IAC - NASDAQ

Welcome to the IAC First Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After introductory remarks, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Christopher Halpin, COO and CFO. Please go ahead.

Thank you. Good morning everyone, Christopher Halpin here and welcome to the IAC first quarter earnings call. Joining me today is Neil Vogel, CEO of Dotdash Meredith or as we will refer to it today on the call, DDM. IAC has published 2 presentations on the Investor Relations section of our website today, a new investor presentation and a Q1 earnings call presentation. On this call, we will be reviewing the latter which comprises a few key slides from the longer investor presentation. I'll begin with some introductory remarks that will reference that earnings call presentation 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 law. These federal -- 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 annual report on Form 10-K and in the subsequent reports that we file 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, investor presentations, 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 that we've covered that, I want to say thank you for joining us on this call as we commence this next chapter in IAC's history. As an overarching comment, I want to say Q1 was a solid start to the year. To echo our Chairman, Barry Diller's published comments, IAC is back to doing what we do best. Angi is officially on its own. Our businesses are executing with focus and effort and we are deploying capital, including into the company, we know best ourselves through the repurchase of 4.5 million shares. We've also increased our share repurchase authorization by 10 million shares. The macroeconomic outlook is uncertain but we are reaffirming full year 2025 adjusted EBITDA guidance across all of IAC. Turning to the Q1 earnings call presentation. You'll see on Page 3, the businesses and assets that comprise IAC today. These include 4 leaders in large and growing categories. And in Q1, we had a truly productive quarter executing on a number of fronts. On March 31, we completed the full spin of Angi to shareholders, representing the 10th independent company IAC has created. With the spin, Joey Levin transitioned from IAC CEO to Angi Executive Chairman, where he's working with CEO, Jeff Kip, to drive Angi to be the industry leader in home services. Our company has executed strongly. DDM grew digital revenue 7% in the quarter and increased EBITDA 46%, that's excluding a onetime lease gain. That lease gain, however, represents a different type of win as we were able to terminate a long-term lease for 2 floors at DDM's New York headquarters for $43 million in cash payments, representing about 3x save cash flow and generating a $36 million book gain. Care keeps making progress through its single-minded focus on improving its product to drive better customer experience, conversion and retention. MGM reported solid earnings last week and in the words of CEO, Bill Hornbuckle, is well prepared for the rest of 2025. Turo, the leading car sharing service, has withdrawn its plans for an IPO and is fully focused on driving growth and seizing on the opportunities in front of it. Vivian is implementing AI into its products and processes in truly innovative ways which, combined with the 2 million clinicians on its platform has the opportunity to potentially fundamentally change health care staffing. At Search, we renewed our contract with Google and the business is showing signs of stability after a challenging couple of years. And The Daily Beast grew revenue 72%, while achieving profitability. At Corporate, we've taken steps to rationalize our cost structure. Additionally, during the quarter, we also reached agreement in principle to settle the Match-separation litigation with IAC only needing to contribute $200,000 beyond our insurance coverage. But despite all this progress, turning to Page 4, our shares are still trading for less than the value of our 23% stake in MGM and the $900 million of cash at IAC report apparently. Importantly and as a reminder, we have $800 million in NOLs that essentially would offset the taxable gain presently on our MGM stake. So as you can see on the right, our collection of wholly owned businesses as well as our 32% preferred equity stake in Turo and our unencumbered headquarters building are trading at an implied value of negative $100 million. We obviously think this represents a massive value disconnect. And turning to the next page, we're working every day on a strategy to create equity value and shrink that discount. The first piece of the strategy is obvious: continue to execute and drive growth across the businesses. Neil will talk today about everything he and his team are doing to seize on DDM's opportunities as the largest digital publisher. Care, Vivian, Search and The Daily Beast management are similarly improving their product content and technology to accelerate their revenue and profitability. And in the case of Care and The Beast, we brought in new leaders who've reenergized those companies. And then we're also the largest shareholder with active Board members at MGM and Turo, helping those industry leaders seize on their market opportunities. The second prong is capital allocation. Our Chairman, Barry Diller said last quarter that after working through the challenges of the past few years, capital allocation is front of mind. As an initial step, we completed the buyback of 4.5 million shares of IAC and refreshed our authorization as mentioned earlier. We've demonstrated our conviction in our own stock, underscoring the deep value we see in our businesses. And we will continue to actively evaluate share buybacks going forward. To the right, M&A is a key element of IAC's DNA and success. In rush bars, our Head of M&A and strategy is driving an active effort to find investment opportunities, both through our existing companies and in new platforms. More on that in a second. And then finally, as we said 2 quarters ago, we will continue to pursue strategic divestitures of our smaller holdings should they arise, freeing up capital and simplifying IAC where attractive. The final area is major catalysts. Significant events to crystallize value have always been part of the IAC playbook. Spinning Angi was a key step in our strategy last quarter. Looking forward, we can't say what such catalyst may be but we will be fearless in pursuing them if we believe they will benefit our shareholders. Regarding M&A, we included the next slide to present an overview of how we are approaching capital deployment, our foundation, our interest and our advantages. A number of us have been active in capital investment throughout our careers and fundamentally believe we have real advantages through our permanent forever capital and ability to invest at any stage of a company. We've always been unique in the marketplace for capital given our structure, deep industry experience, flexibility and operational know-how and these strengths continue to serve us well. We're actively pursuing acquisitions and investments, small and large and hope to be discussing new additions to IAC. The final slide summarizes our guidance, bringing us back to a discussion of the macro environment. We've been following trends actively across DDM and Care as well as garnering insights from our other companies and holdings. Consumer spending through DDM's performance marketing has been solid, clearly bucking the weak consumer confidence numbers we've all seen. That may represent consumers pulling forward spend ahead of tariff impacts or it may represent real solidity. It's too early to tell. At Care, we've seen early signs of consumer pressure around the edges through ebbing conversion but not yet any material moves. On the DDM advertising front, we've been closely watching the trends given the news flow. But premium demand has remained generally stable. Strength in pharma, tech and beauty has helped to offset weakness in areas like food and beverage. One element we are thankful for in our advertising base is that Temu, Shein or the de minimis exemption players have never been direct advertisers on our platforms. Programmatic pricing conversely has definitely softened, essentially running flat year-over-year after being up for much of the year. We're analyzing the disconnect between direct revenues on one hand and programmatic on the other to see which provides better insights on the forward trends in advertiser demand. But right now, it's too early to say. In sum, we'd say we are carefully monitoring the macroeconomic environment for signs of either stability or weakness among consumers and brands and we're thinking carefully about discretionary spend in that context. Against that backdrop, we're reaffirming our adjusted EBITDA guidance for the year for each of our companies with the core assumption of no significant recession. That assumption derives from what we are seeing in our businesses but we know we are living in unpredictable times. All we can control is our focus and execution. With that, let's go to Q&A. Operator, can we please have the first question?

