Performance Obligations
The Company’s contracts with customers may include multiple performance obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company generally determines standalone selling prices based on the prices charged to customers, which are directly observable or based on an estimate if not directly observable.
Practical Expedients and Exemptions
For contracts that have an original duration of one year or less, the Company uses the practical expedient available under Accounting Standards Codification (“ASC”) 606 (“ASC 606”), applicable to such contracts and does not consider the time value of money.
As permitted under the practical expedient available under ASC 606, the Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, (ii) contracts with variable consideration that is allocated entirely to unsatisfied performance obligations or to a wholly unsatisfied promise
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
accounted for under the series guidance, and (iii) contracts for which the Company recognizes revenue at the amount which we have the right to invoice for services performed.
The Company also applies the practical expedient for sales commissions where the anticipated customer relationship period is one year or less as noted below.
Costs to Obtain a Contract with a Customer
The Company has determined that commissions paid to employees pursuant to certain sales incentive programs, meet the requirements to be capitalized as a cost of obtaining a contract. Capitalized sales commissions are amortized over the estimated customer relationship period and are included in “Selling and marketing expense” in the statement of operations. The Company calculates the anticipated customer relationship period as the average customer life, which is based on historical data. When customer renewals are expected and the renewal commission is not commensurate with the initial commission, the average customer life includes renewal periods. For sales incentive programs where the anticipated customer relationship period is one year or less, the Company has elected the practical expedient to expense the costs as incurred.
Beginning October 1, 2022, commissions earned on certain transactions within the Ads & Leads segment were expensed as incurred after determining the related customer relationship was less than one year.
The following table presents the capitalized sales commissions balances and balance sheet classification at the balance sheet dates:
(In thousands)
During the years ended December 31, 2023 and 2022, the Company recognized expense of $61.4 million and $77.4 million, respectively, related to the amortization of these capitalized costs.
Accounts Receivable, Net of the Allowance for Credit Losses
Accounts receivable include amounts billed and currently due from customers. The allowance for credit losses is based upon a number of factors, including the length of time accounts receivable are past due, the Company’s previous loss history, the specific customer’s ability to pay its obligation and any other forward-looking data regarding customers’ ability to pay that is available. The time between the Company’s issuance of an invoice and payment due date is not significant; customer payments that are not collected in advance of the transfer of promised services or goods are generally due no later than 30 days from invoice date.
Deferred Revenue
Deferred revenue consists of payments that are received or are contractually due in advance of the Company’s performance obligation. The Company’s deferred revenue is reported on a contract-by-contract basis at the end of each reporting period. The Company classifies deferred revenue as current when the remaining term or expected completion of its performance obligation is one year or less. At December 31, 2022, the current and non-current deferred revenue balances were $50.1 million and less than $0.1 million, respectively, and during the year ended December 31, 2023, the Company recognized $48.0 million that was included in the deferred revenue balance as of December 31, 2022. At December 31, 2021, the current and non-current deferred revenue balances were $53.2 million and $0.1 million, respectively, and during the year ended December 31, 2022, the Company recognized $52.8 million of revenue that was included in the deferred revenue balance at December 31, 2021. The current and non-current deferred revenue balances at December 31, 2023 are $49.9 million and less than $0.1 million, respectively. Non-current deferred revenue is included in “Other long-term liabilities” in the balance sheet.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Fair Value Measurements
The Company categorizes its financial instruments measured at fair value into a fair value hierarchy that prioritizes the inputs used in pricing the asset or liability. The three levels of the fair value hierarchy are:
•Level 1: Observable inputs obtained from independent sources, such as quoted market prices for identical assets and liabilities in active markets.
•Level 2: Other inputs, which are observable directly or indirectly, such as quoted market prices for similar assets or liabilities in active markets, quoted market prices for identical or similar assets or liabilities in markets that are not active and inputs that are derived principally from or corroborated by observable market data. The fair values of the Company’s Level 2 financial assets are primarily obtained from observable market prices for identical underlying securities that may not be actively traded. Certain of these securities may have different market prices from multiple market data sources, in which case an average market price is used.
