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Welcome to the Angi First Quarter 2026 Earnings Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Julie Hoarau, Chief Financial Officer. Please go ahead.

Good morning, everyone. I'm Julie Hoarau, the CFO of Angi Inc. and welcome to Angi Inc.'s first quarter earnings call. Joining me today is Jeff Kip, CEO of Angi. Angi has published a shareholder letter, which is currently available on Angi's website in the Investor Relations section.

We will not be reading the shareholder letter on this call. I will soon pass it over to Jeff for a few introductory remarks and then open it up to Q&A. Before we get to that, I'd like to remind you that during this presentation, we may make certain statements that are considered forward-looking under the federal securities laws. These forward-looking statements may include statements related to our outlook, strategy and future performance and are based on our current expectations, and on information currently available to us.

Actual outcomes and results may differ materially from the future results expressed or implied in these statements, due to a number of risks and uncertainties, including those contained in our most recent quarterly report on Form 10-Q, our most recent annual report on Form 10-K and in the subsequent reports that we have filed with the SEC.

The information provided on this conference call should be considered in light of such risks. We will also discuss certain non-GAAP measures, which, as a reminder, include adjusted EBITDA, which we'll refer to today as EBITDA for simplicity during the call. I will also refer you to our earnings release, shareholder letter and public filings with the SEC and again to our Investor Relations section of our website for all comparable GAAP measures and full reconciliations for all material non-GAAP measures. Now I will pass it off to Jeff.

Good morning. Thank you all for taking the time to read our letter and join us today. We know everybody is busy. Just to repeat a little bit of what I wrote in the letter. We believe we're in the most -- in the middle of the most transformational time in technology in a generation. We think AI agents and agentic coding presents Angi opportunities that we did not have in the same way or fashion 12 or even a few months ago.

We believe it's incumbent upon us with good stewards of the company and its capital to move aggressively to take advantage of these opportunities, moving from our legacy platform to a new AI native technology platform for our core business in flywheel, much faster as the first building agents to multiply the effectiveness of our core customer experience and offer new capabilities to our Pro customers, what we are now calling the Angi Pro Chief Revenue Officer is the second. And finally, leveraging a agentic coding to build these agents in the platform twice as fast as we could before is the third.

We have great assets. We're confident that our existing flywheel is one of the best in the industry, if not the best. We have 30 years of brand equity. We have nearly 200,000 active [ Pros ] across North America and Europe. We have the most powerful customer acquisition engine there is in the industry.

Our flywheel is going to spin even faster as we deploy agents to improve our customer success rates and serve as a phenomenal distribution base for our new product that anyone building AI software would love to have. Thus, we think we have a tremendous head start and great leverage against the opportunity.

For the last 3 years, we've been working hard quarter-by-quarter to incrementally improve our customer experience and business on an old brittle legacy stack and the resources we've been using to do this are really critical to moving forward as quickly as possible against the much greater opportunities I just described. We have made real progress on the customer experience. I won't list everything I've listed in the past.

But moving NPS 30 points and improving pro churn by 30% are key markers during that period. We've also made good incremental progress moving AI into our key revenue flows with 50% of our homeowners now touching our AI helper in their path. However, we've also not been 100% consistent at delivering incrementally with our legacy technology. The time and costs are extremely high. The incremental approach we've taken and we are taking is not enough, and it's not frankly worth the opportunity cost versus what else is in front of us.

We just can't afford to keep our product development teams battling with the core technology to improve quarterly revenue and deliver against specific targets. So we're going to release our resources against the opportunities I just described. Getting to the new AI native platform is critical because it's going to allow our core product to function more effectively and drive AI-first innovation, improve the customer experience and the efficiency of the business. far better than we can on the decades old code in our current technology is made up of.

Our core flywheel is going to spin faster in our core experience on both sides of the marketplace is going to be better. Shifting and focusing on building the new Angi Pro Chief Revenue Officer is an incredible opportunity because first, we're going to generate materially more value for our core Pro customers by making sure they win more of our leads, driving retention, engagement, multiplying lifetime value, which in turn will spike acquisition opportunity of new Pros. It's the strongest bet we can make in this business.

And then secondly, we effectively will have a new business because our Pros will be able to use the Angi Pro [ CRO ] for [indiscernible] leads, the rest of their business, grow and enjoy more success, which is, of course, our core mission. We get more jobs done well for our homeowners and more jobs done well by our Pros. So we have a twofold market opportunity and a huge as yet undisrupted market where we have the leading assets and leading market position. So multiple things can be true at the same time.

Our mission has not changed. We're focused on jobs done well, as I just said, and jobs [ won ] well for our Pros. Our goal is to deliver profitable and accelerating growth over time. And we are also making a clear pivot on how we execute our strategy, given, again, what we think is a remarkable opportunity in front of us in our space, and we think we are well positioned to win. So with that intro, we will move to questions.

[Operator Instructions]. Our first question today comes from [ Dan Kernan ] with [ StoneX ].

Jeff, I guess the first obvious question, just to follow up on this. We're calling it a pivot, but it's really more of an enhancement the way I think you guys are trying to win business. And so with the reduction of guidance here or the pull of guidance, I guess, for the short term, maybe you can just frame for us how much this is going to impact in your mind, revenue and EBITDA and over what time frame? And then I want to kind of follow up on sort of how you perceive the market opportunity.

Okay. Thanks, Dan. Good to hear from you. So first, it is -- again, two things could be true. We have been going down the path. We've been going on. I think it's a material pivot in the way we deploy our resources and execute and I think it is a whole new opportunity that we are going to build as well.

In terms of your question on revenue, EBITDA, cash flow, we've made a clear decision not to give guidance. We think that setting guidance and the pursuant distraction it is from executing its larger opportunity is not where we should be focused. But what I would say is our existing business in flywheel generate and will continue to generate solid operating cash flow, which we think of as adjusted EBITDA minus our CapEx and we plan to continue to generate solid operating cash flow.

We're not looking to destroy our EBITDA margins or take our cash flow anywhere near 0. We're effectively going to fund our platform and product strategy internally, meaning we're only going to add to our cost base where we see more opportunity. For example, our AI software and token costs will be several million dollars more than we anticipated either a few months ago.

But by taking resources off the legacy technology and acknowledging that we're no longer going to focus on quarterly revenue, there will be an opportunity cost measured in some amount of lower revenue implicit by not working on the core technology to deliver incremental revenue wins. But to be clear, we don't plan to use the cash on our balance sheet to fund the transformation rather, we actually anticipate continuing to build the cash on our balance sheet by continuing to produce cash flow.

Does that -- just to be clear on that before I ask the kind of TAM question, Jeff. It's obviously not a distraction. You're aiming for a bigger target here, some revenue opportunity loss, but you're -- I mean we're still focused on the core business, and we don't anticipate -- I mean, I don't -- is there any way to kind of frame how big a disruption you think this might be to the core business in general?

Look, I think we plan to operate with a cash cushion. Without this being a commitment or guidance, I think we be happy with the cash flow cushion and give or take, the range of $50 million a year. That's adjusted EBITDA minus CapEx. That's not a goal of budget, a commitment or a plan or guidance, but that's directionally how we think about floor.

And we think that, that's a good number that allows us to internally fund the transformation and continue to deliver cash flow to the business. And we think that our core business will continue to generate solid profitability, we think that once it gets on to the new platform, we will have the opportunity to accelerate with innovation and efficiency there. And then I think we'll have the opportunity as we put our agents in place and get penetration over the next several quarters, we think we'll have the opportunity to accelerate materially following getting the new Angi Pro CRO infrastructure into place.

So with that, Jeff, I think in the letter, you basically said that your -- the $700 billion TAM that you're referencing is just job value and for you guys to get to your $5 billion revenue opportunity, which you lay out there, it just seems like doubling your win rate. I mean, what you're suggesting here is that by building the CRO for Pros, I mean you have an opportunity for them to utilize this both on and off platform.

So there seems like there's a software element to this. So maybe you could unpack for us how you think about getting to that $5 billion? And separately, is there a separate TAM that we aren't discussing yet today or in the shareholder letter that could be achieved or attacked from a software perspective, given that most pro marketing budgets are viewed as percentage of job value, but software is typically a separate expenditure line and kind of viewed as sort of a separate TAM when they think about cost of service?

A great multipart but very smart question from you, Dan. I should expect nothing less. So yes, $700 billion TAM is residential construction, specialty construction, home services, total job value that we think is our target market for our platform and customer base. Today, we capture below 1.5%. The market is split 75% larger Pro, 10 employees or more, a 25% smaller Pro. We think we have 3% to 4% share in the smaller Pro market, and we're under 0.5% of the large Pro.

We have a strong view, AI, no AI, we can replicate the share of the small Pro market in the large Pro market. We think we've underinvested and not executed well there over time. Doing just that -- and getting to that share would give us $2.5 billion of revenue with a 10% take rate, which is about our current take rate, which is Pros pay $50 a lead, they win 1 in 7, 1 in 8. The average job is about $4,000. And so we think about it that way, I'll come back to that.

On our platform, 10 homeowners submit jobs. Seven of the jobs get completed, but only 2 of those are won by our PROs. If you look at our core long-standing strongest brands and businesses in Europe, which would be the U.K., Germany and the Netherlands, they win more like 3.5. So we believe that doubling that too is well within reach. And so Pros are winning twice as many, 4 out of the 7 instead of 2 out of the 7 that takes your share of the total job value in the market from 3% to 4% to 6% to 8% or 7% as a proxy.

If you come back to the take rate, Pros are looking at their overall P&L and their share, they're paying to support their revenue. We think tend is a pretty good marker where you're driving good value. By improving the win rate, we would lower the take rate unless we took lead pricing, taking lead pricing is one way to keep the take rate, a fair take rate, another way is charging some for the software.

So you're correct. There's 2 markets there. There's the lead market where maybe we'd like to be a little less than 10, to drive real value there. But there's also the software market and based on our research and looking at -- if you take 10% of that $700 billion job value market, it's $70 billion, that's the potential revenue. We think that there is a comparably sized market, $50 billion to $70 billion maybe, in services and software to sell the Pros that is likely growing as software transforms with AI.

So on some level, there's $140 billion of revenue out there. I think our focus is on delivering against the [ 70 ] delivering for our Pros but it is a product that while we're first focused on Angi leads, our Pros should be able to use for other leads and frankly, running their overall business.

So you're not wrong. And when we think about our $5 billion revenue target, one way to do it is to get 7% of the market and a 10% take rate. Another way to do it is to get a lower percent of the market and effectively have software and services revenue. And then the third leg we have is actually accelerating growth even faster in Europe, which can be a material contributor because there's another $500 billion or $600 billion of TAM in Europe which we've been less successful at penetrating. We think that's tied a bit to market structure, and that's a different conversation. But we think we have multiple ways to get to the $5 billion. And I think you've hit you've hit well on a couple of them.

The next question comes from Youssef Squali with Truist.

This is Robert on for Youssef. On the Q1 performance, can you just explain the levers relative to 90 days ago, which areas of the business are outperformed and how sustainable is that outperformance? And then what are you guys doing in new LOM traffic channels?

I'll take the first question. So in terms of revenue, we had a strong like January and February. Then March pulled us to the lower end of our revenue range, driven primarily we believe by macro factors. Service request mix shifted away from larger jobs in category where we have the most extra capacity such as like roofing and HVAC and towards smaller jobs. We survey thousands of Pros and homeowners and it's clear that homeowners backed away from projects like more in March than in previous months.

And as a result, like Pros reduced [ LEAP ] budget because they believe they would lean like less jobs. Meaning, overall, we had lower capacity. On EBITDA, our EBITDA came in at about $23 million. That's above our $10 million to $15 million guidance range. There were 2 contributing factors.

First, we capitalized about EUR 2 million more of engineering labor than we thought in our initial guidance. We follow our accounting policy here, and we went by the book. So it went a little bit higher. And second, we had a couple of onetime benefits on expense and some timing. And so we came out above our guidance for Q1.

Yes, I would again say editorially, we look at all-in adjusted EBITDA minus CapEx. So when we have these swings, you can blame Julie for following our accounting policy. But we -- given our druthers, we wouldn't capitalize it, and I don't mean to speak accounting heresy, just we think it makes things more complicated and the cash ends up in the same place. So we're just calling out that benefit.

Let's talk a little bit about LLM traffic. We have been investing a fair amount in making sure that we are there for the LLM traffic. We've been buying OpenAI [indiscernible] successfully. We're near breakeven on that buy. There's been a bunch of noise out there on it, but we're happy with it. We're in their beta test, and we know they are working on optimizing and we're confident that we're going to be able to grow value and expand there.

We've launched our app successfully on ChatGPT. We'd like to see them move their app ecosystem into deeper integrations, and we're working with them on that. We're going to launch on Amazon soon. And we are live working on multiple other integrations with major players, which we expect to announce in the next couple of months.

The overall share of traffic from these sources is pretty low right now, but I think we are all seeing consumer usage shift and will increase. And we think the platforms are going to figure out how to leverage this traffic, and we'll be very interested in working with us. If you think about -- I wrote this in the letter, but if you think about our approach, our approach and our pivot is about making sure our Pros get better results.

When our Pros get better results, our homeowners get better results. And when customers get better results the LLM wants their customers to go there. And so we think that in the same way that our results on SEO once kind of one SEO when we were a home adviser at Angi's List. And we have most recently taken really leading positions in and buying on [indiscernible] social for the same reason, we think we're going to do the same here. So we're pretty excited about it.

Our approach has been -- we've developed technology where we can pick up the conversation in any part of the chat with the context in the chat. So if you were to say, "Hey, ChatGPT," or, "Hey, Claude," or whichever you're talking to, "I have water on the floor in my bathroom." We could effectively let the LLM know, and we will have let the LLM know, that we can pick up the conversation there and ask questions, which are LLM driven, but with our proprietary domain knowledge fine-tuning the LLM chat.

We also can pick it up somewhere in the middle or at the end when Claude or ChatGPT, [ perplexity ] or whomever has diagnosed that, oh, you have a crack in the base of your toilet and we can say here's some Pros, Ms. or Mr. Consumer and get the job done there. And we're already taking the same approach with our core homeowner experience.

We have in test an LLM first chat that effectively mirrors this experience. It's right now a conversion deprecation, which we want to narrow before we move it broadly. We do plan to lead with this experience when we're working with partners and new traffic channels because we do believe that ultimately, where we want to be is having a full chat with a homeowner, getting whatever information they're capable of, and homeowners aren't always very good at giving the information or assessing the information and being able to provide price estimates advice information and, of course, our Pros through the experience.

And that is where we see things going, and that being beneficial to the pros on the other side as well. So that's how we're looking at it all holistically. So I hope that kind of answers your question.

The next question comes from Sergio Segura with KeyBanc.

First, I was hoping you could just provide a little bit more detail on what the Angi CRO is going to look like at the product level, any kind of required investment for that product? And just maybe a little color on why this is the right jobs to be done to focus on right now?

And then secondly, relatedly, maybe how does your go-to-market strategy change with this new AI approach? And then if you could discuss any challenges or opportunities of targeting the smaller Pros that you mentioned in the letter for this product?

Right. So the reason this is the right job to be done right now is on a simple basis, this is, we believe, the best way to achieve our mission and deliver the best customer experience to both sides of the market. What we're trying to do is make sure that when a homeowner comes to our platform, they hire a Pro from our platform and the job gets done well, and the Pro feels like they've won a job well. Everybody is happy when that happens, customer NPS is plus 50 for retention and satisfaction jumps and the Pros pay us, and we make more money, and everybody is happy.

Our biggest gap, as I walked through earlier when I was responding to Dan is the number of jobs that are actually completed versus the number our Pros win. So to drive that North Star experience, our Pros need to win more. There's been just a dramatic change in the possibilities available to us with AI agents at a genetic coding in just the last few months. And we have been assessing and digging in and looking at what we're doing and we believe that agents offer us the opportunity to close the loop and take that metaphorically 2 out of 7 to 4 or 5 out of 7 that I referenced earlier, and double the win rate, double the effectiveness for the homeowner double the effectiveness for every -- the Pro and really grow value in the business and the ecosystem.