[Operator Instructions] Our first question comes from Jason Helfstein from Oppenheim.

Can you talk about the key priorities? And I guess, it would be probably the key product priorities that could drive 2026 DDM revenue growth? And then secondly, how should we think about capital allocation going forward? Obviously, a lot of stock repurchased in the quarter first time in a while. But going forward, how should we think about allocation between repurchases and M&A? And is there a minimum gross cash level that you think about?

Cool. Jason, it's Neil. First, for those of you in New York, allergies are just destroying me. I'm sorry, I sound so awful. But yes, to answer your question, let's -- Chris can take the second one. I'll take the first one. 2026 is something we're actually pretty excited about. I think one thing we're talking about before this call is we came into this year and I think we are executing at an exceptionally high level. And a big part of that is looking down the field and figuring out what we need to do for the future. And we got a number of really big projects. I'm sure you've seen the People app we launched which we're very excited about. We're going to meet audiences where they are and meet younger audiences. If you haven't yet download it and use it, we're really proud of it. It's one of the best things we've ever built. We have a very big project around recipes called MyRecipes. If you believe Comscore, we're probably at least 40% of the traffic on the open web to recipes and food content. So it's a really modern take on the recipe locker which if you're a chef, you're a home cook, you find very, very valuable. We're excited about that. And probably, we're most excited about is the D/Cipher Plus which allows us to take D/Cipher which we've talked about which is using our intent-driven contextual data that produces ad targeting that beats cookies and pretty much beats anything else in space and extending it across the open web. So you cannot only use D/Cipher to target exceptionally our own inventory but target the whole web. And between those 3 things, we're really excited about where it can go. We're also not new but we're really investing in our event businesses and this is not some new strategy. It's just the continued growth of things like the Food & Wine Classic. We've had really good strength in off-platform audiences across social. We've got a couple of -- many of you probably seen my reality show turn on the InStyle show the intern. But we're building really fun audiences in different places that advertisers really, really value. And we're just excited. We're long term very excited about this business, great brands, great audiences, real emotional connection to our -- the people that use our products and we feel pretty good.

And then, Jason, on capital allocation, the -- we bought back 4.5 -- our goal is, buy $200 million of our shares. We have our remaining $900 million of Corporate cash. We're also generating cash down at DDM. Our goal now is to look at M&A opportunities as we talked about. Nothing forecloses additional share purchases but we're interested in M&A, our Chairman, Barry Diller is. We're looking at things large and small. We think the volatility of the current period can lead to new opportunities there. One of the things Russ and a number of us have talked about a lot is these private equity and VC-backed companies have kind of hung on for a long time waiting for the market to return to exceptional levels. That really hasn't happened in that world and also their investors, their limited partners are in greater need of liquidity. So we're cautiously optimistic we'll see more opportunities shake out of the private market. We're also looking at earlier-stage opportunities. But again, people have challenged us that you can walk and chew gum when it comes to capital allocation for a while, you can buy your own stock and do M&A. And we believe that but we -- and we definitely see value embedded in our share price. And we'll continue to calibrate as we go.