•Level 3: Unobservable inputs for which there is little or no market data and require the Company to develop its own assumptions, based on the best information available in the circumstances, about the assumptions market participants would use in pricing the assets or liabilities.
The Company’s non-financial assets, such as goodwill, intangible assets, ROU assets, capitalized software, leasehold improvements and equipment are adjusted to fair value only when an impairment is recognized. Such fair value measurements are based predominantly on Level 3 inputs.
Cash and Cash Equivalents
Cash and cash equivalents include cash and short-term investments, with maturities of less than 91 days from the date of purchase. Domestically, cash equivalents consist of AAA rated government money market funds, treasury discount notes, and time deposits. Internationally, there are no cash equivalents at December 31, 2023 and 2022.
Investments in Marketable Debt Securities
At times, the Company invests in marketable debt securities with active secondary or resale markets to ensure portfolio liquidity to fund current operations or satisfy other cash requirements as needed. Marketable debt securities are adjusted to fair value each quarter, and the unrealized gains and losses, net of tax, are included in accumulated other comprehensive income (loss) as a separate component of shareholders’ equity. The specific-identification method is used to determine the cost of debt securities sold and the amount of unrealized gains and losses reclassified out of accumulated other comprehensive income (loss) into earnings. The Company reviews its debt securities for impairment, including from risk of credit loss, each reporting period. The Company recognizes an unrealized loss on debt securities in net loss when the impairment is determined to be other-than-temporary. Factors the Company considers in making such determination include the duration, severity and reason for the decline in value and the potential recovery and our intent to sell the debt security. The Company also considers whether it will be required to sell the security before recovery of its amortized cost basis and whether the amortized cost basis cannot be recovered because of credit losses. If an impairment is considered to be other-than-temporary, the debt security will be written down to its fair value and the loss will be recognized within other income (expense), net. The Company held no marketable debt securities at December 31, 2023 and 2022.
Capitalized Software, Leasehold Improvements and Equipment
Capitalized software, leasehold improvements and equipment, including significant improvements, are recorded at cost or at fair value to the extent acquired in a business combination. Repairs and maintenance costs are expensed as incurred. Amortization of leasehold improvements, which is included in “Depreciation” in the statement of operations, and depreciation are computed using the straight-line method over the estimated useful lives of the assets, or, in the case of leasehold improvements, the lease term, if shorter.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Asset Category EstimatedUseful Lives
Capitalized software and computer equipment 2 to 3 Years
Furniture and other equipment 5 to 7 Years
Leasehold improvements 5 to 25 Years
The Company capitalizes certain internal use software costs including external direct costs utilized in developing or obtaining the software and compensation for personnel directly associated with the development of the software. Capitalization of such costs begins when the preliminary project stage is complete and ceases when the project is substantially complete and ready for its intended purpose. The net book value of capitalized internal use software was $92.3 million and $128.6 million at December 31, 2023 and 2022, respectively.
Business Combinations
The purchase price of each acquisition is attributed to the assets acquired and liabilities assumed based on their fair values at the date of acquisition, including identifiable intangible assets that either arise from a contractual or legal right or are separable from goodwill. The Company usually obtains the assistance of outside valuation experts to assist in the allocation of purchase price to the identifiable intangible assets acquired. While outside valuation experts may be used, management has ultimate responsibility for the valuation methods, models and inputs used and the resulting purchase price allocation. The excess purchase price over the value of net tangible and identifiable intangible assets acquired is recorded as goodwill and is assigned to the reporting unit(s) that is expected to benefit from the business combination as of the acquisition date.