In terms of how we're approaching this, how it's going to look, effectively, what we're doing is starting with the core lead to close cycle. So lead received first agent would be what you might call an AI call center and booking agent. Outbound call can be made to the homeowner, homeowner doesn't pick up outbound tech can call back in. Booking agent gets more information, confirms the needs, books into the Pros calendar, sends reminders to the homeowner and the Pro, make sure there's a rescheduling, make sure the Pro shows up and getting the booking is really the first key anchor in getting the job won.

A lot of our large Pros look at booking rate as their key metric. But you can go from there and imagine that you can coach the Pro on the sale going in. You can record the visit. I don't know if anybody uses [ granola ] for their meetings and transcribes their meetings, you do something very comparable. You can send notifications with coaching advice to close the sale during the visit, and you can also take the transcription of the call and the agent can put together a draft quote by the time the Pro gets out to her or his truck or van and is able to then dispatch a quote right away.

One of the gaps in the winning process is delivery of in a timely fashion and accurately. And once you have the quote, you have follow-up, you have checks on changes, you're closing the deal, you have asking the Pro to intervene with a visit or a call to close the deal. And you can go from there. And your imagination can take you to different places. And what we're going to do is carefully assess the needs and the opportunities to make sure the -- when the homeowner submits a service request and creates a lead for our Pro, one of our Pros is consistently winning it.

And so you can imagine the ecosystem will look like that. And in our mindset, we should have our first agent in its first test in the next several weeks. We will then -- as that gets going and we complete or genic software development life cycle, which is the platform on which you do your agent development, we will work on getting our second one out, and we're working on prototypes and we get to our Investor Day in the fall.

We hope to demo this for everybody who wants to come. And look, we're pretty excited. We think that the opportunities opened up here to really deliver value for our customers and then ultimately really accelerate the business to deliver value for more and more customers that our shareholders are incredible right now.

The next question comes from Stephen Ju with UBS.

This is Vanessa on for Stephen. I just wanted to ask a question on the guidance. So can you add some color on what forecast item is getting more difficult for you to resend guidance on and is it more on the cost side as you build out the product?

So I wouldn't say that we're having difficulty forecasting. We have high visibility in our business. We pay careful attention to what we're doing. It's just very simply, we're not going to give guidance because there isn't a reward for managing the quarterly or annual guidance. There's not any reward for hitting the range on our quarters. There's not any reward for dedicating resources to getting the next million dollars in the quarter versus the next billion of value that's in front of us. And to be honest, the market is telling us that.

So we're going to stop trying to invest and improve our revenue on our old platform, which is really just fighting the last war. We believe the upside of our AI native strategy is on some level, uncapped. So we believe that anything that distracts from the tremendous prize management, engineering resources, anything that distracts from the tremendous prize we have in front of us is effectively kind of a waste of time.

We still plan to run our commercial machine and drive the business back to Pro growth and ultimately revenue growth. We're just not putting a timetable on that. Our milestones that we're thinking about is we're targeting getting onto the new platform in the next 12 months or so. That's a key marker in terms of getting into a place where we can innovate and work on the core business.

And then secondly, what I was just talking about in response to Sergio's question, we're going to sequentially build test and roll out our Angi Pro Chief Revenue Officer agents. And as we get that into place and the new platform rolls out, we anticipate being able to accelerate our revenue in 2027. And now we think it should be material. Otherwise, it's not really worth playing for.

So I think without giving guidance, that's how we're thinking about it. And it's not a problem on visibility or difficulty. It's simply a matter of where we're prioritizing resources. And then frankly, the feedback we're getting from the market on the value of doing that.

The next question comes from Cory Carpenter with JPMorgan.

This is Danny [indiscernible] for Cory. For the first, Jeff, can you talk about what this pivot business strategy means for the consumer homeowner experience and how it may change? And then for the second, can you talk about the rationale for the debt repurchase in 1Q and 2Q quarter-to-date and maybe provide an updated capital allocation strategy?

So let me talk about the homeowner experience. I'm going to let Julie talk about our bonds, and then I'll add any color there. So I talked a little bit earlier about the development of the LLM surfaces as traffic sources and our strategy there. And that was sort of very practical how are we approaching this now? How are we working with the LLMs and how does that opportunity work?

If you go a step further, what many people see right now, and you can just go back to the development of OpenClaw is really the key marker here, consumers are going to have personal agents more and more. And those personal agents are going to be able to go out form tests for them without them necessarily interfacing with in their minds, a website. So what we have -- what we strive to do is to be the best place for a homeowner come to get their job done well.

We think that the strategy we've laid out continues to be the best thing. And as I said, we think that the strategy we've laid out is the best approach to delivering signals to the LLM to make the LLMs choose us effectively get the job done, get the traffic, to demonstrate that you're going to get to drive done, get more traffic.

When you think -- when we think about personal agents, personal agents are effectively trained LLMs, trained on personal preferences. And so if we can train the LLM by delivering results to be a choice [ place ] to send homeowners, we will also train the personal agents. So what we want to do is we want to position ourselves not only to be a place where a homeowner can come and use us as their agent to get their questions answered and find their. But the homeowners personal agent will come and do that. And we think we do that by delivering jobs done well for our Pros, which means job has done well for our homeowners.

I described a little bit earlier our thinking about the homeowner experience. And when you think about what I was saying with the ability to deliver estimates based on the information the homeowner gives us, again, homeowner information is not always perfect. So it'll have to be caveated estimates. Taking photos, taken info, have an iterative conversation make requests for the homeowner for certain measurements, et cetera. You can imagine the way the interactive experience can develop and ultimately, that means the Pro has better information.

We get better matching, the Pro can match the technician and the equipment that they send, and we can have a much stronger ecosystem. And this can happen either by a homeowner coming through an LLM, coming to Angi, coming through a partner. We have several partners who deliver us traffic or, frankly, a homeowners trained personal agent. And we see the world evolving this way. And so we think the homeowner experience will evolve this way, and we need to deliver against it.

In terms of capital allocation. As just said earlier, we're confident in our ability to produce consistent cash flows. In terms of M&A strategy, we conservative and then we capped our share repurchase ability until next year. We have repurchased about 20% of our shares outstanding at the time of the spinoff, that the limit of the set hub of tax-free [ still ] and that's for data 2 years following the spinoff, so until April 2027. So as a result, we saw that buying bond was a good use of capital. We bought about $100 million worth of bonds. So that's about 20% of the debt outstanding at an almost like 9% discount.

So just to follow on, we are clearly not against buying our shares at favorable prices, but we can't do that until next year. We're clearly not against buying our bonds at favorable prices. As Julie said, we just bought a bunch. We do have to be mindful of creeping tender rules and how that works.

So we're not averse to doing it, but we have to -- in the same way, we have to pay attention to the structures around share repurchase. We have to pay attention to the structures around bond repurchases. And as Julie said, we are not in an aggressive mindset, we're in a disciplined mindset about M&A. We would take a great value and a great opportunity that augments our strategy but we're not trying to go and take the cash off our balance sheet and buy brand-new things that are outside of what we've told you our core strategy is and I think that's our thinking on capital.

This concludes our question and answer session. I would like to pass the floor to Jeff.

Well, thanks very much. Thanks for all the questions. I think we've laid out what our thesis is here, which is there are really tremendous new opportunities in front of us that are provided to us by AI agents at agentic coding. We think we're remiss to continue to work on the old technology, which is not easy to work with, nor is it productive to keep chasing quarters and revenue guidance, et cetera.

We are incredibly excited about what's in front of us because we think we have a clear line of sight on executing against our agentic strategy, and we clearly believe that we have the strongest distribution base between our brands, our Pro network, and our acquisition machine in the industry. And we think we can spin the flywheel stand-alone. We think we can add to it by building our agents and then I think effectively, Dan pointed out, there's another market opportunity here for us as well.

So we're extremely excited. It's going to take us the next several quarters to put it all in place with the new platform and the rollout of agents but we will be talking to you over time about our progress and how we're looking at the metrics, and we're -- we just think that this is a unique opportunity and we haven't seen something like this in the last few years for Angi. So thanks again for joining us, and we will talk to you soon.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Welcome to the Angi Inc. Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note today's event is being recorded. I would now like to turn the conference over to Andrew Russakoff, Chief Financial Officer. Please go ahead.

Good morning, everyone. Rusty here, CFO of Angi Inc, and welcome to the Angi Inc. Fourth Quarter Earnings Call. Joining me today is Jeff Kip, CEO of Angi. Angi has also published a shareholder letter, which is currently available on the Investor Relations section of Angi's website. We will not be reading the shareholder letter on this call. I'll soon pass it over to Jeff for a few introductory remarks and then open it up to Q&A.

Before we get to that, I'd like to remind you that during this presentation, we may make certain statements that are considered forward-looking under the federal securities laws. These forward-looking statements may include statements related to our outlook, strategy and future performance and are based on our current expectations and on information currently available to us.

Actual outcomes and results may differ materially from the future results expressed or implied in these statements due to a number of risks and uncertainties, including those contained in our most recent quarterly report on Form 10-Q, our most recent annual report on Form 10-K and in the subsequent reports that we filed with the SEC. The information provided on this conference call should be considered in light of such risks.

We'll also discuss certain non-GAAP measures, which, as a reminder, include adjusted EBITDA, which we'll refer to today as EBITDA for simplicity during the call. I'll also refer you to our earnings release, shareholder letter, our public filings with the SEC and again, to the Investor Relations section of our website for all comparable GAAP measures and full reconciliations for all material non-GAAP measures. Now I'll pass it off to Jeff.

Thanks, Rusty. Thanks, everyone, for joining. I'd just like to start, we are fairly happy with where we've gotten to right now. Over the last 3 years, we've given up about $0.5 billion of lower quality revenue but at the same time, we've doubled our EBITDA and cut our capital expenditures in half, meaning we've swung from real negative free cash flow, real positive free cash flow.

At the same time, we moved our homeowner NPS more than 30 points. We've cut our churn by more than 30%. We've improved our customer success rates more than 20% and actually, in the fourth quarter, we've turned our customer repeat rate positive about 10%. So we're pretty happy with the progress we've made. We're making a material stair-step improvement in our year-over-year revenue changes probably 700 to 900 basis points.

Actually, in January, we grew very modestly, although year-on-year, we don't fully expect growth in the first quarter. But we're pretty happy with where we are. We're very optimistic. On top of that, we've reset our margins and we've cleared the capital to invest in long-term profitable growth. And we're just -- we're very excited about our prospects in the AI landscape. I'm going to talk a little bit about that.

I think there's a few things to talk about. I think we should talk about LLM, marketplaces, software and agentic coding, different areas, different layers of emphasis there. First of all, when we look at LLMs, we see it as a great opportunity. We're very happy to see LLM enter and be places where homeowners and consumers generally who have lower knowledge and maybe less frequent interaction, go to discover and explore.

We've been very successful building an acquisition on Google, which is effectively the predecessor of the LMs. Google obviously, has its own LLM where homeowners and customers go to explore research and discover, we've been very effective because we have built a network, a deep, broad and skilled network which Google still find very useful as a partner to serve its customers, and we believe the LLMs will as well.

We have started working actively working with every LLM, we have had conversations and are an effective dialogue. We've announced the deal with Amazon Alexa. We have an app submitted to another major LLM talking live about 2 technical integrations based on the same technology we've built for the app we submitted, and we feel very good about the opportunity there. We think that it's harder for LLMs to go out and build the deep and engaged customer base that we have. Again, we were able to do it and maintain it and sustain it. all the time while Google tried to do the same. So we feel pretty good about our competitive position.

We think we can serve as excellent partners to LLMs. In fact, we've deployed LLM technology in our [ SR ] path in the core customer experience, which we are training with our own proprietary data and experience to make sure that we can land the homeowner to better match. About 35% of our homeowners touch that part of our technology and experience. They convert about 3.3x as well to a [ Pro ] selection as the customers that don't. And so as we train that technology, we think that's positioned us better to interact with the LLMs.

Our approach with the LLM is that we can pick up the context and the conversation that the homeowner is having with the LLM at the beginning when Rusty says, "I have water on my floor, what do I do?" or the LLM can have the full discovery with Rusty and get to the point where you say, "Okay, we think there's a leak at the base of your toilet, we need a plumber and we can take that information and bring the right plumbers." So we think we can do that effectively.

Obviously [ pros ] have separate marketing channels than we do, they go direct to Google, they do a number of things. We actually think longer term, we can help them there because we think we're probably at scale, the best there is at finding homeowners who need help from [ PROs]. But we think that we will still exist and be able to grow in this environment. And we're just very excited to have competition at the top of the funnel and be able to diversify our channels.

Let's just talk briefly about then our role as the marketplace, some of the things that are being said about software out there in agentic coding fundamentally, let's focus on Angi as a marketplace, we are an agent. We have customers on one side. We have data and systems of record on the other side we are effectively the execution layer and the UI layer in between. And we get the homeowner's job done, which is finding a pro who can do their home job well, and we get the [ Pro ] shop done, which is finding a homeowner whose job they can do well and we act as an agent.

We believe that using agents will allow us to be even more effective at what we do, and again, use our proprietary data and systems of record and experience to be stronger and faster at development here in addition to the existing network and customers and the resulting network effects that we already have. A competitor may be able to build an alternate marketplace technology metaphorically overnight in their garage now, but they cannot build our network nor our homeowner reach or our brand.

So we think we're very well positioned. We think further that when you think about software, we think now we have the ability to extend our agents and actually integrate with all of the software out there that our customers use better. For example, we believe that we can act as the post lead communication between the Pro and the homeowner to clarify things for the Pro to book the appointment into the Pro calendar and perhaps even book the appointment into the homeowner calendar, follow-ups, et cetera.

We believe we can ultimately integrate also with ERP and HR systems and anything else that helps the Pro move through the chain to get the job done. And so we believe we're well positioned to actually extend our mission. Today if 5 homeowners come to us with a job, three of them hire a pro, which is not that different than what we study when homeowners call a pro.

We get to something more like 7 out of 10 higher Pro once they've made a phone call. But -- so that's pretty good. Of those 3 only one hires our pro. We believe that by using agents, we can drive that up to 2 and then towards 3, which will dramatically improve the value created, the retention, the repeat and our ability to extend the marketplace. So we're actually very excited about this.

And then the final piece, I'll just briefly state. Obviously, there's a lot changed even in the last week or so with a genetic coding and what's being written there and the possibilities. We're extremely excited here. Again, we can build something in our metaphorical garage over the weekend. We think this gives us great opportunities to extend oursoftware by using agents and invest and regrow our whole network and business.

So overall, we're very excited about the entire landscape. Let's talk a little bit about now. I'll talk a little bit about our business and revenue trajectory, and then I'm going to let Rusty talk a little bit about margins. and then we'll take questions. First, I'd say we're roughly in the same place we were before, maybe modestly lower. Previously, we were talking about getting to a little bit of growth in the first quarter and getting to mid-single digits for the year.

I think now we're looking at very modest negative growth, but still a material sequential acceleration in the first quarter and maybe low single digits for the year. What's the difference? The difference is, obviously, we had pressure. We discussed it on our last call from both Google SEO and our network channel in the third and fourth quarters.

Between our November call and now we think that, that pressure is extended and then so we have gotten more conservative on those channels in the year. What we've historically been able to do is take actions, do work on our product, et cetera, and actually change the trajectory of these channels. If you look at just Google SEO, we were down 35% to 40% year-over-year in mid-'24. We brought that into the double digits -- mid-double digits by the end of the year, and we expect it to continue that trend.

We were metaphorically punched in the mouth again in the spring and fell to the range of 35 to 40 again, but then we sequentially improved into the low to mid-20s by mid-year and we got hit again in the late summer and thus, we were where we were going into the year. What we've done is we've essentially said we don't think we're going to make that progress back again, and we're going to assume Google SEO stays down at that lower level for the year.

We're doing something similar with our network channel where we basically have assumed we're not going to improve it in the rest of the year, and we're just going to kind of get to the second half of the year and stay at that lower level we were in the second half of last year. So we've effectively gotten conservative. We think it's more prudent to look at our full year revenue that way.