Next question comes from Jason -- excuse me, John Blackledge from TD Cowen.

Two questions. Sticking with DDM Digital, can you talk about the 1Q trends -- revenue trends at DDM Digital? It looked like advertising was a bit lighter than expected, offset by higher performance and licensing revenue. Any further color there would be great. And then on the 2Q DDM Digital revenue guide of 7% to 9%, can you talk about the puts and takes for the rev guide across the 3 segments? And is the current macro tariffs impacting advertiser brand spend? And then second question on the DDM cash flow to IAC. Could you just talk about the dynamic where DDM hits a certain leverage ratio and the cash is accessible to IAC? Like how does that benefit IAC and its shareholders?

Yes, sure, John. I'll start and then Neil will definitely weigh in. Q1, we guided last quarter that there were a few elements that would lead to slower growth in -- on traffic and revenue in Q1. Specifically, we had tough comps in January and February in '24 that we were running over. There was 1 less day in the quarter which is about a 1% decline. And then Easter which is an important quarter for us -- sorry, important holiday fell into the second quarter this year. As it played out, the new cycle wasn't our friend between the fires in L.A. and then political news seemingly crowding out most other information and people's attention. These factors combined core traffic declining 3% in the quarter and digital advertising only being up 1%. In that 1%, premium was actually pretty solid. We just -- with fewer impressions, we had less programmatic to sell which was a headwind. But things within just traffic and advertising improved across the quarter. March was solid at 8% digital advertising growth, for example and April similarly was in that vein. For the first quarter, licensing led the way with 30% growth, thanks in part to the OpenAI license but also due to real strength at Apple News, performance marketing was also excellent at 11% growth and we continue to see solid consumer spending on commerce. And that really got us to the 7% for the quarter. So we were not really surprised by that number. For the second quarter, we've guided to 7% to 9% digital revenue growth. That will come from a combination of stable traffic. We've already seen that, some easier comps definitely. So far, we've seen stability in premium demand with some particularly strong categories offsetting those where tariff uncertainty is more pronounced and continued solid performance marketing, offset again by soft programmatic. Licensing will have a tougher comp as we lap the OpenAI deal but we'll still grow. And then we've spent a lot of time analyzing the advertiser demand and the impact of tariff uncertainty. We do it constantly. That 7% to 9% digital for Q2 is our best view of where we are right now and the trends. Neil, anything?

Yes, I'll add a little to the market perspective on this. I think -- as I said before, we came into the year really strong and executing really well. I think we have seen our premium revenue hold together really -- like really, really well. So far, I think anyone who doesn't think the mood of the buyers is changing is not paying attention. But we haven't seen any significant huge cracks in that yet. I guess it all remains to be seen. We are very focused on control, what we can control. I think we're really well positioned because of our scale and because of our focus on performance. And again, it goes out to things like D/Cipher and really intent-driven traffic. You got a much better chance to hang in there when you've the ads that really perform. So we'll see. But again, it's control what you can control and we'll see. I think Chris touched on this a little bit. I think there is a little bit of a disconnect between what is essentially the advertising spot market which is the real-time programmatic markets which are -- probably were running for a long time. For us, we're particularly good at it, up 20-ish percent. We're back down to sort of flattish year-over-year and that's not really moving. I think that is definitely a little bit of uncertainty in the buyers and a little slower to pull the trigger. What I would also say about the future is we're not seeing much more than you guys are seeing, right? There's new things coming out every day and we're reacting and reading and reacting every day. What I would say in the long term, great brands, great audiences, great execution, we'll be fine. We just got to get through whatever short-term bumpiness hits. And if it applies to us, it's going to apply a lot to other people as well.

And then on the cash flow question. So everyone understands, we have entity level debt at as Dotdash Meredith, an institutional term loan in 2 tranches as well as an unfunded revolver. Under the credit agreement on that debt, IAC can dividend cash up to itself, the parent from DDM if the total leverage ratio is below 4x total debt to EBITDA. And that's on a credit agreement definition of adjusted EBITDA which is, I guess, more favorable and slightly different than what we report publicly. In any case, through debt paydown and increased EBITDA, Neil and team have steadily reduced leverage at DDM and we went below that 4x test ratio as of 12/31/24. That means IAC has access to DDM cash for any IAC Corporate purposes, should we so desire. It's a nice increase to our financial flexibility and it was a real objective of ours essentially since the acquisition closed to get below both from a -- just from a total leverage perspective but also for access to that cash. We'd also highlight that on a go-forward basis, DDM's leverage ratio should only improve through the combination of improving EBITDA but also it's a great cash flow producer and that free cash flow generation.

Next question comes from James Heaney from Jefferies.