Goodwill and Indefinite-Lived Intangible Assets
The Company assesses goodwill and indefinite-lived intangible assets for impairment annually as of October 1, or more frequently if an event occurs or circumstances change that would indicate that it is more likely than not that the fair value of a reporting unit or the fair value of an indefinite-lived intangible asset has declined below its carrying value. At October 1, 2023, the Company had four reporting units: Ads and Leads, Services, Roofing, and International. THR was sold on November 1, 2023 and is reflected as a discontinued operation in the Company’s financial statements. See “Note 1—Organization” for additional information.
When the Company elects to perform a qualitative assessment and concludes it is not more likely than not that the fair value of the reporting unit is less than its carrying value, no further assessment of that reporting unit’s goodwill is necessary; otherwise, a quantitative assessment is performed and the fair value of the reporting unit is determined. If the carrying value of the reporting unit exceeds its estimated fair value, a goodwill impairment equal to the excess is recorded.
For the Company’s annual goodwill test at October 1, 2023, a qualitative assessment of the Ads and Leads, Services, and International reporting units was performed by the Company to evaluate whether it is more likely than not that the fair value of these reporting units was in excess of their respective carrying values. The primary factors that the Company considered in its qualitative assessment for each of these reporting units are described below:
•The Company considered the strong forecasted operating performance, in addition to actual operating results in the current year, of the Ads and Leads, Services, and International reporting units.
•The Company also considered the prior year annual valuations of the Ads and Leads, Services, and International reporting units prepared as of October 1, 2022, and valuations of the International reporting unit prepared approximate to, however, not as of, October 1, 2023, in connection with the issuance and/or settlement of equity awards that are denominated in the equity of this business.
Based on these factors we concluded that it is not more likely than not that the fair value of the reporting units is below their respective carrying amounts.
As of October 1, 2023, prior to its sale on November 1, 2023, the Roofing reporting unit had no goodwill or indefinite-lived intangible assets.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
If and when a quantitative test is performed, the fair value of the Company’s reporting units are determined using both an income approach based on discounted cash flows (“DCF”) and a market approach. Determining fair value using a DCF analysis requires the exercise of significant judgment with respect to several items, including the amount and timing of expected future cash flows and appropriate discount rates. The expected cash flows used in the DCF analyses are based on the Company’s most recent forecast and budget and, for years beyond the budget, the Company’s estimates, which are based, in part, on forecasted growth rates. The discount rates used in the DCF analyses are intended to reflect the risks inherent in the expected future cash flows of the respective reporting units. Assumptions used in the DCF analyses, including the discount rate, are assessed based on the reporting units’ current results and forecasted future performance, as well as macroeconomic and industry specific factors. Determining fair value using a market approach considers multiples of financial metrics based on both acquisitions and trading multiples of a selected peer group of companies. From the comparable companies, a representative market multiple is determined which is applied to financial metrics to estimate the fair value of a reporting unit. To determine a peer group of companies for our respective reporting units, we considered companies relevant in terms of consumer use, monetization model, margin and growth characteristics, and brand strength operating in their respective sectors.
While the Company has the option to qualitatively assess whether it is more likely than not that the fair values of its indefinite-lived intangible assets are less than their carrying values, the Company’s policy is to determine the fair value of each of its indefinite-lived intangible assets annually as of October 1, in part, because the level of effort required to perform the quantitative and qualitative assessments is essentially equivalent. The Company determines the fair value of indefinite-lived intangible assets other than goodwill using an avoided royalty DCF valuation analysis. Significant judgments inherent in this analysis include the selection of appropriate royalty and discount rates and estimating the amount and timing of expected future cash flows. The discount rates used in the DCF analyses are intended to reflect the risks inherent in the expected future cash flows generated by the respective intangible assets. The royalty rates used in the DCF analyses are based upon an estimate of the royalty rates that a market participant would pay to license the Company’s trade names and trademarks. Assumptions used in the avoided royalty DCF analyses, including the discount rate and royalty rate, are assessed annually based on the actual and projected cash flows related to the asset, as well as macroeconomic and industry specific factors. The discount rates used in the Company’s annual indefinite-lived impairment assessment ranged from 15.0% to 17.0% in 2023 and 12.0% to 18.5% in 2022, and the royalty rates used ranged from 2.5% to 4.5% in 2023 and 2.0% to 4.5% in 2022.