And really, our focus is on our proprietary business, which, again, we grew 17% in 2025. We're expecting high single, low double digits in the first quarter there. We believe that, that business can be a solid mid-single-digit plus, ideally double-digit grower long term. We've put a great deal of investment there. We've executed very well. And frankly, we've seen our repeat growth turn in the fourth quarter. So we actually think that the high-quality branded traffic is coming back.

And with all of our improvements in the customer experience and what we see in customer behavior, we think it's time to lean back in to branded advertising, where we're running TV and streaming and social. We've done this effectively for years. We're basically going to return from the lower level we were at in 2025 to the level we're at in 2024, which is effective level for us to spend that, and we think we can do it well.

Just talking about the quarters briefly, and then I'll hand over to Rusty. In the first quarter, compares get more difficult February, March, in our proprietary channels. We ramped 2 areas of Google last year, first in February, March and then April, May, which was Google Display and then Google Search Partners, we got some effective revenue growth, but as we watch that traffic season, we actually saw lower win rates than the rest of our channels, and we effectively scaled them both down.

That makes the second quarter in particular difficult compare and a little bit more difficult compare in February, March. So we expect the first quarter with the kind of 60-ish network decline baked in to come in at minus 1% to minus 3%. We expect the second quarter to come in at flat, maybe a little bit down. And then we expect to get to mid-single digit in the second half of the year as the network channel stabilizes, it flattens out and we're able to grow our proprietary and effective long-term rate.

And we're optimistic we can do better, but that is prudently where we want to guide right now. Again, looking out over the course of the year, we basically think low single digits, let's call it 1% to 3%. That's impacted by a few hundred basis points worth of Google SEO and network outlook. It's impacted to the positive side by our brand spend.

And then in the first quarter, again, there's a little bit of delay in the product road map that came with a [ RIF ], sometimes you have to make a short-term sacrifice for the long-term good of the business. And the first quarter is going to be a bit negative at minus 1% to minus 3%. And -- so again, I think we're overall very pleased. It's not quite the size we want it to be, but again, 700 to 900 basis points of acceleration from Q4 to Q1, focused on growth in this year and very strong performance overall in our proprietary channels. And with that, I will let Rusty just talk about our margins and our EBITDA progressions.

Right. So starting with Q1, as Jeff mentioned, we're going to be deploying dollars for off-line marketing, which we had in Q1 of last year, we had pulled back on and spend virtually nothing as we were shipping to homeowner choice at that period of time.

So that includes increasing our spend in the U.S. It also includes some spend internationally, where historically, [ TV ] has worked well in Europe in Q1. We had backed off kind of during COVID and after COVID. And now we're reinvesting back behind the brands. And it also includes $3 million of new creative.

We're also -- we've also begun to ramp up online Pro marketing. All of that will drive revenue and profit but on a lag with only part of that returning in the quarter. And so quarter-over-quarter versus the fourth quarter, our sales and marketing goes up by about 8 points as a percent of revenue. Then revenue increases seasonally as you get into Q2 and Q3 with some benefit as well from the Q1 spend flowing into the future quarters.

Directionally, we should add $35 million to $40 million of incremental revenue into Q2 versus Q1. Where we'd expect also to spend kind of $10 million to $12 million more in marketing to acquire the extra SRs. But we won't have any additional creative to expense in the second quarter and both [ Pro ] acquisition and fixed costs will be directionally flat on a dollar basis, but better on a percentage basis as the higher revenue comes in Q2 and Q3.

So together, that will deliver incremental EBITDA in the kind of mid-$20 million range in Q2 versus Q1 EBITDA and gets you to overall EBITDA in the mid-40s for both Q2 and Q3. Then as we go from Q3 to Q4, if we look at last year, our revenue declined seasonally by about $25 million quarter-over-quarter. If we assume a similar dynamic this year and roughly kind of 50% margin flow-through. And on top of that, we typically expect to pull back on off-line marketing during the holidays, about $5 million to $10 million that directionally gets us back to low $40 million range for adjusted EBITDA in the fourth quarter.

Next, I wanted to give a little bit more context as well about the restructuring and how the savings flow through in the context of our overall guide for the year. So the way to think about the restructuring at a high level is that the objectives were threefold. So one, get the cost structure in the right place to create room to make the meaningful investments we're talking about, while the also delivering profit growth on a year-over-year basis.

So the way to think about the $70 million to $80 million of savings then is that, first, it's on an annualized basis. So that results in year savings in the mid-60s with $25 million of that is cap labor. And the right reference point for that is what our total cost base was going to be for the year. So if you look at 2025, we had $223 million of fixed OpEx plus $60 million of CapEx, that gets you a total cash fixed cost basis of $283 million, which is how we kind of view our capital -- our cost structure.

Now prior to the restructuring, our exit rate, finishing the year would have had our fixed cost base increase by roughly $20 million year-over-year. And post restructuring, we now expect that number to be approximately $40 million lower year-over-year, which means $60 million in total of reduction off of the pace. That allowed us to free up capital now for long-term ROI positive investment in growth while still delivering the $10 million to $15 million of profit growth year-over-year we've guided to, in terms of higher adjusted EBITDA and lower capitalized wages.

And the key investment areas are, as Jeff said, first, the brand marketing. It's an area where you took our foot off the gas in 2025. We pulled back pretty significantly from our historical trend levels, and we are leaning in now with all the positive trends in the customer experience. Second, the online Pro marketing, which will be LTV positive as we drive growth in the new Pros acquired, but P&L negative in year as we ramp it up. And then third, sales in our large Pro segment where we already have a nice business but we're under indexed against the industry at large, and we have a big opportunity to grow there.

So these investments are key pillars that unlock incremental revenue growth, which will offset the trends in network and SEO traffic that we've been discussing for the past few quarters and which we're forecasting conservatively, as Jeff mentioned, so that there are no expectations of turnaround in these channels embedded in our guidance of low single-digit overall revenue growth for the year.

And if you fast forward to the end of the year, we'll be a mid-single-digit grower with proprietary growth higher than that and comprising over 90% of the business accelerating and now with better cost leverage than 2025 so that the top line growth can have more financial impact over the medium term. All right. So with that, why don't we open up, go to the queue, and we can open up for Q&A.

[Operator Instructions] Our first question today comes from Eric Sheridan at Goldman Sachs.

Just coming back to the broader discussion about AI, maybe 2, if I can. First, curious how we should be thinking about the rollout of AI features as you discussed on the customer side of the platform looking out over the next 12 months and how that gives you some visibility or confidence interval in some of what you're talking about with respect to a return to on the platform more generally. And the second would be, how does owning a consolidated supply side data sort of position you relative to what you want to accomplish when partnering with LLMs, curious on that.

On the first question, the main area where we put focus on AI and the customer path today is the AI helper in our SR path. What we are doing with that is we're continuing to experiment with how we have more homeowners use it effectively, because what we're interested in doing is driving up the number of homeowners who connect with the right pro. Again, 35% of our homeowners currently do it and at 3.3x is likely to actually choose a pro in our UX and UI. We'd love to drive that to 50% and 60% and 65% and we're currently actively running tests. We recently ran a test that picked up about 5%. And so we're pleased with that. And we're going to continue developing there.

We are looking at other applications such as what I referenced lead communication which we think can again help stabilize and get the homeowner to actually meet the Pro and move towards the job done well. And we're looking at how we might apply it in other areas of the product as well. That is, as I said, sort of a backdrop to integrating with LLM is, the more effective we are there. We're working with a white label LLM on our platform and the more effective we are there, the more trained our data and our AI implementation is when we interact with the context that comes to us from an LLM that a homeowners entered there. And your second question, what was the second question?

About the supply side.

Okay. The supply side, sorry. Again, the way we look at the world is -- you have customers. You have agents, which have generally historically been human agents or software algorithms with, again, UX and UI in between, and you have a system of record or a data layer. The system of record or the data layer is what allows you to perform the agentic tasks well.

If I have the data on the customers, I can be far more effective as an agent on the customer's behalf. If I'm a human agent and I don't know my customer, I can't really deliver my product or service well without understanding the customer. So we fundamentally already have a system of record about customer behavior, success, et cetera, where we can understand our customers.

And so when we go and we take our Pro customers and actually our broad homeowner experience, so when we go to an LLM and we see a set of context or searches or queries come in, we can take that and compare it to our customer data effectively run it through algorithms, use an agent and make the connection better than if we didn't have that. So that's a reasonable moat we have at the scale we operate at for the number of years we've operated at and we think it puts us in a very good position to effectively partner with the LLMs in the same way that we've effectively partnered with Google by taking clicks with some context from Google and matching the homeowners successfully on our platform. It's worked well for them in terms of monetization. It's worked well for us and it's ultimately working better and better in terms of the customer experience.

And our next question today comes from Sergio Segura with KeyBanc.

I had 2. First, just hoping you can explain the rationale for tripling the brand spend this year and why it's the right timing to do that now? And what kind of lag we should expect before that spend translates into incremental service requests? That's question number one.

And then question number two is just on the proprietary channel as you lap homeowners choice this year, how should we think about the normalized growth rate for that channel?

Thanks, Sergio. It's Rusty. So first on the brand spend, if you put into the context of what this company has spent on off-line marketing over its history. We're really now just going to be in 2026 returning to 2024 levels. So it's not -- last year, we took a step back as we're digesting the changes from homeowner choice. But we're not increasing to levels that are above anything where we've spent profitably in the past. I can talk a little bit about how our approach and how we get confident with our ROI.

So in TV, in particular, we have a data partner that has -- is connected through on a decent percentage of TV sets across America, and we're able to actually pair the IP addresses of people when they see our ads and pair that against the IP addresses of people who submit service requests. So we have pretty good visibility into kind of the uplift from our TV spend. It's not as precise as other digital channels, but we've honed this over a couple of years and we have pretty good visibility relatively to be able to measure the ROI from our TV spend.

And then kind of at the back half of last year when we were spending TV but at lower levels, we kind of dialed in changed our strategy a little bit and our channel and station daypart mixes. And so we're getting to pretty good ROIs on that spend. So between that, the results, our ability to measure this and having the strongest brand in the industry, we feel pretty confident that we can spend at these levels and be profitable.

Yes, I would just add, it takes a little while to build. So your first quarter incremental spend is going to pay back the lease well, but it's going to ultimately pay back long term. There's a tale of months on this stuff. And as we add the incremental is taking a little more to pay back. So we're pay back, I don't know, 3 quarters in year with the tail outside of the year.

But the other point I want to make is -- we kind of went on defense last year. We made a material change to the UX. We are working on correcting our customer experience. We wanted to ride through that in the first quarter, and then we wanted to deliver our target adjusted EBITDA last year, which we did. And so we pulled back our marketing spend to sort of make sure we would do all that.

I think with the way our customer experience has moved and with the upside we now have with not only homeowner and choice in, but we've rewritten most of the questions in our Q&A. We've implemented the AI helper in the Q&A. We've moved all our Pros into a product where they can choose Task and [ Zip ]. Our new pros who are coming in online are looking at the jobs before they opt into them. we have a multiplier effect on the level of matching, and we believe we should go back on offense, going back on office, just means going back to the 2024 spend, where over time, we believe we were better than breakeven, although, again, there is a tail on that. So we do feel pretty good about it, and it is baked in to our overall revenue growth.

All right. And then your second question, Sergio, is about kind of normalized growth rate for proprietary. So we're now -- we're splitting out and we're showing you our proprietary and network revenue on a revenue basis now. So Q4 was 23% and for the full year of 2025, it was 17%. So that's good visibility into kind of the 2 pieces of our business. And for 2025, you have a grower like that and you have a decliner in network -- on the network side, that ends up combining to be a decliner overall.

But as we kind of progress forward on the proprietary side, we're saying overall revenue ending the year kind of in the mid-single-digit range, probably be high single digits, that means for the proprietary business. And going forward, proprietary revenue, we think, is high single digits, continues there or even low double digits depending on where we can get with pro capacity and continuing to make progress in our paid proprietary channels and the impact of the branded marketing.

Our next question comes from Dan Kurnos with [indiscernible].

Rusty, you actually just brought up the first question I had, which is since you guys are leaning back in now and we're starting to see this advancement in proprietary SARs, just curious since the network is still declining nominally, what is happening with Pro capacity. And then secondarily, you guys flagged on the last earnings call and in the shareholder letter that you're doing a global platform consolidation. So maybe, Jeff, just give us an update where you are on that front? Any disruptions that we might expect to see? I think you called out one in your prepared remarks, but I'm just curious if there's anything else we should be expecting on that front?

Let me take the second question first. By cutting the organization by 40%, we think we've extended by a quarter or 2 the time line in getting to our final single platform. But we have built our time line in a way that we do not believe there will be a disruption to the business. And what, in fact, we are doing is we are going to deliver in stages. So first up, on the rebuild is our new homeowner experience.

Our current homeowner experience, which comes from the start of what we call the SR path where the homeowner enters the funnel and starts answering questions choosing a pro and then managing their post-selection project in a projects space, that's the core homeowner experience. That's the first thing we're going to get rebuilt. It's rigid technology. It's old. It's very difficult to iterate quickly and improve and we are rebuilding in what we would call a [ componentized ] way. What the [ componentized ] and more flexible way is, is we can skip steps we can pick up from different channels at different stages of the flow.

If, for example, we had somebody in a hardware store and we had a QR code, and they were looking specifically at a mini split to do heating and cooling in their addition. We could pick up right there that they're in the mini split aisle and be very clear very quickly on where to drop the experience, which would boost conversion, it would boost matching, we cannot do that today. Somebody who scans a QR code with a mini [indiscernible] and for them has to start with what's your ZIP code, what's your category.

So it's going to enable a bunch of things, including making even better any integrations with LLM and other partners. That is the first thing we're going to deliver, and then we're going to move on to delivering the pro experience and so forth. Now we could change order. I think we're currently looking at software we might build with agentic coding and how that's going to work. But that being said, we don't anticipate disruption to the business.

We actually anticipate enhancing the business and the customer experience as we go and maybe we're a quarter or 2 later than we initially anticipated, but there's a lot of green left to cover there.

I'll cover pro capacity. So over the past couple of years, but in particular, last year, we've completely changed the way that we acquire Pros and organize our sales force, especially with the Single Pro initiative, where we're selling a single product or a single sales force on a single platform.

We've changed up the prospect mix and the kind of offer strategy. So we're selling much bigger Pros with bigger packages, but less Pros. So our nominal amount of average monthly active Pros is still down year-over-year. but the capacity per pro is up, our revenue per pro is up and the overall capacity of the network is actually up when you net those 2 factors against each other.

Now the complexion of that will change a little bit next year as we lean into selling more large pros, and we're talking large pros, we're talking quite large pros, so those will be fewer number but much, much bigger. So they'll have less of an impact on our kind of nominal counts, but they'll drive a lot of capacity.

And then on the completely flip side, as we ramp up online enrolled, we'd expect those to be kind of lower capacity, smaller pros, but we'll be able to acquire them at a much greater scale. So then when you look at our acquired Pros, you can see we've actually -- we were down 23% this quarter, but versus Q1, we were down 41%. So that -- those year-over-year declines have been narrowing.

And as we roll out online enroll and ramp up that, we expect our acquired Pros to flip over into year-over-year growth in 2026. And then that on a lag will result in the growth in our overall average monthly active pros in 2027. So that is how it all kind of comes together where we have capacity growth already right now in the network year-over-year just based on the mix shift in the Pro base, we'll get to acquire pro growth in 2026 due to online enroll and then overall kind of nominal network growth.

And our next question comes from Stephen Ju at UBS.

All right. Great. So Jeff, so instead of -- just thinking about AI as being a challenge. There's probably an opportunity for Angi to present the differentiated consumer experience going forward given the data that you have. So -- from a tech stack perspective, what do you need to build or change to take advantage and move up the marketing funnel and become that destination platform?

And secondarily, sort of a macro question here. We're, of course, getting different cross currents. So I was wondering if you can weigh in on what you're seeing.