Could you just talk about the appointment of Jim Lawson as the President of D/Cipher? I'd just be interested to hear about his strategic objectives for that particular product.

Sure. Jim, for us was a cool of a hire. I've known Jim personally for a while. Our team has known for a while. If you are in the ad tech space, you know Jim. Jim had been the CEO of a public company called AdTheorent which had recently been acquired. AdTheorent is particularly appealing to us as, a, they're a partner of ours now; and b, they do a lot of the same things to allow advertisers to reach consumers that we're doing with D/Cipher. Jim's a star. He had lots of opportunities. I think we convinced to go with [indiscernible] of other things. I think we did a good job of convincing in how big and exciting D/Cipher could be and he's coming to hit the ground running and building a team, very commercial. We knew we had a great business and people at our place, Lindsay Van Kirk, John Roberts, who's done an incredible job building this. We needed to bring a real commercial CEO into this. A, it shows our focus on the business, to the market; and B, it's just the nuts and bolts skills that we need to build a team that can fully sell and execute on the potential of using our data which we have more first-party data than any other publisher to target the open web. And we know that our data and architectural targeting beats cookie and other targeting and Jim believes that, too and we're off to the races. Again, I think we've talked a lot about -- I think you're going to see minimal contribution this year but we're really looking towards '26 as this is a big part of our future...

For D/Cipher Plus.

I'm sorry, for D/Cipher Plus. And it's interesting. And the last thing I'll say about the D/Cipher Plus while we're talking about it is -- so the actual core D/Cipher business now is in more than half of our premium deals. It's doing really well. Those deals are 60-plus-ish percent bigger than deals that don't have D/Cipher and those clients are growing faster than clients that don't use D/Cipher. It's also our ticket in the door. It's one of the few really new innovative things in ad targeting. And Jim, one of the great skills he has is he's a communicator. And he can communicate what we are doing into this ad tech universe that is in our native language. We're a publisher at our core. We make amazing content and build amazing things. He really understands our data product that we've built and is really looking to leverage it. So we're -- as you can tell from my tone, we're very excited about this.

Next question comes from Cory Carpenter from JPMorgan.

Maybe sticking with D/Cipher, Neil, could you just talk about the impact or lack of impact kind of from Google no longer phasing out cookies which they announced a few weeks ago? And then maybe for you, Chris, just could you talk about the announcement you made a few weeks ago with Arkhouse and the addition of them as a Board member?

Sure. I'll do the cookies part first and Chris can go. Cookies is a little bit more -- this a little more in my opinion. I'm sure you're going to get different takes on this. I don't think it's that big of a deal at all. I don't think anybody really thought cookies were going away for the last 12 months. And as you guys like to say, it's baked in. It was baked in already. For us, we're neutral on this. I think if anything it might help us, it really helps us line up what we can do with contextual targeting versus cookies and how much more performant are D/Cipher and D/Cipher Plus-driven offerings are. So it's pretty good. We also look -- we have a lot of clients that want to buy parts of their programs, even all their programs based on cookies for whatever reason and we can execute those also. So the one thing it will do that's positive is it will probably eliminate what would have been the thrash in the market to get from to a true post-cookies world. But I don't think in the long term, it makes any difference for us.

Yes. I think that -- and just to align that to some of the prior conversations we've had on this topic, we -- if there was going to be a hard cut, we use to say it was going to disrupt everyone but D/Cipher would be a winner. Neil and team have highlighted the fear of a hard cut helped highlight D/Cipher to a number of brands and agencies which was great for getting them to trial and then see the experience where we are now, stability in the market where we can just outcompete other offerings is ideal.

Yes. And I think just to add one other thing, advertisers now really understand cookies are profiling individuals and there's varying levels of discomfort for that. We're not. We just look at behaviors. And when you look at what -- cookies are backward looking. They're trying to guess what you're going to do based on what you did. We're real time. We know exactly what you're doing. And I think that's very simply why we're better and why we don't mind cookies still hanging around as a comparison.

Yes. And the last thing I'd say, PowerPoint is not the answer to anything but we tried in the investor presentation, spent a lot of time with DDM and team to really lay out what D/Cipher is and then how D/Cipher and D/Cipher Plus work off of what it is in a slide in the presentation. And we'd encourage investors to look at what we're doing with context, connecting it to data and predictive analytics and then going on O&O inventory and off.

I mean we've got the real-time first-party data of the biggest publisher in America across the biggest consumer categories in America. So we feel really good about where we are.

Thank you. And then, Cory, with respect to Tor Braham joining our Board and the announcement with Arkhouse, Arkhouse is an IAC investor, who is a really strong believer in the economic value embedded in our shares. They've highlighted that publicly. We've had constructive dialogue with Arkhouse. Our Nominating Committee believes Mr. Braham Braham's background in technology and capital markets as well as his Board service experience in a number of public companies will be valuable as IAC continues to execute its strategy. We're excited to have him join the IAC Board and work with us. He's filling the seat that had been held by Joey Levin and we're excited to move forward with them on our strategy. Thank you, Cory.

Next question comes from Ross Sandler from Barclays.

Great. Neil, the bigger slide deck talks about the new direct-to-consumer experiences. Just curious how -- can you just elaborate on what you guys are doing there? How many other Meredith sites might be open to something like this? And kind of what kind of impact that's going to have on growing your owned and operated inventory?

Yes, sure. Good question. So one thing we've said and I've been on one of these calls in a bit, we've been saying that anybody who listen is our objective as a business is with our brands and our audiences and our strength and the emotional connections we have, we need to focus more on connecting directly with our audiences and directly with our advertisers. And one of the things we've been able to do is we've really been able to do that, we've been doing it quietly. I mean there's a fun statistic around here that we can share earlier in this call is when we -- and it goes to why we're going direct. When we put Dotdash and Meredith together, about 60% of our traffic was from Google Search. Right now, it's a little bit more than 1/3 and we've grown all the way through that. And that's because we are able to really connect with users. And that doesn't even count audiences we built on social. That's just traffic to our O&Os. So if you look at what we've done, we've taken our biggest properties and biggest areas which is entertainment with People which is food and recipes and MyRecipes and which is our superior ad targeting with D/Cipher Plus. And all of these are ways to connect directly with audiences and with advertisers. And what we've seen is a really strong take-up for this. Just like we've seen a really strong take-up for participating in our events, just like we've seen a really strong take-up for advertising on our social. And it's a long-term strategy. Look, if you do what we do, like you have to pay attention to the market. We've been at this a long time. I mean, I think you're almost 12 years. The media landscape looks entirely different than it did when we got here. And we've done nothing but grow and adjust the whole time. And we feel very positive about where we're going. And your -- the second part of your question was what else you're doing? You guys should expect to hear from us new projects of the size and scale of MyRecipe or People app. I'm not going to say every quarter but with great frequency and we've got a -- one of the things we've done is we've pivoted our organization which is not that easy to do, to really focus much more on innovating these things than we have focusing on the old business model. Like right, if we're not careful, we've got real innovative dilemma. We've got this old model that works but would decline. But we've had this forever. There's been going on 10 years like this. So we're constantly doing new things. We're really trying to bring innovation, new ideas forth. I think, again, launching the People app, launching MyRecipes, launching D/Cipher Plus, it teaches us and it teaches the ad market that you should expect new things from us and excitement from us and energy from us. And we really like where we are. And what I can say is stay tuned, there's going to be some more.

Next question comes from Justin Patterson from KeyBanc.

Great. You're approaching 1 year of Dotdash working with OpenAI. Could you talk about your learnings from this partnership? And perhaps more broadly for Chris, how you're thinking about AI opportunities for the rest of the IAC portfolio? I know you called out Vivian as a potential beneficiary in the prepared remarks. And then, just a big picture one for Neil. Obviously, the other big ad industry news is just the Google DOJ trial. How might the world look differently for Dotdash if we see some divestitures and what opportunities that might create for you?

I'll do the OpenAI. I'll do a quick answer to OpenAI. They've been a really good partner for us to -- now what I would say is we do not have productive relationships with other people in their space. But with OpenAI, they've been great where our engineers are cooperating. We're really helping them roll out some of their products. They're helping us roll out our products. They were a very big help with some decipher targeting with some of the AI things we can do around modeling. It's been very, very positive. And I think the choice we made that said we want a seat at the table with these guys that are at the tip of the spear on these things. I think for the first year, we were right. And it's been really, really helpful for us.in terms of how we are moving AI into our processes and getting a say in the future of how the stuff is working. In terms of larger deals, I'll let Chris talk about that.

Yes. It is like a lot of things where there's so much buzz and then when there's really substantive -- increasingly substantive applications, people are almost tired of hearing about it. So we're in that stage. Across the portfolio, we have essentially a bit of a lab where Neil's team will apply it on certain things. Vivian, I actually think is the most aggressive and creative in how they've applied AI is doing it but you've got Care. There are opportunities at Turo. And at our Search business, they've done applied AI through real-time bidding and other activities. What's clear is where you have massive datasets where you're doing optimization activities, so things like smart matching or fraud detection. You've got real advantages there. We've seen that at Care, Vivian. Clearly, customer service and you've heard the comments from Sam Altman and others that sort of level 1, level 2 CSR activities are probably going to go rapidly to voice-driven AI. And if done right, it's a better experience. And we debate this all the time but I think of it as the ATM experience at the bank where most of us never want to go into a bank teller again. I think once you have a sort of pseudo omnition, AI efficient voice-activated call service representative, you're not going to -- want to go back to a human using a drop-down screen and searching for information. What it's done for D/Cipher is clear. And then also, we're seeing interesting things on onboarding and definitely on marketing. I think over time, there'll be a through Agentic AI, real changes to how marketing creative is generated, tested, optimized, placed. You're still going to have humans involved. It's not going to be a cycle of machines but much faster cycles that will have benefits over time.

Yes. And I'll go to the DOJ, Google stuff. I think there's 2 answers to that. First, the legal case itself and I assume you're talking about sort of the daily mall related legal case, the settlement -- the verdict that just came out. What I would say is we're looking very closely at it. We're trying to figure out how we actually participate in this in some way or don't. I don't have any real news on that. We're obviously very close to it. But I think from a business perspective, I mean, this is like my favorite line from my favorite TV show of the wire which is the great line is, "This is Baltimore, gentleman. The Gods will not save us, right?" Like nothing is -- we will function and always have functioned as if we are on our own. And we need to have great relationships with advertisers, great relationships with audience, really compelling offerings, really compelling brands and we will be fine. And that's how we'll continue to operate. Obviously, if the ecosystem changes, I feel very confident we'll be at the front end of reacting but we'll have to see. I think full outcomes remain to be determined, obviously.

And also, I'd just say that to continue the wire analogy, we'll defend our turf...

Totally.

And our IP and that's...

Yes, like owners.

Only in legal manners but we will do that. Justin, does that answer that question?

That's perfect.

Next question comes from Tom Champion from Piper Sandler.

Chris, maybe you could talk about Care for a little bit, particularly the consumer side of the business. How is leadership working on the challenges there? Neil, maybe just a quick one for you. I'd love to have you talk a little bit more about what you're seeing in the spot market and the growth there relative to what you've seen in the past. What do you think is driving that performance? Why would that not be, say, a leading indicator for the market?

I'll go first. The spot markets have been really erratic. And I think that is in line with what everyone sees, feels right, like a lot of advertising is confidence. And some days, people are feeling confident and some days, they're not. I wish I had more definitive insights for you. I'm reluctant to do it because I got a 50% chance of being wrong, depending on what happens tomorrow. Again, it is true. Obviously, look, spot markets are a very good window into what is happening at that very moment. I'm not totally sure it's indicative of tomorrow if the spot market gets better tomorrow. If you're looking for something says we're getting better, we're getting worse. I just -- I'm reluctant to say either way.

Yes. And the only thing I'd add, keep me honest here, Neil, is we have no Temu, Shein or de minimis exemption in our direct base. On the broader programmatic market, they were a player, I mean, especially on mobile apps and all those.

The math of those guys coming out of the market because they spend a lot of money, although it was generally below -- they can't afford our sites basically because we're really expensive. Well, we're expensive because we perform relative to what they buy. But when a big chunk of demand comes out of the market, prices are going to go down. So that definitely could be a factor in this as well.

Yes. That would be something sort of specific to the programmatic market but would -- especially given our endemic base of advertisers across our brands, we'd have a different dynamic on premium. We're not saying absolute, Tom. It's just more -- those are the kind of questions we're working through. On Care, thanks for the question on that. We broke Care out as a segment earlier this year for the first time. To set the backdrop, it is the number 1 provider in its area of consumer care, access information, childcare, senior care, pet care, housekeeping, etcetera. We got the most liquidity on both sides of the platform, including demand and caregivers. And it's a good brand, a great brand. We bought the company in 2020. And at the time of the acquisition, IAC knew there were core issues with the platform, with the product and the experience. A lot of time was spent early-on improving the base platform for resiliency, quality of -- or consistency of experience and putting the pieces in place to eventually improve things up the tax stack like the product pricing, packaging and payments. But -- and because of that, in that period, the product didn't improve but also in the vein of -- you might start to think you're better than you are, the pandemic was a real -- the post-pandemic period was a real boost for the business as there was major demand for childcare and senior care as people came back to work. In a lot of ways, that masked deficiencies in the product in the '22, '23 period. And then as that tailwind subsided and, frankly, given some of the wage increases that have occurred, the realities -- there's been more pressure on the category of Care. The realities of the product came to the fore. Brad Wilson went in as CEO less than 2 years ago and he and his team and he's significantly upgraded the team and brought in new talent, have been working to steadily improve the product and experience as well as pricing packaging. So where we are right now on the consumer side, we have 3 core priorities this year. The product and they've made some improvements last year but this year, they're really rolling out major improvements in matching. So getting the most accurate match of a caregiver based on the specs of the care seeker messaging. The product was very antiquated in terms of one-to-one cross messaging of seeker and caregiver to figure out if it's the right match, search on the platform, very basic things. We're catching up and moving the ball forward there and fulfillment. So that's the product. The second is optimizing pricing and packaging. It's basically been a one-size-fits-all product of a subscription. With the improved platform and product, they can roll out different entry points and offerings to meet care seekers where they are and what they need. And then finally, once we're happy with the product and packaging is marketing. And that's both reenergizing the brand of care and then also improving spend efficiency. One of the learnings was we had an always-on model that was pretty inefficient relative to -- there are significant periods during the year when the preponderance of acquisition of house care -- household care occurs. So we've seen improvements already in responsiveness and fulfillment in the product versus the old. As they continue to ship improvements, we're excited about that. It's going to be around Q3, early Q4 before the product will always continue to improve but we really have the product where we want it. We have pricing and packaging rolling out and then we'll have improved marketing and we'll step up the spend in Q3 which is a big search period. So a lot of work to do. We feel confident we'll get the consumer business back to stability. And definitely, we think it will grow in 2026. And Brad and team are taking the right steps.

The next question comes from Youssef Squali from Truist.

This is Robert

Sorry, can you just explain that last question ONE more time? I've got the first part.

Yes, sure. On the programmatic, I'm just curious, I just wanted to unpack the drivers behind the softness a little bit. I thought I heard you guys say that impressions were lower earlier in the call. So I just wanted to reconcile that with what you said about Temu and Shein exiting the market and driving CPMs down as well.

Okay, got you. Yes. No, I definitely understand that question. On the first question, the Google contract is for search. So there was no cloud component to that. That's just the long-term AMG search partnership with Google related to its business. We have -- we use all the cloud services in our companies but there was no bundling of vendor relationship there. It's a stand-alone search. Do you want to take?

Yes, I'll do the AIO impact. That's -- for those of you who don't know, that's the Google AI answers at the top of the page. I think right now, those show up on about 1/3 of our searches. You see a little performance decline on those pages. It's very hard to get a handle on exactly how much because there's so much else going on, on that page also. There are so many other features and search features and Reddit and Google is doing so much with that page. I don't want to editorialize from a user point of view but it's a very confused page right now. And as I said earlier, look, when we put the business together, 60% of our traffic was from Google Search. Now it's probably a little bit more than 1/3 and we've managed to grow all the way through. And we've said many, many times in our history, we are extremely happy to get traffic and audience from other algorithms and interim sources but it is entirely incumbent upon us to manage those sources and be sure that we're meeting users where they want our content. We've been able to do that. So it's hard to say what the actual impact is. I actually don't think. For us, it's giant yet. It might be a little bit like we're -- and it's more in the context of a whole search page, so I'm not overly concerned about it.

Yes. I mean I would think about it if Google Search is about 1/3 of our traffic and you're seeing an AI overview on 35% of that. And then you've got a small decline in click-through, it's not a significant part of our traffic, right?

Yes, exactly. That's a much clearer way of saying it than I said it.

Yes. The other way -- the other thing we see is as cluttered as the search pages and this is IAC-wide as cluttered as the search page has become with Reddit and LSAs and e-commerce and everything, brands still do well. And being -- it's sort of this massive spreading where top 1, 2, 3 brands in categories are doing that much better. So we see it also in our noncore titles at DDM where we're not investing behind them but also they -- the weaker brands just get washed out to the ocean...

At least in the context of search page.

In context of a search page. There's still value with consumers. There's still value with advertisers but you've seen a huge spread in Search. So we're still feeling very good about our top brands. And again, that theme of brand and consumer trust continues across all elements of the business. On programmatic, thank you for the question. it's really bifurcating between Neil's comments and we're on pricing. And then I was talking about revenue for DDM. So on pricing, programmatic prices have been up strongly for a while with the recent concerns about tariffs and such, it's essentially gone to flat pricing year-over-year. That has some impact on programmatic. The point I was making was how our programmatic inventory or quantity works is we have our sessions and we sell as much as we can through premium direct, given the improved CPMs and also it's strategic for us to provide that inventory to our direct partners and help them execute on their campaigns. If we have some slight revenue -- slight traffic declines as we did in core in Q1, that just means there's less traffic for programmatic. So I think of it in Q1 as some less traffic for programmatic partly because the overall traffic declined slightly but also because premium sopped up more. And then in Q2, as we see traffic coming back to stability and maybe some slight growth in Q2 but programmatic prices are no longer a tailwind given some of the market disruption we've seen.

The next question comes from Nick Jones from Citizens JMP Securities.

This is Luke [ph] on for Nick. I guess just double-clicking a bit more on Care.com. I know it's a tough macro environment but at a high level, what are the key strategic priorities there to kind of help accelerate growth in the coming quarters or in years?

Yes. Thanks for the question. I would say, at the end of the day, Care on the consumer side is an industry -- is the industry leader. And on the enterprise side, is definitely one of the top companies with clear advantages. We've got liquidity on both sides of our marketplace, care seekers, the consumer on one and then caregivers, child, senior, pet, etcetera, on the other. So it is really around execution and making the product, the experience, the matching as good as possible and continuing to, through that, drive initial conversion, recapture because right now, it's a subscription product. So people go on, get a caregiver, may lapse or cancel their subscription, come back on, get a senior caregiver or a new child caregiver. So there's a number of elements of initial subscription and then recapture and reengagement and you've got to keep making the product and experience as good as possible. That is where we have missed the most over the last few years and we feel good about the path we're on. Next is pricing and packaging, as I said and the third is marketing. And we've known our marketing was inefficient and suboptimal but we came to the decision to hold off on really pushing behind it, reinvigorating the brand until we have the product where we want. So it's really been a -- it's a serial game plan that we have. On the enterprise side, it's a true cultural shift post pandemic, where backup care and that service is increasingly a base consumer -- sorry, base employee benefit. And we've benefited from that. We think Care for business is offering of backup care, customer support, access to the care database of caregivers and our life service through LifeCare, our life service offering is truly differentiated. So for us on enterprise, it's really 3 prongs. One, make -- help employees who have access to Care for Business know what they have and utilize it. Two, continue to improve the product to make it as easy to book backup care as an employee as possible. And then three, acquire new logos. And that's new sales of Fortune 500 companies all the way down to small business through our own sales force. So we're heads down, continuing to execute. But the tailwind, the dynamics of pressure on households for both senior care and child care is not going away. And it's really, as we said before, in the 4 corners of care to execute.

The last question comes from Ygal Arounian from Citigroup.

We spent a lot of time talking about the programmatic side and maybe thought you can close talking a little bit more about the premium side and the strength you're seeing there. Are those commitments kind of multi-quarter? What are you seeing there? And as I think, Neil, you mentioned, okay, premium is strong but advertisers are kind of looking around at the environment. What's -- what are the trends, what are your advertisers saying as we look forward a couple of quarters? And then I'm not sure if there's anything to add here but if there is, we'd love to hear just around on the M&A environment as you've kind of moved to the stage, any change or focus on areas that you kind of want to look into from here?

Yes. I'll let Chris do the M&A thing. I'll do the premium side. Our premium business coming in this year was super strong. First quarter was very good, as Chris said. Second quarter, we're where we would hope to be. But again, I think a lot of it is relative to the market, we've got really good offerings. We've got really good brands. We've got a really good audience, our stuff performs. D/Cipher is really helping. Again, I would love to be able to answer your question more thoroughly and more eloquently but we just don't know. Again, if things hang on where they are, I think we feel pretty good about where we're going to be going. Before any of this macro disturbance at the end of last year, we felt fantastic. We're executing at a high level, having great conversations. And I guess, look, the advertisers are people, too. They look at markets, they look at it like in many ways, the way you guys look at it. They're analysts, right? CEOs and CMOs are analysts. So it's just the way of saying that we don't really know but as of right now, there's nothing to suggest that we won't do fine the rest of the year and potentially good the rest of the year but we'll see.

Yes. And I'd say this goes a bit to our approach to guidance and how we thought about it. Neil said it well which is we are looking closely at the data to identify trends and patterns. We're very thankful again, that Temu and Shein are not in our base that we have to comp against. Partly, that was because as Neil said, we price them out of our inventory but it's great. Broader IAC, we're looking at Care and others. We've seen some recent softness in conversion but that can be volatile from quarter-to-quarter, not volatile but no material moves. On enterprise for Care, we're looking to see if employers lay folks off or significantly reduce. Haven't seen that yet but we're cautious on the world. Where we sat, to Neil's point, when we did our original guidance for the year in February, we've factored in some volatility for the unknown. It seemed like every year I've been here, we've had some unknown, unknown come out of the woodwork and hit us. We had some factoring in there. By the end of March, we were seeing our businesses trending to the high end of their guidance ranges. DDM, for example, March and April saw digital revenue growth of 13% and 18% [ph] respectively across all digital. And we would have -- we were pacing to be up low double digits for the second quarter. Now we're at 7% to 9%. So we're factoring in some economic slowdown in the rest of Q2 and Q3 in our guidance but no significant recession. And also, our businesses are thinking about cost actions they can take which if things were going great, you'd continue to invest in your business macro. But they can take to be thoughtful around their cost structure. So this is the approach we're taking and into our guidance based on what we're seeing right now, as Neil said. With respect to the second question, M&A environment, we've -- we're excited. We're looking at different things. We highlighted some of the industries that we're thinking about. We've always asked ourselves, how do we build a big business or concept into something much bigger that can be through early seed investment. It can be through roll-ups, consolidations or it can be through buying underappreciated larger businesses that we have a different thesis on. Digital is definitely tougher than it was 10, 20 years ago but we still see opportunities. And we're looking across experiences, digital enablement of experiences, what we've seen in MGM through the in-person experiences, through digital gaming, like live dealer, through BetMGM, others. You can see where the puck is going and the opportunities as things become even more real time and personalized. And then there's always idiosyncratic things. We're interested in how AI is going to influence consumer interactions, gaming, etcetera. It's hard to reveal too much but we are working away and I think we will have some interesting opportunities. I believe that's it, operator.

Yes. That was the last question.

Okay. Thank you all for your time and engagement and onward and upward. Have a great day.

Thanks.