The October 1, 2023 and 2021 annual assessments of goodwill and indefinite-lived intangible assets did not identify any impairments. The October 1, 2022 annual assessment identified a $26.0 million goodwill impairment at the Roofing reporting unit, which is reflected as a discontinued operation in the Company’s financial statements.
Long-Lived Assets
Long-lived assets, other than goodwill and indefinite-lived intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The carrying value of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If the carrying value is deemed not to be recoverable, an impairment loss is recorded equal to the amount by which the carrying value of the long-lived asset exceeds its fair value.
Advertising Costs
Advertising costs are expensed in the period incurred (when the advertisement first runs for production costs that are initially capitalized) and represent 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 platforms. Advertising expense was $459.4 million, $558.4 million and $553.8 million for the years ended December 31, 2023, 2022 and 2021, respectively.
Legal Costs
Legal costs, other than certain costs incurred to obtain financing, are expensed as incurred.
Debt Issuance Costs
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Costs incurred to obtain financing are deferred and amortized to “Interest expense” in the statement of operations over the related financing period using the effective interest method. The Company records debt issuance costs as a direct reduction of the carrying value of the related debt.
Income Taxes
The Company is included within IAC’s tax group for purposes of federal and consolidated state income tax return filings. In all periods presented, the income tax provision and/or benefit has been computed for the Company on an as if standalone, separate return basis and payments to and refunds from IAC for the Company’s share of IAC’s consolidated federal and state tax return liabilities/receivables calculated on this basis have been reflected within cash flows from operating activities in the statement of cash flows.
The Company accounts for income taxes under the liability method, and deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying values of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided if it is determined that it is more likely than not that the deferred tax asset will not be realized. The Company records interest, net of any applicable related income tax benefit, for uncertain tax positions as a component of income tax expense. The Company elects to recognize the tax on Global Intangible Low-Taxed Income as a period expense in the period the tax is incurred.
The Company evaluates and accounts for uncertain tax positions using a two-step approach. Recognition (step one) occurs when the Company concludes that a tax position, based solely on its technical merits, is more-likely-than-not to be sustainable upon examination. Measurement (step two) determines the amount of benefit that is greater than 50% likely to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. De-recognition of a tax position that was previously recognized would occur when the Company subsequently determines that a tax position no longer meets the more-likely-than-not threshold of being sustained.
Earnings Per Share
Basic earnings per share is computed by dividing net earnings attributable to Angi Inc. shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if stock appreciation rights, stock options and other commitments to issue common stock were exercised or equity awards vested resulting in the issuance of common stock that could share in the earnings of the Company. See “Note 13—Loss per share” for additional information on dilutive securities.
Foreign Currency Translation and Transaction Gains and Losses
The financial position and operating results of foreign entities whose primary economic environment is based on their local currency are consolidated using the local currency as the functional currency. These local currency assets and liabilities are translated at the rates of exchange as of the balance sheet date, and local currency revenue and expenses of these operations are translated at average rates of exchange during the period. Translation gains and losses are included in accumulated other comprehensive income (loss) as a component of shareholders’ equity. Transaction gains and losses resulting from assets and liabilities denominated in a currency other than the functional currency are included in the statement of operations as a component of other income (expense), net. Translation gains and losses relating to foreign entities that are liquidated or substantially liquidated are reclassified out of accumulated other comprehensive income (loss) into earnings. See “Note 14—Financial Statement Details” for additional information regarding foreign currency exchange gains and losses.
Stock-Based Compensation
Stock-based compensation is measured at the grant date based on the fair value of the award and is expensed over the requisite service period. See “Note10—Stock‐based Compensation” for a discussion of the Company’s stock-based compensation plans.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Redeemable Noncontrolling Interests
Noncontrolling interests in the subsidiaries of the Company are ordinarily reported on the balance sheet within shareholders’ equity, separately from the Company’s equity. However, securities that are redeemable at the option of the holder and not solely within the control of the issuer must be classified outside of shareholders’ equity. Accordingly, all noncontrolling interests that are redeemable at the option of the holder are presented outside of shareholders’ equity in the balance sheet.