Okay. I'll take the first question. I'll let Rusty take a shot at the second one and add if I could be helpful. Look, I think basically, in terms of the tech stack, what we said is we have legacy technology, which we've got to replace with modern technology as a single platform. We are doing this all, shall we say, AI first which means our intent is to integrate AI.

We've always used machine learning and algorithms, but we can use effectively conversational AI interfaces and obviously the advanced capabilities of LLMs to improve the customer experience. So anything we do new, we are doing with the idea of being AI first in the product. I think secondly, we are thinking about how we build new pieces of software with agentic code that may actually replace some of our legacy technology or augment. What we have to be able to do then is integrate effectively through APIs or otherwise to deploy that new software. So I think we have to put some thought into how we do that.

But this is actually sort of timely. We are in the middle of shifting to a new modern platform. At the same time, that really high-powered agentic coding has arrived and we are going AI first. So everything we are doing is with the thought of just as I described in response to Dan's question, we want to be able to deploy in a more componentized way to multiple surfaces and channels, and we want to be AI first in the deployment in order to drive the right matching and actually ultimate job done well, which drives value and actually growth and long-term resilience of the business.

Yes. And then on the macro, reflecting back on 2025, there was kind of April liberation day volatility. We recovered a little bit from there and then heading into the -- and at the end of the year, you can see in the consumer confidence surveys, kind of down 20% to 30% in the last couple of months of the year and pointing in the same direction for January. And so what we've seen and talking to partners and competitors and such is a little bit of weakness and pressure on volumes.

We see a little bit lower mix down in kind of job values and consideration overall is what we're seeing and what's embedded in our numbers and our outlook. Overall, what we tend to see if it gets into a recessionary environment is -- it gets a little bit harder to get SRs. It's a little bit easier to retain the pros and our business generally has a pretty material amount of ballast due to the fact that we're 2/3 of the business is in kind of nondiscretionary tasks whether you cut it by service requests, leads, revenue and pros.

And our next question today comes from Cory Carpenter at JPMorgan.

I had 2 as well. Just hoping you could talk a bit about the revenue per lead decline. I know you called out that in the shareholder letter. So just maybe expand on what you're seeing there? And then secondly, with share repurchases pause, I think you're not able to do share repurchases for a period of time going forward after the spin. So maybe just help us with how you're thinking about capital allocation in the coming quarters.

Thanks, Cory. Yes, so on the revenue per lead, we mentioned that it's -- we're delivering additional leads to subscription pros. The way the subscription product works is that pros pay kind of a fixed amount and we deliver leads up to that value if we're able to kind of optimally just get it exactly that amount, that's not really how it works. If we have a homeowner that comes in submits an SR and the only pros available are people who are already kind of at their subscription caps, we want to deliver the best experience.

And so we still will deliver that lead to these products. So it's possible that subscription pros, get additional leads that we're not able to monetize. So that will show up as higher leads, even though we're not able to get additional revenue for it at the moment. And mechanically, that just results in downward pressure on revenue per lead.

What's going on beneath the surface is that we have the ability. We have features and functionality that we'll be rolling out to allow us to monetize, better monetize some of those additional leads similar to how the functionality and the product works in Europe. And just in terms of the phasing of how we rolled out Single Pro and the subscription product in 2025, it was on the road map, and it's just coming out over the next couple of months.

Okay. And then capital allocation, I think as you pointed out, we bought the prudent amount possible post spin. It's usually a 2-year window, so that would put us at next April 1. And I think there's a couple of things.

One is we have $500 million of debt on our balance sheet coming due in 2025. So we're keeping our eye on that and thinking about where we finance. We think we're in a great position with that. We think that between the cash flow we generate this year, our balance sheet and our credit line, we have that actually fully covered.

So that's just a consideration in terms of capital structure and capital deployment. We would not be against value-creating tuck-in acquisitions, but we don't have any in mind we would do them at appropriate multiples and make sure that they weren't creating too much complexity in creating, so we've never ruled that out. And then I think we have to see where things play over the next year and where we get to in terms of next April 1.

And I think long term, we would obviously, with our ability to generate cash, if our stock stays at the levels it's at, we would still think about buying in the stock, and I think you could never say that a dividend is off the table either. So there's nothing imminent on that. Again, we're more than a year away from doing more share buyback. But I think we're in a pretty stable position and I think that's how we're thinking about it.

And I'll just jump in for one second just because, Jeff, you said that the bonds are coming due in 2025, but --

2028.

I just wanted to correct the record. Sorry, I'll August of 2028.

Thank you. Yes, no problem.

And our next question is from Brad Erickson at RBC.

I had a couple follow-ups. Sorry, on the first one, I may have missed this, but can you just quantify what the current exposure is to the SEO headwinds at This point? And then just kind of how to think how that evolves over time. And then second, on the Google competitive front, can you just -- just remind us sort of describe a little bit what's having kind of the most acute impact, whether it's just kind of the usual run-of-the-mill algo changes in content versus maybe Google Advantaging some of their own service provider customers or maybe a bit of both? Just help us zoom in a bit closer on kind of what's happening there and how you manage that.

Yes. So on SEO, we're currently at around 7% of SRs leads revenue is coming through SEO. So that's kind of the current exposure that's obviously been coming down over the past couple of years. And the way -- as we mentioned, the way that we're thinking about it going forward is that will continue to treat that as a source of homeowners that we want to be able to continue to acquire. But generally, Google is [indiscernible] continue to capture as much of their own real estate as possible and not make it available to everybody else.

So we're planning the business accordingly to be able to take as much of that share as we can. But we're also focused primarily on growing our proprietary sources of traffic through every other channel. And that's how we've been able to continue to -- we've been able to grow our proprietary revenue, 17% overall this past year, notwithstanding that we've had kind of a piece of it, which was this SEO headwind working against us.

Yes. And I think if you look forward, you have to understand that there's a couple points of drag on our proprietary the next couple of years in our mid-single-digit plus outlook for proprietary that we gave for the back half of the year, and we're hoping to exit higher. And obviously, that number shrinks every year as the percentage goes down. I think the way we look at this is that unless there's some external intervention, we don't think Google has any incentive to give anybody any free traffic. It's obviously how they built their platform and their business, but they have somewhat aggressively moved away from it over the last period of years.

So I think, in general, the free real estate has received a great deal, and that's Google. I also think there's been some algorithm changes that have moved back and forth. I'm not sure that they've net impacted us a lot more than others over the last couple of years. And those are sort of always going back and forth, and we have a team who's always working to try and make sure we stay on the right side of those, understand them and react. But in general, our approach is to put out high-quality pages that get good engagement, and we think ultimately, Google's algorithms are designed to reward that.

That being said, we do not think they will increase free real estate. And not only do they have a disincentive to do so, but now I think they have outside competition. I think secondly, everybody knows 10 years ago or so, they moved more aggressively into the local services advertising space in addition to their [ MAP ] product. And so they actually created a product, which a lot of our pros use alongside of us. I don't think it's more effective than us. Some pros would argue we're better, maybe other progress we argued they are. But we've still effectively built our business with that going on, but they took more of the [ SURF ] that way. They've also pulled more paid ads up in the [ surf].

And then I think finally, obviously, AI overviews are a different matter. We're actually surfacing really well there but not getting the clicks. Again, Google doesn't have right now a lot of incentive to have people leave the AI overview or the Google AI mode ecosystem. They are working towards selling ads there, and we are actively engaged in understanding how to buy ads there. I referenced their [ AI Max ] product on the last call and how we're expanding gradually wherever it makes sense into using that product versus the TRS and the TCPA or some of their other bidding products and they would tell us that it gives us better exposure to potential paid ads in AI mode, and so we continue to lean in there.

Again, we've been extremely effective buying on Google. We grew our SCM well over 50%. And in the last year, and we think we can be effective that we don't think they're taking ads away. So we do think that we'll be able to continue to buy, but we also think they have no incentive to let anybody drive down the highway for free anymore because they are trying to grow and be a business.

And our next question comes from Youssef Squali with Truist.

So maybe just a follow-up on that last question around AI and LLMs. Can you just remind us what are the various platforms you're integrated with today in the process of being integrated with -- and any early learnings or any early insights into kind of how that traffic is kind of behaving and kind of the cost of customer acquisition through that, again, understanding it's pretty early.

And then Rusty, [indiscernible] again of the difference in margin profile of service requests and leads across proprietary versus network channel, please?

So Youssef, we're not going to name names publicly until we name names publicly. We have literally had some dialogue with every one of the major players. We've submitted an app to one of them. We're working actively on an integration with another one. We did make an announcement about Amazon Alexa, who is in turn, talking to another LLM, and we've talked to the other. So we are looking across all of them. We do not have anything live right now, and we are getting a little bit of modest traffic free from some of the platforms, but it's sort of hard to parse and it's performing the same way as other organic traffic, I would say. So we don't have a lot to report either naming names or we don't have much data because we don't have much actual flow.

But we are actively in the mode of getting our app up and working. And we've been able to test those in controlled environments. And we think it's going to work very well. We think the best proof of concept there is what's happening when we deploy with an LLM on our site where we -- 3.3x our conversion to an actual pro selected.

Yes. And then on the profit profile the SRs through the different channels, it used -- it previously was the network channels were more profitable prior to homeowner choice. By introducing homeowner choice, part of the dynamic was intentionally was that we want to bring that experience to be to parity with our proprietary experience, which involves some intentional -- an extra step of choice where you have to choose the Pros and it makes it -- by doing that, we reduced some of the profitability of the network experience. And now it's pretty comparable between the 2 channels. maybe a little bit higher on the network channel, but it's pretty comparable.

All right. I think we have time for one more question. One more, though, it's not a multi-question.

Yes, our next question comes from Matt Condon at Citizens.

Great. I just wanted to ask maybe a follow-up on an earlier question, just the leads per service request that increased pretty meaningfully in 4Q. And I was just wondering if you could help explain the underlying dynamics there. And then maybe just a quick follow-up, just on consumer marketing expense. I know that they were leaning into brand spend in 2026, but 4Q also saw a pretty big step-up or acceleration in consumer marketing expense. Just wanted to hear any thoughts or anything that you guys are seeing that maybe led to lean in, in 4Q.

So in terms of the fourth quarter, I think we saw a couple of hundred basis points of accelerated as a percent of revenue, but it was actually consistent with the second quarter. So I don't think it was a material acceleration, either, it was a decline in total spend and a modest increase, but consistent with the second quarter.

I would say, overall through the year, as we lose SEO, and we lean into our paid channels where we're effective, we have seen an increase in marketing as a percent of revenue just as you follow through the year. I think that's how we think about the third to the fourth quarter. And then the first question ...

Yes, the leads per SR, Matt, it's very similar to the response to Cory's question where we have additional leads that we're sending to subscription pros, right? So when the homeowners come in, we have subscription pros on the platform, and they they're available even though that we've kind of capped them out and they're maxed out on what their contract values are. We're continuing to connect them to the homeowners and that just results in kind of mechanically more leads on HSR.

So look, let me just wrap up with a couple of key points, which is when we started this year, I think we said revenue growth would be minus 12% to minus 16%, really driven by homeowner choice. We landed the plane, gave up over $250 million of the network revenue. We landed the plan at minus 13%. The center of our range was kind of $140 million to $145 million of adjusted EBITDA. That did include too high confidence, $5 million onetime income items, we delivered $140 million without those 2 tens.

As we look out to next year, our $145 million to $150 million excludes those [ 2 10s ], which we still think are coming in. So if you added them back in, we'd be at $155 million to $160 million. The other thing I'd just sort of point out in terms of profitability is we finished last year with $140 million of adjusted EBITDA and $60 million of CapEx. The delta is $80 million when you take the CapEx away from the adjusted EBITDA and we're going to $145 million to $150 million, minus 55, which means we're going to be solidly at mid-teens growth on modest revenue growth, but we are returning to revenue growth, we've actually done it in January.

We're just not forecasting it because of comparisons and product slippage in the first quarter. And then we're going to proceed essentially on the same path with some more conservative expectations going forward. So we entered the new year having taken the action we took in January with the reduction in force and the restructuring with more durable margin back to historical investment in our long-term brand asset.

We are the leading brand in the industry. We let the investment slip last year for very specific reasons. But we're going back on offense because we feel extremely good about the movement we made in our customer experience. We believe we have a tailwind with all of the change that came in through the year. We believe we have material opportunity on the large Pro side of the business.

If you look at PROS with 10, 20 employees or more, they're 2/3 to 3/4 of the market, we're under 1% penetrated there. we're 4% plus penetrated in the small Pro. We think we have a very significant opportunity, and we're investing there -- and we think we have all kinds of opportunity. I won't go through my whole opening remarks on AI. And I think we're super excited and optimistic, and we think we're on the same trajectory but stronger in terms of profit and cash flow than we were before. And we think we have a nice, solid, durable business here that as an agent, as we've always been, can really accelerate in the AI world.

So with that, thanks, everybody, for coming. Appreciate you listening, and we look forward to working with you and talking to you in the quarters to come.

Thank you. That concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.

Good day, and thank you for standing by. Welcome to the Angi Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that today's event is being recorded.

I would now like to turn the conference over to Andrew Russakoff, Chief Financial Officer. Please go ahead, sir.

Good morning, everyone. Rusty here, CFO of Angi Inc., and welcome to the Angi Inc. Third quarter earnings call. Joining me today is Jeff Kip, CEO of Angi. Angi has also published a shareholder letter, which is currently available on the Investor Relations section of Angi's website.

We will not be reading the shareholder letter on this call. I'll soon pass it over to Jeff for a few introductory remarks and then open it to Q&A.

Before we get to that, I'd like to remind you that during this presentation, we may make certain statements that are considered forward-looking under the federal securities laws. These forward-looking statements may include statements related to our outlook, strategy and future performance, and are based on our current expectations and on information currently available to us.

Actual outcomes and results may differ materially from the future results expressed or implied in these statements due to a number of risks and uncertainties, including those contained in our most recent quarterly report on Form 10-Q, our most recent annual report on Form 10-K, and in the subsequent reports that we filed with the SEC.

The information provided on this conference call should be considered in light of such risks.

We'll also discuss certain non-GAAP measures, which, as a reminder, include adjusted EBITDA, which we'll refer to today as EBITDA for simplicity during the call. I'll also refer you to our earnings release shareholder letter, our public filings with the SEC, and again, to the Investor Relations section of our website for all comparable GAAP measures and full reconciliations for all material non-GAAP measures.

Now I'll pass it off to Jeff.

Thanks, Rusty. Good morning, everybody. We know you're all exceptionally busy and working very hard in this earnings season, and we very much appreciate you taking the time to join us this morning.

As you know, our mission at Angi is to deliver more jobs done well to our customers, our commitment to our shareholders to return to growth in 2026 and beyond, and generate more value. In the third quarter, we again posted the key markers for both. The most important metrics we look at to judge our customer experience are: one, our hire rate, the rate at which a homeowners submitting a service request on our platform Angi pro paying for that lead on our platform.

A pro win rate, which is the rate at which pro wins the leads they pay for on our platform. Three, our homeowner Net Promoter Score, which we survey on a rolling basis. And four our pro retention. We again delivered improvement across these metrics in the third quarter as we have all year. Our estimated hire rate is up double digits. Our estimated win rate is up nearly 30%. Our Net Promoter Score is up nearly 10 points year-over-year and nearly 30 over the last 2 years.

The pro retention continues to improve with overall churn better by 7% in the last 12 months year-over-year and up 26% versus 2 years ago. And we're not done yet. We're continuing to invest to get the better, better in customer experience.

We also continue to post the key markers for our return to profitable revenue growth. Proprietary service request growth accelerated in the third quarter to positive 11%, and with proprietary lead growth at 16% and revenue per lead growth at 11%, the blue line to growth in 2027 is clearer and clear to us and hopefully to all of you.

Our network channel has gone from nearly 40% of our leads a year ago to less than 10% this year, third quarter over third quarter, making the rate of growth or decline there, and impact on our overall growth. But that will change trajectory as we start to compare next year. Our strong proprietary growth is mathematically the key marker for 2026 growth. We'll likely talk about this a little bit more in response to questions later.

We're also generating materially more value for the business with our sales channel in Pro acquisition. We have only about half the sales head count we had a year ago, but we're actually producing more overall lifetime margins, meaning the margin for pro and the lifetime capacity for pro and materially up. So with the step change that we've delivered in our sales effectiveness and our recent launch, and now ramp up of online enroll, we have the key pieces to grow our overall growth capacity in 2026, and we expect returned to nominal active pro growth by the end of the year and the beginning of 2027.

So with all these key markers in place, we're accelerating our platform transformation. Today, we operate on 4 platforms, bringing the United States to 1 internationally. U.S. platforms, in particular, have significant tech debt in legacy code, which has materially slowed the speed and efficiency of our product innovation and the business in the U.S. And with the rate of change in the landscape increasing with the rapidly growing presence of AI, we have to move forward and get on to a modern technology stack and get off pieces of software, which are in some cases is 20 years old.

We've been progressively already rebuilding key pieces of our architecture over the last couple of years, but we're now leaning in with the target of getting to a single modern global and AI-first platform by 2027. We've been and will be delivering new AI first and AI-enabled software and improving the customer experience with it and our business efficiency as well as we go. So this is going to be a progressive improvement.

There's no big bang here. And this effort isn't going to hinder our trajectory. It's all built into our outlook. And if anything, the platform work will allow us to accelerate our efforts in the business as we go forward and hit our milestones.

Again, with all of this in place, we are looking forward very optimistically to 2026 and beyond. We're never going to be happy with everything, but we do feel very good about where Angi is, and we have even higher confidence that we're going to deliver against our mission and goals going forward.

So with that, I think, operator, we're ready to take questions.

[Operator Instructions] Today's first question comes from Dan Kurnos with The Benchmark Company.

Nice to see progress on the prop lead side. But Jeff, last quarter, you suggested -- you expected mid-single-digit growth in '26. So given that we're seeing much stronger trends in proprietary and obviously, the weaker in network, plus all the migration work you're doing, has anything changed with regards to your 2026 outlook? And then I have a follow-up.

Daniel, let's go past. But we are tracking the same target for 2026 revenue growth, as we discussed on the last call. You referenced the mid-single-digit target and that's about right. We expect modest overall service growth with the strong performance in proprietary being offset by the network comparisons. I think you made the right comment that the proprietary looks a little stronger and the network looks a little weaker, and we probably net out around the same.

We are delivering this all through very strong paid proprietary channel execution, and we're going to reinvest in branded advertising next year. We expect to double-ish our TV spend given what we've seen on the strength of our branded traffic and our TV performance this year. If you look at overall brand search metrics, which is something some of the larger companies out there are looking at to gauge their overall campaigns, we were only down in the low to mid-single digits in the third quarter versus the prior year, despite year-to-date cutting our TV spend by 70%, which is not, I think, from relationship you often see, that will bolster our growth.

And we think our significantly improved customer experience and the solid ROI there is, I think, attributing to that.

I think revenue growth rates will likely vary through the year, likely a little lower in the first half of the year as we compare to higher network service request volume, and evening out over the course of the year. I think it's also just worth mentioning what we said on the last call that we expect a little leverage from revenue to EBITDA growth as we keep our strong fixed cost discipline next year.

That's super helpful. And then just, look, second, there's a lot of moving pieces on EBITDA in Q3 and Q4, including the shift to CapEx along with what you guys called out the resolution of two matters that could result in some slippage into '26. Can you just talk through those pieces and also how we should think about CapEx running in Q4, and next year?

Yes. Sure. Dan, this is Rusty. Yes. So our believe versus the guidance, it was a mix of a couple of different things, partly some contribution margin outperformance, partly less expense from less hiring, and then partly some timing of expenses. You'll notice -- I think you're referencing that our international EBITDA bumped up quarter-over-quarter, mostly due to changes in the product organization that Jeff mentioned in the shareholder letter. So we combined domestic and international into one team, so that we can focus on consolidating onto one unified technology platform, which is an initiative that we have been orchestrating for a while.

What this meant in Q3 was that the international folks shifted their work towards building out the new platform, which due to the accounting rules resulted in less expense being allocated to the International segment and more capitalized wages these financial dynamics were in line with what we've anticipated with this.

Expectations going forward are that capitalization rates in Q4 should be a little bit higher than in Q3 as we continue to ramp up the platform work, and then we'll continue at a similar run rate through the first half of 2026 before it tapers off as we start to complete some of that platform work in the back half of next year. What that looks like on a full year basis, it will be around $60 million of CapEx this year, around a similar amount next year, but will be front-loaded next year as opposed to backloaded this year.

Got it. And just, Rusty, I just -- could you just clarify what the two matters were? I know it's just timing stuff, but just helpful color on EBITDA, maybe some shift there?

Sure. So we have two vendor-related matters that are from prior years that we had high confidence would resolve much earlier in the year. Both remain under discussion and thus, we're not really at liberty to give more detail on them. There's a chance either or both of them might resolve in Q4, but we're obviously running up against the end of the year. So at this point, that seeming less likely. But we still expect to prevail ultimately, which might be the impact will slide into 2026.

Our next question is from Andrew Watts with JPMorgan.

First, could you give us an update on what the response has been from service pros to the ads migration? And second, could you expand on what you saw in the network channel this quarter, and how that impacts your outlook going forward?

Sure. I'll take those. So first of all, the ads migration is more than half done this morning. It consists of 2 30-day rolling migrations. We're doing them over 30 days because we want to match the contract renewal date. It just makes a lot more sense to the business and the customer. We'll be about 3/4 done on November 15 and then start a second 30 day.

We've had zero disruptions or problems so far. We've got good feedback from our customers. As you probably recall that ad pros really have no choice as to which tests within a category they received, and no choice beyond their initial allocation, ZIP codes. So it's positive. It will make life better for them, and it will also improve our matching because you'll have pros actually receiving the things they specifically want. So we're getting good feedback.

The migration is one of the planks to this all progressive global platform work that we've embarked on. We'll power down the legacy ads platform following the migration, saving money and allowing us to put resources elsewhere. There hasn't been any disruption of any kind of materiality in the P&L. And we really expect that on all of this work, given the way we're working and given our experience. This is our fifth migration. We did 5 in the European business. And so this is kind of a continuation of the work we've been doing for a while now.

I would just say that having something like this come off seamlessly is still impressive that the teams that have been working on this thing tirelessly for over a year deserve a real tip of the hat on the effort and the quality work they've done. Eden, [ Yugo ], Dave, Joe and everyone else. Thank you very much and if you're listening, tip of the hat to you guys.

Let me go to the network channel. A year ago, just recall, our network channel was almost 40% of our leads. It also had in the range of half the win rate of the rest of our channels. Today, the channel is less than 10% of our leads and the win rates materially increase to be in the same range as the other channels. All of this was planned. We made a conscious decision to implement homeowner choice in January, which means that the affiliate homeowners were previously auto matched to available pros are now choosing each pro.

Our data internally has said that homeowners who choose a pro were 60% more likely to hire a Pro. And indeed, we've seen that kind of lift in the affiliate hire rates. So it has been a win for our homeowners and our Pros.

We also anticipated as a result that the volume of our leads would come down quite a bit, both because homeowners are going to choose fewer pros than they were automatched to and because there's less revenue for SR to spend on acquiring more SRs. So we expected that. It was in our guidance. We're kind of on track there with a little bump here in the third quarter.

We also expected volatility in the ecosystem. When we launched into this, we weren't sure exactly if everything would play out. I think net over the course of the year, we've gotten a bit less volume and a bit more profit than we expected. In the third quarter, we had three of our larger affiliates have bumps down in volume. One of them had to do with quality of SRs in their affiliate network. A second one told us they had operational issues. The volume came down. And in the third one, we just didn't have as much volume available.

Now we've gotten back, a chunk in this volume, but not all of it. So we are at a lower run rate. Again, we didn't expect these things, and we also still expect that there will be some bumping up and down as we add network partners and some drop off. So at the end of the day, as we look forward, our current view is that we've kind of come back off our bumps.

We're at our new run rate. We're constantly farming and looking for appropriate partners. And we think that, again, we're stable. We could go up. We could bump down. We'll see. It's now less than 10% of our traffic. It's not a strategic channel. We're going to take the right traffic that we can match the right Pros and get jobs done well. But this is not something that we bank on as a source of future growth in particular. We're happy to have it and make it work and keep deploying there.

Next question is from Ms. Sergio Segura with KeyBanc.

Maybe starting with AI helper. I thought it was interesting that statistic you gave that it converts at a 2.7x higher level than the traditional flow. Now that's the default experience. Just how should we think about modeling the impact? And I guess, is that informing your view of maybe investing even more into marketing for 2026? And then I have a follow-up.

So let me step back. Let's just talk about our approach with AI generally. So first of all, we commented in the letter that we made the move to AI first. And what we're doing is we're looking to implement AI across our customer workflows and our team workflows as well. And we are looking to, as we build new software build an AI data.

The AI helper is really sort of one of the first prototypes where we are taking an LLM off the shelf. And our approach is to produce a fine-tuned LLM in each case. So this is the first application. We're fine-tuned LLM means that we have a set of proprietary knowledge, which is structured in a certain way. In this case, it's our conditional set of service request questions by a task, which we can use to feed and change the way the LLM flows and the conversation with the customer.

Secondly, we have a bunch of proprietary data on customer behavior through the product. And in terms of the interaction between the homeowner pros that we can also feed. And then as we deploy these products, we get new data. And through all of this, we've created a learning loop, which differentiates our experience from what somebody might get on an LLM with our proprietary knowledge, or proprietary data. So this is our core approach.

What we've done with the AI helper is we first deployed it as an open box that effectively said, how can we help you on the side? Or tell us in your own words? And when people enter that, and that's ultimately 1/3 of the customers who post service requests with us. They're more likely to convert. They're more likely to choose a pro, and thus, they're more likely to get a job done well.

This started as a deprecation in conversion and the learning loop is sped up and now it looks accretive, and we believe we're seeing some of this in our proprietary growth. I think when you go to the next step, which is, [ gee ] how much work can this be? We don't actually expect that the other 2/3 of traffic will triple in conversion because there's a causation and causality. So you've got to do a split test to actually see what the shift is. But we do believe there's upside in getting more customers through the AI helper. And we do believe that, that's important going forward.

We don't have a big win baked into our numbers because we've actually just gotten the next phase in this test into play. And so the core of this is when you look at LLM technology, we think it's a huge opportunity for us because we can take an application like the SR path, which is fundamentally a conversation between Angi and the homeowner. And we can deploy the LLM to have more effective natural language conversations against a larger body of data than our previously somewhat rigid conditional path. And we could end up delivering a better match on our core asset, which is the 100,000 Pros who are ready to get jobs done well for the homeowner.

Because at the end of the day, we have always taken this conversation with a homeowner in the conversation with the pro, turned it into a conversation between the two of them because we have the largest supplier for us, and delivered the offline experience that people want. Done this on Google. We've done it on social, and now we're going to do it on LLM. And we're doing it within our product as well.

The next question comes from Stephen Ju with UBS.

So Jeff, Rusty, I think I'll ask the AI question in a slightly different way. And I guess, Angi's relationship with the broader world, I suppose. So I think we're all looking at shifting traffic patterns because the usage of LLMs has taken up across the globe. So how does this change your traffic acquisition strategy? What's working? What's not working as you think about customer acquisition and service grow acquisition?

And narrowing down the scope of the question a little bit. I think as we've gone through the restructuring over the last couple of years, I think you've taken a pretty conscious effort to walk away from the traffic that was lower ROI. I would have thought that in the third quarter, we be bouncing off the bottom, but I think there's sort of a directional quarter-on-quarter decline here that we're noticing in terms of the overall activity. So I'm just wondering if you can kind of walk us through what you're seeing in the third quarter?

So the first question on traffic shifting. There are some indicators out there, the traffic is moving around, statistically getting produced. There's also, what I would call the walking around research of everybody you talk to doing searches in places that sound a lot like LLMs, or actually our LLMs.

Look, our view on this is, again, what I said earlier, we think this is a great opportunity. We're in the middle of building our own proprietary app, deploy by the end of the year on one of the major LLMs, and we're in discussions with a couple of the others about deploying our current and then new technology there. So we think it's a great opportunity because we think that our domain knowledge and our proprietary data and the context we have is going to allow us to enter the chat, midstream in the LLM and read the context from the customer and get them more accurately and with more expertise to the pro they want. So we think it's a great opportunity.

Obviously, there's a bunch of cards. It's very early in the Texas Hold'em hand. So there's a bunch of cards left to come on to the table. But between our development capabilities, our AI team and the ongoing conversations we're having in the nature of our product, we think that we are very well positioned there. We're also, at the same time, kind of rebuilding our content approach, the structure of content that gets serviced in AI is a bit different, although there's a lot of correlations to the way it gets surfaced in Google SEO, but we're actively looking at what we do and how we do it to make sure we're in play there. And at a minimum, we get the brand impressions.

I think then finally, we're actively working with Google on everything they're doing in terms of how they deploy ad space and AI mode and elsewhere. The AI MAX product, which is meant to sort of focus on getting to the right spot against the AI is now over 10% of our spend. So we're literally -- we're literally trying to stay on the cutting edge of everything about where traffic is, where it is going and keep our team and our technology deployed in the right way there.

And we see this as opportunity, not as something bad. We see this is actually very good. Your next question was about third quarter trends. And thinking maybe we should have been bouncing off the bottom.

I think what we said is we get sequentially some improvement. We were minus 12% in the second quarter on revenue, and we said minus 8% to 11% on the third, and we came in at minus 10.5%. We had these bumps in the affiliate network, which its a nonstrategic channel. Our core strategic channels are growing incredibly healthily. I think all of our proprietary -- SRs are going 11%, our leads are growing 16% and then our revenue per lead is plus 11%. So if affiliate wasn't there, you had the lead growth and the revenue per lead, you have very healthy growth. So I think in some ways, you argue that our core business, the best part of our business is growing very healthily. It is well up off the bottom.

I think the network channel is a quirky channel. It's a group of affiliates who we're working with to try and buy homeowners traffic that's going to match into our network and work well. It's not a big canvas. It's not quite a sort of algorithmically approachable as Google is. It's not as big as the social channels are. And so we got a couple of surprises at once.

This will continue to be a theme. We do think we're going to offset it with this incredibly strong proprietary execution that you've seen growing every quarter. We do think that our TV is now performing better than it was, so we're ready to lean in. And we also think that our branded social organic is contributing to what we think is an incredibly strong performance in overall Google brand searches. So I think we feel pretty good about all the good parts.

We've got a little bit of noise in affiliate. We got a little bit of noise in SEO. And again, nobody can bank on either of these as the key to their business anymore, I think, and they're both less than 10% of our traffic.

And look, we're pretty optimistic. We actually feel very good despite a little bump. I take my family skiing every year at Christmas, and we have to connect because we're going to Idaho. And sometimes there's a delay. We've missed the connection, but we always get to Idaho and have a great time skiing and put on the matching pajamas that my wife buys, and have a family picture. So we are feeling pretty good right now.

Next question is from Eric Sheridan with Goldman Sachs.

Maybe one, if I can, against all of the investments you're making across the business. We noticed you also increased the authorization around the buyback. How should we be thinking about capital allocation back into the return profile for shareholders on either a linear level, or elements of you being more opportunistic against the stock price in deploying that authorization?

Great. Yes. Thanks, Eric. So since Q2 earnings, you saw we bought back the remaining shares in the authorization that was outstanding. That amounted to 1.3 million shares at about $20 million. So year-to-date, that takes us to $111 million representing just under 15% of the company. And then in mid-September, the board authorized us to repurchase another 3.2 million shares.

We haven't yet repurchased any shares out of that authorization, and we'll utilize that as Board deems. That's an appropriate use of capital. Importantly, as we've mentioned previously, there are limits related to the amount of share repurchases in the 2 years following a tax-free spin-off. And so if we repurchase all of the shares under the current authorization, that would take us just under that limit.

And our next question is from Youssef Squali with Truist.

So maybe, Jeff, just stepping back a little bit, can you just talk about the broader picture, the health of the consumer right now, maybe just given the current macro? Has it changed at all on the margin? Maybe any difference between lower DMA versus higher DMA type of customers?

And then on the...

Sorry, can you just tell me what -- I apologize, DMA?

DMA, just like higher -- I guess, various ZIP codes, like higher-income ZIP codes versus maybe lower income ZIP codes? .

Okay. Thanks.

And then just on going back to the need to consolidate from 4 platforms into one. Maybe can you double-click on that a little bit? How heavy a lift is it? And how much of the turnaround in the business and the growth starting in Q1 of 2026 is predicated on that move to the single platform. Just trying to see what potentially could go wrong could delay that inflection?

On the overall macro, I think our view is there's a big disruption in April connected to macro events. And that kind of hung a little bit through May. We saw a pickup in June, and we feel like we've been kind of steady since then. Not a runaway homeowner demand like we had in COVID, but not a falling off homeowner demand like we had in the financial crises. So we think it's kind of stable.

We can't say we pull anything different in trends on different ZIP codes. There are ZIP codes where we perform better, and ZIP codes where we don't. But we can't say that there's been some kind of step change there. So that's, I think, the macro. I think things look steady as she goes right now.

I think secondly, on your platform question, as I said, we don't have any wins from platform integration, particularly built in. And we don't particularly expect disruptions. We're in the middle of our fifth migration of a significant pro network. And for the fifth time, we see it the same, and I think we've seen less post in other migrations. So we think this improves the customer experience, and it's also going to improve the efficiency of our commercial engine.

You can already see the improved efficiency in our consolidation, the sales force to sell only the new product which is a result, which has been part of the success of selling significantly more capacity for pro and generating a lot more value.

Could we see some lift, yes? There are progressively going to be rollout. You're seeing the first one in this migration. We're going to see some impacts on our homeowner- facing side, which we think will be net improvements over the course of the first half of the year, and we will progressively be delivering platform pieces, which both have the chance to improve conversion and the customer experience, and will allow our team to test, develop and deploy faster and iterate faster.

I think we've been very much held back on our ability to move the speed across the product and the customer experience for multiple years here by the legacy technology and tech debt.

So I think we are -- the way we look at this is we kind of roll forward our run rate and build in our knowns. And then we go execute, and we're always anticipating what we know versus what we might not know and handicap. And I think right now, we've got a pretty even outlook over the course of next year. And we don't expect -- we're not building in a massive lift from some piece of new technology, and we're not expecting because we haven't -- in now 6 -- we're on our 6 migrations to date. We haven't had a major disruption in any of them. And we've got some -- we have some pros working on this. So our own internal technology pros, not our external construction, specialty construction and home services pros.

The next question is from Matt Condon with Citizens.

My first one is just -- can you just talk about the sustainability and the acceleration of service requests. I believe the acceleration is partly due to the transition and spend away from the network channel into the proprietary channel. Is there an upper bound on marketing efficiency and your ability to drive growth through that channel?

And then my second question is just on competitive intensity. Just what are we seeing...

Can you just hold on -- can you just -- can you back up, I apologize. There's something about the sound where I didn't fully grasp your whole first question.

Yes. I can repeat. I'm just talking about just the acceleration service requests and if it's sustainable from here? And specifically, just as you transition spend from the network channel into the proprietary channel. Is there an upward balance just on marketing efficiency? Like can you continue to push on spend there to drive that service request volume?

And then just the second question is just on competitive intensity and if that's changed here over the past several months?

Okay. So we may get accelerated a bit in the fourth quarter, maybe even in the first quarter. We're not necessarily predicting that on our proprietary growth. But we're actually -- what I said earlier is we're going to have tougher compares as we go into the second, third and fourth on the proprietary. So we're actually thinking that if you have mid-single-digit revenue growth and you have -- we expect maybe modest net SR growth across all the channels next year and a little bit of variability around the mean through the quarters because of different compares.

And then we also expect to continue to get revenue or service request growth and we'll see how the mix of leads per service request and revenue per lead comes in, depending on the allocation of leads between our paper lead and our subscriber pros. But we basically think modest service request growth, modest revenue per service request growth. And so we're not actually saying we're going to accelerate through next year.

Now what I will say is that the team -- again, sorry about the standout team, the online performance marketing team has had a couple of great years, dramatically improving profit growth in 2023 and really turning it on with volume growth this year. So I'll tip my hat to them, too. But they have a list of initiatives and their product and technology partners have a list of initiatives. By the way, they've been a big part of that acceleration and win as part of the new platform work effectively over the last couple of years. So there's a list of initiatives. There's a level of execution, and we think we can continue to grow.

I think the other key point is growing pro capacity which we're going to be back doing next year. If you look at what we've been able to do in terms of growing the lifetime value per Pro acquired, we expect to be able to continue to drive up lifetime value per Pro acquired as we shift from smaller Pro to larger Pro acquisition with our sales because we've gotten much better at prospect segmenting and targeting. We just added more talent to that team. We're pretty excited about it. We think there's a pretty big opportunity in larger Pros.

We think we're 3 to 4x the penetration in Pros with 10 or less employees as we are with Pros with 10 or more. And so we have a big opportunity to keep shifting and getting that capacity for Pro up. And I think you roll out online enrollment, that gets you another whole pool of Pro capacity. And the more pros I have, the more revenue that's available if I can buy the SRs.

So I think we have our online execution. I mentioned the TV coming in earlier, and then we have the ability to grow our network and have more demand in order to buy into. So yes, I think we can growing -- keep growing. And I think there's new tools available. We have to hit all of the major platform channels and the LLM channels, our real potential new area of opportunity for us that, again, we're working right now on proprietary technology that plays directly into our core strength. So we're very optimistic there, too.

So we do think we can continue to grow SRs. We have net modest expectations next year. And in an ideal world, we beat that soundly, but I can't predict that right now.

So in terms of the competitive set, we have some strong competitors out there. We continue to think that on a revenue basis, we're probably the size of the next 2 combined, but we don't have exact data. And the largest competitor is probably Google with their direct-to-pro advertising, and they've been probably the most formidable because when you own the highways, you can decide who drives on it, over the last several years for us. We do think our competitors are real. We're watching carefully what they're doing.

We want to -- at the end of the day, we want to present the best solution to our homeowners and our Pros, and differentiate ourselves by providing the highest quality of experience. And I think by doing that, we can continue to grow and stay keep our competitive position and be the top choice.

Our key assets are, number one, our network and the quality and skill of our network. Number two, our brand, which has been built over 30 years from the ground up by our Founder, Angie Hicks and everybody else. So we've had 30 years of successfully connecting homeowners to Pros for jobs done well. That's not an asset that any of our competitors have.

And then finally, I do think we have a commercial machine and a reach between our online marketing expertise and our ability to call and sell Pros that we've got to the scale we have that others don't have. And I think -- we have these advantages. We've got to keep improving our customer experience. We think we're very well positioned with our team. We're going to pivot our technology. And I think we feel very good about where we are and our opportunities going forward.

We have any other questions operator?

There are no -- there is one more question that is queued up, if you'd like to take it?

Sure. Let's go.

The last question is from Ygal Arounian with Citi.

This is Max on for Ygal. Just one maybe on the 2026 EBITDA. I think the language maybe shifted a little better from similar to modest to that more modest higher end from last quarter. So just curious what's driving that? Is that some of the expected efficiencies from the platform migration, or some of those AI efficiencies from the internal tools you're using that you called out in the letter.

So I don't have our transcript from last quarter in front of me. I think we said mid-single-digit revenue growth and a little bit of margin leverage. I'm not sure if you said a modest, similar or what we said. I think when we look at our margins next year, we're not predicting contribution margin leverage because we're going to invest up in the branded area. We think we get our leverage by holding our fixed cost discipline, which I think if you look at the P&L over the last couple of years. Rusty and the team have done a very nice job with.

So we do think we're able to get efficiency by being AI first. We think you put a multiplier on human productivity, whether it's coding, or processing sales scripts or doing customer research. So we think we're going to be able to hold our head count and keep our fixed costs down and realize the leverage at the fixed cost line as a baseline.

And at this time, there are no further questioners in the queue. This does end today's Q&A session and as well as today's conference. Thank you for attending today's presentation, and you may now disconnect your lines.

Thank you very much, everybody. We're very optimistic looking forward. Thanks for coming this morning, and thanks for listening to us. We'll talk to you all soon.

Good day, everyone, and welcome to the Angi Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Please also note today's event is being recorded.

At this time, I'd like to turn the floor over to Andrew Russakof, Chief Financial Officer. Please go ahead.

Thank you very much, and good morning, everyone. Rusty here, CFO of Angi Inc., and welcome to the Angi Inc. second quarter earnings call. Joining me today is Jeff Kip, CEO of Angi. Angi has also published a shareholder letter, which is currently available on the Investor Relations section of Angi's website. We will not be reading the shareholder letter on this call. I'll soon pass it over to Jeff for a few introductory remarks and then open it up to Q&A.

Before we get to that, I'd like to remind you that during this presentation, we may make certain statements that are considered forward-looking under the federal securities laws. These forward-looking statements may include, since related to our outlook, strategy and future performance and are based on our current expectations and on information currently available to us. Actual outcomes and risks may differ materially from the future results expressed or implied in these statements due to a number of risks and opportunities, including those contained in our most recently quarterly report on Form 10-Q our most recent annual report on Form 10-K and in the subsequent reports that we filed with the SEC.

The information provided on this conference call should be considered in light of such risks. We will also discuss certain non-GAAP measures, which, as a reminder, include adjusted EBITDA, which we'll refer to today as EBITDA for simplicity during the call. I'll also refer you to our earnings release, shareholder letter, our public filings with the SEC and again, to the Investor Relations section of our website for all comparable GAAP measures and full reconciliations for all material non-GAAP measures.

Now I'll pass it off to Jeff.

Thanks, Rusty. Good morning, everybody. The first thing I'd like to do is thank everyone for joining us this morning. We appreciate it. Our internal research indicates that this is the busiest earnings morning of the quarter, and we know everybody is working really hard. So thank you. This is our second earnings call since Angi spun off from IAC as an independent public company. I think it's worth taking a minute and reminding everyone again of the multiyear journey we have been on. Last night, we reported our first quarter of proprietary volume growth since the beginning of 2021, the big milestone for us and our journey to state the obvious that everybody knows we have, over the last few years, shed over $400 million in revenue that is on the face of the P&L. To the untrained eye, many people have thought this looks like a bad thing.

And under normal circumstances, maybe it would be. We would actually argue it is all a very good thing and quite the opposite for the long-term success of both our customers and the company. What we've really done is first, we have shed lower-quality revenue, which was, in fact, deprecating our customer lifetime value and thus the long-term value of the enterprise. Poor quality transactions mean that customers leave where they don't come back. Secondly, we've removed a material amount of unprofitable marketing and sales expense. In other words, we were spending money to acquire customers at negative profit. And so now that we've adjusted that, you can see our profitability has improved greatly. Both our adjusted EBITDA and our free cash flow are up materially from 2022, where, in fact, our free cash flow was negative.

Additionally, today, and I've already cited this, you can see the key markers of our return to revenue growth. And this time, it will be profitable revenue growth. And that is, first, the strong proprietary volume growth, which I just mentioned, the first time in several years. And secondly, the stabilization of our network channel traffic. It's down a little bit quarter-to-quarter, but we now think it's at a stable exit rate. And so we think it is going to be flat to moderately down next year. And those 2 together point us to growth next year, along with the growth in revenue per lead. Finally, you can see the strong value creation looking ahead in what we've done in terms of being much higher value at lower sales force in our Pro acquisition.

The other key point in terms of what we've done over the last few years is the improvement in the quality of our customer experience. You can see it in our customer metrics over the last couple of years. We've invested in the core product functionality and coupled with what we've done in terms of pruning our lower quality traffic. This has resulted in moving homeowner Net Promoter Score by 30 points over the last 2 years. We mentioned this last quarter, but it's still an accomplishment, and it's still true this quarter. and we've moved the total retention across all courts of our Pros by nearly 20% over the last 2 years in this last quarter.

We've moved both the hire and win rates. And by that, I mean a hire is when a homeowner who submits a service request on our platform, hire is a Pro who has paid for that lead. Obviously, when the Pro pays for a lead and they win it, that's their win rate. In June, our win rates on our core Pro platform are over 20% in July, our internal early data is tracking to more than 30% up year-over-year, and the hire rates are coming right along with those win rates. So we have done this progressively over the last couple of years. And at the same time, we've been improving the technology we operate on. 1.5 years ago, we have 4 different technical platforms with relatively low fidelity integration in the U.S. and 3 platforms internationally.

By the end of this year, we will only be operating on two in the United States and one internationally. And at some point in the future, we see us as progressively step-by-step getting to a single, modern international platform, which will give us a great deal of operating efficiency and more speed to market. So we are quarter-by-quarter piece by piece, putting all the pieces together to serve the trajectory that we project. And we think steadily piece by piece, putting the evidence out so that you can see it too. We still think we're in the early innings, and we still think we have a lot of work to do, but we're very optimistic going forward. And I'm excited to answer your questions today on the progress to date and where we're trying to go.

And with that, I'll turn it back over to you, operator.

[Operator Instructions] Our first question today comes from Sergio Segura from KeyBanc Capital Markets.

First, it'd be helpful if you could delve more into the leads and service request trends you're expecting for both the proprietary network channels just for the second half of the year that kind of underpin the guidance that you guys gave in the shareholder letter?

Sure. I'll take that. I think that's a pretty straightforward projection for us. We expect that server request and leads to keep growing at approximately the same rate they were growing in the second quarter. But then improvement in year-over-year revenue comparisons will come from more growth in revenue per lead and just to remind everybody that change in revenue per lead is somewhat driven by price optimization, but the biggest driver there is our move to a single platform where we're moving our legacy ad pros who really bought a basket at a significant discount, a basket of leads at a significant discount. We're averaging that portion of the network out by, a, in March, we stopped selling them and b, at the end of this quarter we will start migrating them to the main platform. That will give us lift over time in the revenue per lead. So those are the elements of what we see as our revenue trajectory and our volume trajectory over the back part of the year.

I guess the one other note I would say is, we expect that our network volume will kind of stabilize our exit kind of run rates for the second quarter and be roughly stable the rest of the year.

Great. That's helpful. And maybe if I could throw in a second one. Interested if you could talk more about your probable acquisition opportunities and then how we should think about that consumer marketing expense line going forward. That was up year-over-year. So just wondering if Q2 is a good run rate as a percent of revenue? Or do you continue to see a nice runway to invest behind those opportunities and we should expect that number increasing going forward.

Yes. So just to talk about margins broadly, Sergio, where we are now after homeowner choice is, we've had a little bit of a step-up in our consumer marketing expense as a percent of revenue compared to where we were in the first quarter and last year as we're driving more on our paid proprietary acquisition channels. And then in this quarter, we simply had strong execution there.

And what happens is then on the margins, where both -- as we drive on the paid acquisition channels, on the margin, some of those acquisition ends up being a little bit lower margin than in the core of our pay channels. And then at the same time, we have a little bit lighter on our organic traffic. So as you think about our margins this quarter, a little bit higher consumer marketing expense as a percent of revenue, we're making some of that back is in terms of our paid acquisition expense as we've moved all of our sales on to the single Pro platform and optimize our sales force. So at the contribution margin line, it all kind of evens out. We're going forward, we expect in Q3 and Q4 to be fairly stable on our contribution margins. Going from Q3 into Q4, we expect to have operating margin leverage that is similar to the path that we had in the same quarter in the prior years.

However, without the fixed expense increase that we saw in the fourth quarter of last year, where we had some expenses that won't reoccur this year in the fourth quarter. So that will give us the ability to avoid some of the fixed expense margin deleverage that we saw in the fourth quarter and have more of our profitability flow through down to the bottom line.

Our next question comes from Eric Sheridan from Goldman Sachs.

I appreciate all the detail in the shareholder letter. Anchoring around the part of the letter that talked about your highest priority product initiatives and improving the quality of match between homeowner and right pro, can you talk a little bit about the duration over which those 3 product initiatives that were highlighted would get implemented by the company and how that implementation might inform elements of yields from those priorities in terms of translating into revenue growth or platform momentum?

And then the second part would be I know it's very early, but maybe tying that broadly into how you're thinking about the exit velocity of growth this year and things like those product initiatives contributing to a growth framework for next year?

So let me try and take the product and rate of product change question. And I'll let Rusty talk about how we're thinking about how that rolls forward in terms of revenue and profit. So just to go up the step, our view is that the most important event in the user experience is the job done well when a homeowner who submits a service request on our platform hires the Pro base that lead on the platform and the job gets done well.

Literally, everybody is happy with what they've done. Fulfills our brand promise encourages repeat and positive word of mouth about our brand from the customer, and Pros are not here to chat with customers. They are here to get worked on and get paid for it. So it encourages them that they've achieved good ROI and they stay. Our view is we have not historically done the best job matching and without a good match between the homeowner who wants to hire a specific type of pro and knowing that we're serving specific type of pro to that homeowner. If that doesn't happen, we don't get a job done well.

So our focus is getting that match done and trying to make sure the two communicate, get the job done well and move on. We're investing first -- there's 3 elements to this. One is getting the service request details correct. We know what the service request is, we can find the right pro. We have to make sure we serve the right pros with the right skills and qualifications, get them matched and make sure that the contact is happening. And we have a number of initiatives in play here. What we talked about in the letter is, first of all, we have rebuilt our question-and-answer technology. that's done. We've also implemented in LLM, -- we call it a helper, but what it really is, is a place where if the homeowner is confused about the question thinks they're answering their own question or has the wrong task, or just can't really express it. They can come tell us in their own words. That allows us to get the right question or move them to the right task and keep the homeowner going and not end up with the wrong task going to the wrong Pro.

So we've built those 2 things. The next step is we are -- we have a team progressively building out and testing better questions and answers based on our internal domain knowledge and research. We've got nearly 3/4 of our volume in test on these new improved questions. We've rolled out nearly 15%. We talked about some of the leading indicators in the letter of the progress we're making on that 15%. We have 20% fewer wrong task credit requests. That's our best leading indicator that we're matching much better. Our pro engagement, our higher rate and our win rates are all up single digits across that 15%.

By the end of the year, we think we're going to get into the 80% plus range. So we're going to be progressively realizing this. And then we're going to go back for round 2 in 2026 and tweak additionally and see how much more we can get out of this both by training the NLM and by relooking at our questions and getting feedback from PROS. We're also starting to play with a service request Q&A path in the LLM. We planted this on some of our landing pages, so it's live now. It's very early stage. And I think as you know, the AMs have to learn and condition themselves based on both the public databases they access and our internal database. So that's -- we're in early days there. But ultimately, we envision an LLM enabled Q&A path which is trained and ultimately delivers better conversion and better matching and of course, the user interface that people are starting to get used to with Chat GPT and everyone else. So that's what we're doing there.

On the Pro side, we're increasing the fidelity of Match by only selling the product where the pros get to pick the tasks they want and the ZIP codes they want. A pro who chooses their task in ZIP code is basically telling you this is where I'm a good match, and this is what I want. Pros get the leads they want. They're much more likely to call. And if they're more likely to call, they're more likely to win and the homeowner gets their job done. We have historically had a significant portion of our network on the legacy ads product, which is due to the construction of the technology was you had to accept the fixed basket of ZIP codes and you had to accept the fixed basket of tasks. And the result is those pros call the homeowners less. They get matched the things they aren't as interested in because they're happing with the basket. The economic exchange we had to make was a more material discount to make the value work.

So this is why we're moving from there. We're already getting better matches because we're shifting the composition of our Pros. And when we migrate the ads pros, all the Pros will have that functionality. The other thing we're getting there is, we've got a little bit of inconsistency in making sure we have all the skills aligned because of the nature of those categories versus the specific tests on new platforms. We are going to execute very consistently now and thus upgrade the overall quality we have and the confidence our customers have in that and we're going to be able to merchandise it well. So all of these things will be base hits to get us around the basis. And ultimately, I guess I can't say beat the Yankees, there's a high concentration of analyst investors in New York. So we'll say we're in the game.

Finally, we're rolling out and start to keep going, but we are rolling out again online enroll. This version of online enroll is modeled on our successful European product which since the beginning of 2020 has brought in nearly 650,000 pros in a market that's probably a little less than half the size of the United States. So we're optimistic on volume. But then in terms of the customer experience, what this does is these Pros will come in as a view one by one and express interest one by one indirect interface. And when Pros view them one by one, you have sort of a crowd sourcing effect of better matching.

Pros don't express interest and the ones they don't think match. They're decent judges as our algorithm is. In Europe, we have a more than 50% higher success rate. We think that this one-by-one effect helps there. That product is entirely one by one, so we're bringing it to the U.S. So again, we're doing a range of things across the homeowner path. We're doing a range of things across the pro selection experience and quality experience. These will progressively impact the business. I think 80% plus of this will happen over the next year with a higher concentration of that over the next 6 months, and we will continue to put 1% and 2% and 3% wins on the board over the next 6 to 12 months, build LTV, ideally build repeat rate, build our brand promise and then support what Rusty is going to talk about in terms of future growth. So Rusty, do you want to add anything there?

Yes, sure. So to give a little bit color on how that all comes together in our financials and our metric outlook. On the homeowner side, I'll reiterate what -- how Jeff has characterized this, it's like a pretty simple story. It's flat plus growth equals growth. So with our network channels, you expect it to be stable around the current levels. Going into next year just because we're lapping the rollout of homeowner choice in Q1 of this year will be mechanically down year-over-year next year, but then flat year-over-year for the balance of next year. And then the growth part of the formula comes from the proprietary channels, as Jeff mentioned, where we're making strides and developing additional opportunities there to fuel some future growth.

Then on the Pro side of the equation, our strategy is designed to deliver growth in revenue per lead and pro capacity next year. And one reason that happens is the shifting the mix of the Pro base that Jeff mentioned. But we've also been targeting being more targeted in our sales. So with more activity focused against the heart of our prospect pool with a better product offering, and that's resulting in higher value sales.

Jeff mentioned this in the letter, but I'll repeat it here because it's a powerful point. We acquired 39% fewer Pros in Q2 versus last year. But the aggregate Pro lifetime value sold in Q2 was down just 4% year-over-year. So each Pro, we're acquiring is much higher value. And then these 2 trends are creating a tailwind that will continue to benefit us into next year. We also have an opportunity to do a better job selling into larger pros. So say Pros in the 10 to 20 employee range. Larger Pros are already a meaningful part of our business now. And our product tends to work pretty well for larger Pros. But compared to their portion of the overall industry, we're under-indexed and think we can optimize our sales motion and grow the part of our sales force targeting this segment.

And then finally, Online Pro acquisition, Jeff just talked about. On top of that, the launch of that. We have an online acquisition test. We've been running in Boston. It provides kind of additional validation that there's a sizable opportunity to tap into incremental capacity, although that will take some time to optimize to achieve the potential there. So together, we expect these initiatives will help us return to growth in Pro acquisition next year and in overall pro spending capacity and then the growth in the number of active pros occurring in the following year.

Finally, when you combine where we're heading on both sides of the marketplace with modest growth in SR volumes and revenue per lead, we expect to get to solid revenue growth, likely mid-single digits percent versus 2025 with healthy pro network dynamics on top of that. And then in terms of margins in 2026, we expect roughly flat on the contribution margins as a percent of revenue. As I mentioned on the last call, we're going to be modestly higher in the marketing driven by the paid channel expansion and then we're expecting and hoping to be able to increase our TV spend next year. And then that will likely be off partly by some modestly lower pro acquisition expenses of revenue. And then on the fixed cost side, we expect to be able to remain relatively flat. So we'll deliver modest leverage and result in adjusted EBITDA growth. Overall, that means similar to modestly higher EBITDA margins on a higher revenue base next year.

Our next question comes from Cory Carpenter from JPMorgan.

I had two. Jeff, in the shareholder letter, you talked about the kind of evolution of organic versus paid traffic. Just hoping you could expand a bit on that dynamic and the implications it has for you. And then you've talked about this a few times, but I just want to dive a little deeper on the upcoming transition of ad service Pros to the new platform. Kind of what can you tell us in terms of what needs to happen behind the seats for that to effectively be executed and what some of the potential risks there are?

Great. Thanks, Cory. I think first, in the letter, we were specifically focused on research organic traffic. I'll touch base on the range. I think free search organic traffic, which people often refer to as Google SEO -- unbranded Google SEO is -- it's probably a declining asset for most businesses you talk to, Internet marketplaces, content providers, et cetera. Google has not been growing rents over time. 5 or 6 years ago, our unbranded free search traffic was about -- it was a little over 20% of our total volume. Now it's a little less than $10 million. That's not a heroic accomplishment. Many people would look at it as the opposite, but it's sort of the trend of the industry.

We've been able to hold share over the last 1.5 years or so in terms of where we are in chair of voice. And we have been constantly working to get our technical setup right and make sure our content is fresh and applicable, and we're going to continue to do that. That being said, we're not projecting growth in what Rusty just talked about in the free organic. So all of our volume and all of our margin assumes continued decline. The good news is that when you're below 10%, the decline is not major. So we're not banking on any of this here. We've done everything what we've done in the second quarter with proprietary traffic without any help from Google SEO, and we're going to do what we do going forward and our projections going forward are what they are without any help, and if anything, a little bit of hurt from the way Google runs its SEO.

We look at our ability to grow as we are very effective online marketers, and we have the leading brand of the industry in a changing ecosystem. We've been extremely effective, both on Google and on other platforms with getting more efficient and driving volume. Again, our SEO is down and our proprietary traffic is up. I think that's all that you need and evidence there. Rusty's referenced, we're going to continue to add to our TV spend next year, and we have a set of other initiatives to drive there. We think we can execute. We're also positioning ourselves with our work on internally use of the LLM to set ourselves up to when the LLM are ready to integrate there and serve our approach there and be able to keep growing the business and helping customers through new interfaces that emerge as the landscape changes.

So we have a pretty clear plan. We're executing on it, and we think we can keep going. The new platform or the migration of Pro platforms in the U.S. is also very much an execution story. We've done 5 successful migrations internationally of half to the same -- half the size to maybe 50% larger than the number of Pros we're migrating. And we've done them all pretty successfully. We've been over the period where we've taken the international business from single digits negative profit to $20 million-ish in profit. So we've been able to kind of move the ball pretty well there. You go through a few steps.

One is you have to do a feature gap analysis, what are the customers using, how are they monetizing, that we have to make sure works on the new platform and how do we transition that. Secondly, you have to do technical work. You have to build what I will, in layman's terms called the pipes to migrate the data, which means you need to make sure all of the data points you have on the platform have a place to go and that the customers will be able to operate on the new platform with that data. So you have to build the pipes. I think three, you have to do an effective go-to-market plan. You have to communicate with the pros, explain the changes, explain what's happening. Four, you have to do the actual data migration. And then five, you have to do post-migration customer care and activation.

In Europe, we've had actually a higher yield on our migrations than normal month-to-month retention because you get reactivation and you get the extra care, we've been over 100% free to post active pros a couple of times. So we think we have a playbook. Past performance does not always guarantee future results. So we are very focused on this, and we've had a team of people working on this for months, but we think we're ready to go. And then the great insurance on this is that pros are coming to us to buy leads to win work to run their business.

And if you change the UX or you change the app, some of them are probably like me when my bank moves a button in my bank app, I'm shouting in my office by myself. But at the end of the day, they want to buy the leads. They want to build, grow their business, filling the gaps, and we sell leads and the interfaces and actually that different. And so we'll get some complaints. We'll move on. And if we were able to replicate what in the U.S., what we've done in Europe 5 times, then we'll be in good shape, and we'll have everybody in a better product for them and for the homeowner. And we're excited. Only selling on that platform or that product has worked pretty well, and we're selling into the same base of people who we've been selling into for a few decades at this point.

And our next question comes from Stephen Ju from UBS.

This is Vanessa on for Stephen. So I just wanted to lean into the marketing spend. What does the payback horizon look like on that? And how should we measure ROI in terms of your marketing and sales channels. And just one more. What are you doing to build branded traffic?

Vanessa, I'll take the first one. So our approach to ROI on both sides of the marketplace, is philosophically to acquire volumes out to incremental breakeven on a lifetime value basis with fully loaded costs. And when we say incremental breakeven, that means that we're targeting for the last dollar we spend to breakeven, which means that our goal is to maximize the aggregate profit as opposed to targeting kind of any specific margin percentage.

So for SR acquisition, we're doing this on a 1-year basis. Much of the payback does come in that first session, but there's still significant value from repeat use and engagement through our CRM campaigns in the first year. In our digital marketing, we apply data science models to establish our bids, and that estimates whether or not it would be profitable to increase bids to say, spend an extra dollar to acquire more volume. In some channels, incrementality is easier to determine.

So Google is probably the best example of this, while in other channels, we triangulate between multiple attribution approaches and then test up and down to determine our optimal levels of spend. Then on our Pro acquisition, we want to scale our dials, meaning the time of our sales force until our lowest value prospects convert at a value equal to the cost of the last set of dials. The way to think of this is that if we add to the size of the sales force, that results in making additional dials against lower converting portions of our prospect database until you reach the point of diminishing returns and then the cost of those dials exceeds the expected lifetime value of the Pros acquired through those dials.

Jeff actually laid out our approach to Pro lifetime value in the shareholder letter. Essentially, we use our historical revenue retention rates to project the expected revenue we will collect over a 36-month period, and we apply our current margins, and that gives you lifetime value. And then we'll size our sales force such that our lowest-performing segments are still breaking even and covering the fully loaded cost of those sales.

This approach has increased our LTV to CAC to 2.8x this past quarter, which is truly meaningful improvement over our acquisition efficiency in recent history. But philosophically, as I mentioned, our goal is actually not to target any particular LTV to cap ratio. The objective is to maximize the total aggregate profit, which Jeff laid out is represented by LTV minus the acquisition costs.

So we're targeting that profit. So for instance, as we look for new pockets of volume that actually might mean that we're able to acquire incremental pros at an LTV to CAC ratio that is kind of just above 1.0. And while that would average down our ratio, we would do that since it would grow our aggregate profit. And then the similar concept applies to marketing as well.

Jeff, do you want to take the branded traffic?

Yes. So I alluded to the branded traffic question a little bit earlier. But I think there's 3 elements. I think the most important element is product and our experience have to deliver on our brand promise. No matter what we say or do or whatever kind of cool creative, we put out our version of where is the beef or whatever. We have to deliver when the homeowner gets to us and the Pro gets to us. So I think, first of all, all of the work we're doing to raise our success rate and come a place that people will download an app for is really critical to our brand growth.

At the end of the day, serving our customers leads to retention and repeat, which is, I think, the best form of growth we can get. I think secondly, we have historically been a pretty significant investor in TV. We backed off that a little bit this year and took TV out of the first quarter because we wanted to get through the homeowner Choice transition and observe the landscape and really focus on our online acquisition and how the business model was going to behave. We've started the TV up again at a little lower rate than last year, but we are planning to probably in aggregate maybe even double our TV, something directionally up 50% to 100% from this year.

And obviously, TV is a great way to reach homeowners and pros and deliver our USP and our brand promise and get them to come try us or use us again. I think thirdly, there's a whole other range of activities. We have launched this year a pretty strong and comprehensive effort against paid social. We have a significant internal effort. We have published multiple videos where we've gone and helped homeowners with their jobs. We're calling them house calls. We actually had one reach more than 25 million views. It was a custom doghouse, where we supplied one of the Pros. It was a collaboration with an influencer, but 25 million views. I told the marketing team. I said I'll take 1 or 2 of those a month, please, going forward.

So we have a pretty significant effort there. We've engaged with an outside agency with a reputation for doing this well to augment our efforts. That's just getting up to speed. And then I mentioned the one collaboration with an influencer was really successful. We're also working with influencers. So we're not banking any of this in our forward numbers. We're looking at TV as delivering a kind of recent return rates sort of analytically derived and we think there's opportunity but safe to say by focusing on the product, by restarting our TV and by getting our branded message out in every other channel we can find we are working on enhancing the leading brand in the business. I think our unaided awareness is still far and away the best in our aided awareness as well. And it's a really key asset we have that we want to continue investing in.

Our next question comes from Brad Erickson from RBC.

This is Audrey on for Brad. I have two quick ones. The first 1 is how do you think about Pro capacity in Pros filling their book of business, if you can just run us through that? And does it get to a point in time where this is a blocker for future incremental growth? And then secondly, can you provide any insights into service provider supply constraints within the home services industry in general? And then are these constraints contributing to the trends we've observed in the numbers over the past few quarters? And are you seeing any shifts or improvements in this area?

So I am going to try and take those two together, I think they're sort of related to overall Pro capacity. Rusty touched earlier on near term, what we're seeing, which is our nominal pro growth, we think, should inflect by 2027. However, because we're growing our capacity for Pro by discipline on our prospect selection and dials, and by shift of resources into higher capacity segments of the Pro network, we're almost pari passu on lifetime value created before cost. And so between those two areas, we think we're in pretty good shape to grow pro capacity for at least the next couple of years.

Let me take on kind of industry trends and whether there's caps next. And then I want to get to sort of a question that's bounced around a bit about how pro capacity works. So in terms of the industry, we're a small portion of the industry. We think we have 5 -- maybe 5% of Pros in America on our platform. We think there's ample room to grow. As Rusty pointed out, we actually think we're under-indexed on the higher capacity pros. So we're probably under-indexed on overall capacity. We're probably below 5% capacity. And so as a very small portion of the market, we have a lot of opportunity there. We have great name recognition.

Again, we're delivering good value creation. So we think we have some runway there. The trends in the industry have been a couple. People have talked a lot about how kids aren't going into the trades these days because they all want to be machine learning people and CFOs like Rusty. So whether that's true or not, I think increasingly, you also are reading about millennials and other people looking at the trade, the trades are paying it better and better. I have 2 sons, one of them is going into construction.

One story does not make a trend, but you see it more and more. Whether or not that's a major factor, we don't know, but there is more money to be made. Housing is a constraint, new housing is a constraint, people want to repair their old houses. So we're not sure that this is a long-term secular issue in that business. It's been a pressure. We'll see. I think the other trend people have pointed to is consolidation. You read a lot about private equity or you hear a lot anecdotally about private equity getting involved in some of these businesses, consolidating and building scale. When Rusty talks about looking harder at larger Pros and the opportunity there, we're looking at the same thing.

So again, for us, we're a very small fraction of the industry. If you look at online travel, a few years ago, I have refreshed it, but a few years ago, half of all online travel was booked online, 80% through the OTAs, and then 80% of the OTA traffic was booking in Expedia. So that means the 2 market leaders had 32%. We're below 2%. We're one of the market leaders for sure. We think we have some room that's both on the pro side and on the homeowner side. And again, at the end of the day, people are going to need walls and roofs and electricity and plumbing and people are going to serve this. So we do not think that there is some massive secular trend working against us. If anything, pros are not going to get disintermediated the way some other jobs like CFO are getting projected to be, Rusty is laughing at me, are projected to be disintermediated.

In terms of -- there's a question we've commonly gotten that you might be making, which is an individual Pros lifetime capacity, how does that work? Do they win work and then get off the platform? When they win a homeowner, do they just keep that homeowner? So there's a few elements to this. One is certain trades lend themselves to the trades person or the Pro, effectively taking a homeowner at lifetime value. My electrician is a home adviser guy who's been on since it was ServiceMagic.

I hired him in 2018. He comes every time I call him, you've done probably north of $10,000 worth of work for me. I justify the value of a lot of his other leads, but I've not gone back to Angi for another electrician since 2018. That happens. Over time, our value proposition should play. Sean knows that he gets somebody like me in every batch. And so we're a good value for him. So he's been on for over 15 years. So there is that phenomenon.

The other phenomenon is, I'll just keep telling stories here. The other phenomenon is sometimes pros build their customer base and their word of mouth and they don't need us anymore. When I go to Europe, I talk to our pros there. And one day, I finished and one of the gentlemen who didn't speak very good English didn't ask a lot came up to me and grabbed me by the cheeks and planted a kiss on each cheek. Me being American, I was a little taken aback, but for him, it was very normal. And I was, of course, flattered, but what he said to me was, listen, I've been with you for 15 years since it was a different kind of business, and your product has gotten better every year. It's gotten so good that I have built an entire business and customer base, and I don't need you anymore, and I feel very bad.

And I said, you just made me feel very good because we fulfilled our mission. We helped you build your business, you're happy, you like us. I hope you tell other pros and we've got a victory. That happens. The other side of it happens, which is when I moved into my most recent house in 2018, I had black mold in one of my ceilings. I had to hire a pro to mitigate that. He was from HomeAdvisor, came on, and I was quizzing him at the time it was HomeAdvisor, quizzing him, how do you feel about this? He's like, well, to be honest, it's made my life like I sometimes get frustrated when I don't get the win, but the wins come with a losses. I said, how has it made your life. He said, well, I started taking these jobs on the weekends. I realized I could have a business. I left my boss. I was able to hire one person and then because the HomeAdvisor gives another person and then another person. And then I was able to afford a new house where my sons could have separate rooms. And now I'm saving for their college education. I didn't go to college. This is a big deal for me. I've hired 4 and 5 and 6 and 7 people.

So they are pros who start out and keep scaling. And as long as they're winning with us, they're not going to leave us. And then finally, there's the constant scale where we see our largest pros telling us constantly we'll take more leads, if you have them, obviously, we want them in a good enough quality, but we'll take more leads. And on some level, there's unlimited capacity there. So I think you have a range of use cases. I think all SMB businesses have this phenomenon where somebody like my optometrist in Manhattan, who has a small office, got on Zocdoc, I used to book him through Zocdoc. Now I can't. He's filled this book of business. He can't bring any more people into a small office, and he's done and he's happy.

This is a common SMB thing that will happen, but we have a lot of opportunity with larger pros. We still provide a great way for Pros to scale and take more and more capacity and grow their business. And while we think it is a real thing, we do not think it is a definitive limiter because we've effectively always been dealing with that phenomenon. And because we've skewed smaller, we probably have more opportunity to win there going forward. So hopefully, I covered all the bases there on the various elements of pro capacity. You can let me know if you have a follow-on or there's something you think I missed.

Our next question comes from Ygal Arounian from Citi.

Max on for Ygal. I guess just maybe on the macro, we're just seeing in the macro trends and how that's impacting the better full year guidance. I think last quarter, you included 3 to 5 points of incremental headwinds. So just curious if that's still included. And then maybe secondly, on capital allocation. You guys were obviously very active in 2Q buying back stock. Just how do you think about maybe the pace of buybacks through the rest of the year and just your overall capital allocation strategy?

So let me take the beginning of that, and then if Rusty has anything to add, he'll add. So we saw a very significant impact in April, impacting both homeowner traffic and wins for Pro. So we think we saw some disruption in our retention in April, May, as homeowners were hiring pros less on our platform. When we talk to our pros, especially our larger pros, they said, look, people's confidence in the economy is disrupted, you can read it in the paper or online, if you will. And we think we're getting hired less.

So we're not overly worried about it. We think this will shift. And as we exited June, we saw our wins per Pro jumping and our hire rates jumping double digits, and that's continued in July. So on some level, that intent to hire has corrected itself. We don't have a totally comprehensive view of the consumer from where we sit, we still see some pressure in consumer traffic, not dramatic.

We're obviously very effective on the paid side, but we think we see and maybe our brand and on our research, we see a little bit of pressure there, but not dramatic. At this point, the 300 to 500 basis points is rolled into our run rates. We've come up a little from April. So maybe it's at the low end of that, maybe it's 200 or 300, we're not sure. I'm guesstimating.

So there's some pressure. But we basically forecast off our run rates. We think we're excelling more on our paid execution than on the recovery, but there's obviously some recovery in there. We think we're on track on our full year numbers. We're actually outperforming. But again, it's more on the execution, we think. And we think that whatever the economic in security is has improved, but there's still some embedded in the business.

Rusty, I don't know if you'd add anything to that.

Yes. No, I double down on just that it's -- our business performance, we're happy with, but it's still just a cautious macroeconomic environment. The only thing I'll add is the thing that we talked about last quarter is just reminding folks that our business has tended to have some modest countercyclical dynamics to it. One reason for that is that pros need us more when homeowners are hiring less. So we tend to see a benefit in terms of retention, pro acquisition on both costs and volumes and then pro engagement on the platform. And then the other reason is that 2/3 of our business is in nondiscretionary tasks that are -- tend to be resilient through cycles, and that ratio has basically held this year.

Did that answer your question? Do you have any follow-ons?

Yes. And then just maybe on capital allocation, I'm just typing about buybacks through the rest of the year.

So on buybacks, obviously, our Board is going to do buybacks when it deems it a best and highest use of our capital at that time, and we've done a bunch. The one thing I would say is we're not going to do this much every quarter for a variety of reasons, one of which is there's limitations on how many shares you can go out and buy back after doing a tax-free spin based on sort of historical IRS rulings and what's out there kind of in the understanding and interpretation of the law and in our tax sharing agreement with our former parent.

So I wouldn't expect every quarter this kind. I don't think it's unlikely that we'll buy in more shares over time, but I can't predict it. We'll monitor where it is and our Board will make the decisions that it deems best. So -- but obviously, we've the Board thought it was a very good allocation of our capital in this last quarter, and we made a significant move there and reduced our share base. And obviously, with the way we're looking at the business going forward, we're optimistic that, that can be accretive.

Our next question comes from Dan Kurnos from the Benchmark Company.

Obviously, you've covered a lot of ground, Jeff. I just want to go back to your very comprehensive answer on sort of the market approach and SP capacity. If we get through double opt-in, and we go to a ZIP Code-based approach, which feels very similar to what Zillow has done, is there any reason to think why we can't get to a point where just a handful of top pros in each category dominate ZIP code. And that, frankly, the total SP count in the matter -- in the market, it doesn't matter as much relative to saying just improving the overall asset quality and naturally improving the conversion through self-selection from both the consumer and the Pro over time.

So I think your hypothesis may prove to be true. I think there are some differences with Zillow that suggest that there's alternate hypotheses that may also be true. The real estate agent's capacity probably works a little bit different than pro capacity depending on the category. Homeowners -- in all our research, homeowners have always told us they want 2 or 3 pros to choose from, except with an intermediate emergency or a pretty transparent repeat job. And so you're always going to have some rotation of pros. And if you only have the large kind of bottomless pit type of pro appetite that we were talking about earlier with really large press, you might be able to serve zips and tasks with a few Pros. But I think that what we've observed is that there is enough capacity per pro shift that we effectively need to measure that out over time. And make sure that there's always multiple pros. If we can, we're at 2, 2.5 per SR, who we present.

We always want to make sure there's multiple pros for the homeowners that improves their higher rate, that improves their satisfaction and improves their confidence because they can compare. So I think there's dynamics in the Pro segmentation that suggests to me that maybe it won't get to just 3. I don't think you're wrong that we can cover at some point with a fixed set of pros all of the demand in these ZIP codes and tasks. It's just probably a longer drive than I can hit. I probably need a few strikes at the ball before I can get on to that green and really answer that with high confidence.

Yes, that's fair, Jeff. Very hypothetical question at this point since you're just going through the migraine. And then just on the growth in revenue per lead, is there -- how much of that is incremental category expansion versus obviously improving conversion and sort of all the other underlying metrics. Are there any other pieces that you haven't talked about that could help drive revenue per lead higher over time?

So obviously, if we drive the win rate up, we have opportunity to take more price per lead. And if we can deliver high confidence in the lifetime value to lead above the job, I mean, our pros are basically judging their value by how much do I pay, what do I get, but we can probably get more pricing there. So I think there's some pricing opportunities that, that all has to do with value delivery and the Pros buy into the value delivery.

I think secondly, if we could obviously buy higher consideration jobs at cheaper prices, we would scale up there and that would shift our revenue per lead. The higher consideration jobs are probably more competitive out there. But we have found pools of them to access over the last few months with our online marketing. So if we can shift average consideration up, that would shift revenue per lead.

I think really the biggest driver for us is right now, it's going to be shifting out of the old ads model, which had a much higher discount than the 30% we're offering is an intro subscription as much more than double in some egress and moving away from that and then giving those Pros, the leads they want at a lower discount and effectively delivering them the same value. And we think that that's what's going to be the core driver over the next year or so of that consideration size and revenue per lead.

Operator, I think we have time for one more question, if there is one.

We do have an additional question. This comes from Matt Condon from Citizens.

My first one is just on the proprietary service requests growing 7%, but if you look at consumer marketing expenses, it was up 13%. Can you just help me think about just the efficiency of marketing spend specifically on the consumer side or the homeowner side of the marketplace. And then my second 1 is just how do you think about balancing the efficiency and Pro acquisition, which is having enough supply on the network to drive just superior consumer experience.

So let me start. If Rusty has anything to add or he thinks that I've missed anything, he'll jump in. So on a simple ratio of proprietary growth versus marketing growth, I think the way you have to think about it is we've executed a mix shift and by executing the mix shift into paid proprietary with the free Google SEO coming down a bit, you're paying more on the average per lead.

However, Rusty explained our approach, which is incremental breakeven. So as we look at our bidding, we're able to judge where the next incremental piece of spend would start losing money and we stopped there. And then our goal is as we get more efficient there is to move that breakeven point further out and create more profit under the curve, if you will, earlier in the curve.

Not all platforms work the same way. Meta for example, you're not as able to finally tune your incremental profitability, but we have ways to do it. And so we're constantly working on getting more efficient. I think you have a little bit of inefficiency built into the second quarter as we scaled up new channels, but again, not material. So I think you have a mix shift, and I think that's the way that's working I think we expect that to stabilize a little more going forward, but we will always sort of ebb and flow a little bit there.

I think on the Pro capacity, I think, again, Rusty hit that one, we do the same thing there where we, again, have a pretty high-powered artificial intelligence machine learning team. They work on scoring all our prospects and bucketing them and we work on dialing to the last dials breakeven based on the likelihood as scored by our machine learning team that the job is going to convert in the anticipated LTV. And on the average, we've really been able to fine-tune this. One of the net results has been an increased capacity per new Pro.

Our new subscription pros are 2 to 3x as much capacity as our traditional lead pros, and that's a combination of efforts there. that have added up to that. So we think we have the plan and we think we've been executing against it. We think you can see it in our numbers so far. On the sales side and on the online and rolled side, we're trying not too excited about that. But if we're acquiring more than 10,000 pros a month in markets that are half of GDP or less of the United States, we think we have an opportunity to add a few thousand a month there.

In our European Pros only by 20%-ish less leads per month than our legacy leads product Pros. And so we think we have the opportunity to really expand capacity and have supply and meet demand and grow the business. And we think we've got a reasonable number of pieces of that thesis in evidence and can thus project what Rusty is talking about with 2026, which isn't overly aggressive with a fair amount of confidence.

Yes. And then the only thing that I'd add on the marketing side is that we're kind of talking about our marketing execution in isolation, but it's really a fully integrated commercial engine with our product and the Pro side of the network. So if you think about every day, we have people working on kind of optimizing our funnels, matching, bidding, conversion and then there's kind of the density of -- and liquidity in the network. So when we improve those things, it makes the monetization of every individual SR impacted, right?

So we're able to move up that monetization through the product and optimizations in the product. When we do that and we make each unit of volume more profitable, sometimes we're able to bid into that and get more volume and sometimes, which might actually increase our marketing cost, but increase our overall profit. And then other times, we take that as profitability and we reduce our marketing cost. So it can go either way on that, and the goal is to grow overall profit through execution on marketing as well as optimizations in the product.

Thank you. And really thank everybody for all your time and a very busy earnings day, and look forward to talking to you all in the future.

Ladies and gentlemen, that will conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.