In connection with the acquisition of certain subsidiaries, management of these businesses has retained an ownership interest. The Company is party to fair value put and call arrangements with respect to these interests. These put and call arrangements allow management of these businesses to require the Company to purchase their interests or allow the Company to acquire such interests at fair value, respectively. The put arrangements do not meet the definition of a derivative instrument as the put agreements do not provide for net settlement. These put and call arrangements become exercisable by the Company and the counter-party at various dates in the future. These put arrangements are exercisable by the counter-party outside the control of the Company. Accordingly, to the extent that the redemption amount of these interests exceeds the value determined by normal noncontrolling interest accounting, the value of such interests is adjusted to the redemption amount with a corresponding adjustment to additional paid-in capital. During the year ended December 31, 2021, the remaining redeemable non-controlling interest was exercised for which the Company had recorded an adjustment of $0.4 million to increase this interest to its redemption amount. Adjustments to this interest required high levels of judgment and were based on various valuation techniques, including market comparables and discounted cash flow projections.
Certain Risks and Concentrations
The Company’s business is subject to certain risks and concentrations including dependence on third-party technology providers, exposure to risks associated with online commerce security and credit card fraud.
Financial instruments, which potentially subject the Company to concentration of credit risk, consist of cash and cash equivalents. Cash and cash equivalents are maintained with financial institutions and are in excess of any applicable third-party insurance limits, such as the Federal Deposit Insurance Corporation and the Securities Investor Protection Corporation.
Recent Accounting Pronouncements
Recent Accounting Pronouncements Adopted by the Company
There are no recently issued accounting pronouncements adopted by the Company during the year ended December 31, 2023.
Recent Accounting Pronouncements Not Yet Adopted by the Company
ASU 2023-07— Segment Reporting (Topic 280)— Improvements to Reportable Segment Disclosures
In November 2023, the FASB issued ASU 2023-07, which is intended to provide users of financial statements with more decision-useful information about reportable segments of a public business entity, primarily through enhanced disclosures of significant segment expenses. This ASU requires annual and interim disclosures of significant expenses that are regularly provided to the chief operating decision maker ("CODM") and included within each reported measure of segment profit or loss and an amount and description of its composition of other segment items. The provisions of this ASU also require entities to include all annual disclosures required by Topic 280 in the interim periods and permits entities to include multiple measures of a segment's profit or loss if such measures are used by the CODM to assess segment performance and determine allocation of resources, provided that at least one of those measures is determined in a way that is consistent with the measurement principles under GAAP. The amendments in ASU 2023-07 apply retrospectively and is effective for fiscal years beginning after December 15, 2023 and interim periods after December 15, 2024. Early adoption is permitted. The Company does not plan to early adopt and is currently assessing the impact of adopting the updated guidance on the financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
ASU 2023-09— Income Taxes (Topic 740)— Improvements to Income Tax Disclosures
In December 2023, the FASB issued ASU 2023-09, which establishes required categories and a quantitative threshold to the annual tabular rate reconciliation disclosure and disaggregated jurisdictional disclosures of income taxes paid. The guidance’s annual requirements are effective for the Company beginning with the December 31, 2025 reporting period. Early adoption is permitted and prospective disclosure should be applied, however, retrospective disclosure is permitted. The Company is currently assessing the pronouncement and its impact on its income tax disclosures, but it does not impact the Company’s results of operations, financial condition, or cash flows.
NOTE 3—FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
Fair Value Measurements
Instruments measured at fair value on a recurring basis
The following tables present the Company’s financial instruments that are measured at fair value on a recurring basis:
(In thousands)
Assets:
Cash equivalents:
(In thousands)
Assets: