Angie’s List, Inc. (NASDAQ:ANGI) today announced financial results for the quarter ended June 30, 2016.

“We have made tremendous progress in transforming our business model and technology platform,” said Scott Durchslag, President and Chief Executive Officer of Angie's List. “As a result, we are seeing an extraordinary re-acceleration in new member registrations and user engagement on our site.”

“We began our nationwide freemium rollout in early June after completing our migration to a state-of-the-art AL 4.0 technology platform two months ahead of schedule,” continued Durchslag. “The launch results have been excellent and have exceeded the already strong results we had previously reported in the pilot freemium markets that we began testing in January.”

“We are very encouraged by the loyalty of our paid subscriber base,” said Durchslag. “In addition, we have a substantial opportunity to convert our new free members into premium subscribers over time. We are committed to maintaining high quality members for our service providers, and surveys in our pilot markets suggest that our new members are similar in quality and hiring intent to our existing subscriber base.”

“Since dropping the reviews paywall, we have added approximately 700,000 new members as of yesterday, fueling year on year growth in new member engagement and service provider profile views. That said, while we are confident that these increases will create incremental revenue, we have more work to do to drive revenue growth from these changes and are just beginning to realize the potential of our new business model.”

Comparison of last week’s results to the same period in 2015 show:

  • New member signups increased 411%
  • Unique new member visits increased 219%
  • Unique new members searching Angie’s List increased 197%
  • Unique new members viewing profiles increased 182%

1 Adjusted EBITDA is a non-GAAP financial measure.

Key Operating Metrics

         

Three months ended

June 30,
2016		 June 30,
2015		 Change
Total free memberships (end of period)1 152,586 — N/A
Total paid memberships (end of period) 3,147,566   3,172,066  

(1)

%

Total memberships (end of period) 3,300,152 3,172,066 4 %
 
Gross free memberships added (in period)2 152,586 — N/A
Gross paid memberships added (in period) 129,534 289,866

(55)

%

 
Average paid membership renewal rate (in period)3 73 % 78 % (5) pts
 
Participating service providers (end of period)4 54,690 53,514 2 %
Total service provider contract value (end of period, in thousands) $ 258,467 $ 266,131

(3)

%

Total service provider contract value backlog (end of period, in thousands) $ 151,813 $ 159,279

(5)

%

 
         
Six months ended June 30,
2016		 June 30,
2015		 Change
Gross free memberships added (in period)2 152,586 — N/A
Gross paid memberships added (in period) 317,776 519,853

(39)

%

Average paid membership renewal rate (in period)3

 74 % 77 % (3) pts
 

(1) Total free memberships reflects the number of free members as of the end of the period who joined subsequent to us dropping our ratings and reviews paywall in June 2016.

(2) Gross free memberships added represents the number of new free members added during the reporting period, since we dropped our ratings and reviews paywall in June 2016.

(3) Average paid membership renewal rate reflects the percentage of all paid memberships expiring in the reporting period that are renewed.

(4) We include in participating service providers the total number of service providers under contract for advertising, e-commerce or both at the end of the period.

Market Cohort Analysis

           

Pre-2003

2003-2007 Post-2007 Total
June 30, June 30, June 30, June 30,
2016 2015 2016 2015 2016 2015 2016 2015
Number of Markets 10 10 35 35 208 208 253 253
Average Revenue/Market $ 7,884,705 $ 7,856,862 $ 6,136,688 $ 6,003,238 $ 223,299 $ 218,547 $ 1,344,179 $ 1,320,711
Average Marketing Expense/Market $ 1,056,367 $ 1,214,640 $ 1,111,474 $ 1,276,797 $ 97,676 $ 112,474 $ 275,817 $ 317,110
 
Membership Revenue/Paid Member $ 24.12 $ 28.38 $ 22.52 $ 25.83 $ 14.68 $ 15.09 $ 20.80 $ 23.47
Service Provider Revenue/Paid Member 105.30   108.97   101.47   102.40   42.08   42.10   86.83   87.70
Total Revenue/Paid Member $ 129.42 $ 137.35 $ 123.99 $ 128.23 $ 56.76 $ 57.19 $ 107.63 $ 111.17
 
Total Paid Memberships 608,818 609,644 1,729,448 1,735,024 809,300 827,398 3,147,566 3,172,066
Estimated Penetration Rate* 16 % 17 % 13 % 13 % 11 % 12 % 13 % 13 %
Annual Membership Growth Rate — % 14 % — % 13 %

(2)

%

9

%

(1)

%

12

%
 

Cohort table presents financial and operational data for the twelve months ended June 30, 2016 and 2015.

* Demographic information used in penetration rate calculations is based on third-party studies we commissioned in December 2015 and June 2015, respectively. According to these studies, the number of U.S. households in our target demographic was 27 million for each of the periods ended December 31, 2015 and June 30, 2015.

Second Quarter Results

Revenue

Total revenue for the second quarter of 2016 was $83.1 million compared to $87.3 million in the year-ago period, driven by declines in both service provider revenue, which decreased 4% to $67.4 million, and membership revenue, which decreased 7% to $15.6 million, from a year ago.

Service provider revenue, which includes both advertising and e-commerce revenue, declined from the year-ago quarter due to an increase in service provider attrition, lower originations and lower e-commerce revenue, due in part to disruptions associated with the migration to the Company's new AL 4.0 technology platform.

The decline in membership revenue quarter over quarter is primarily the result of decreases in gross paid memberships added, resulting from reduced marketing spend in the second quarter of 2016 and the ongoing member shift to lower-priced tiers that occurred prior to the removal of the Company's ratings and reviews paywall.

Operating Expenses

Operations and support expense was $10.2 million, a decrease from $15.5 million in the year-ago quarter, due to the implementation of a digital content distribution strategy and an increase in operating efficiency related to lower compensation and personnel-related costs.

Selling expense was $27.0 million, down from $31.6 million in the year-ago quarter, due to efficiencies and the impact of one-time event costs that were incurred in the prior year.

Marketing expense, which now includes the marketing costs that were previously classified in general and administrative expense, was $14.4 million, a decrease from $28.7 million in the year-ago quarter, attributable to a planned reduction in advertising spend during the second quarter ahead of an expected acceleration in spend in the third quarter in connection with the removal of the ratings and reviews paywall.

Product and technology expense was $13.3 million, an increase from $9.6 million in the year-ago period, largely attributable to depreciation expense on the Company’s new technology platform and headcount increases to strengthen its product and engineering organizations and execute on its technology platform migration and rollout of its product roadmap.

General and administrative expense was $12.0 million, an increase from $9.6 million in the year-ago period, driven by period over period increases in outsourced services expenditures and professional fees attributable to third-party consulting costs incurred for, among other things, the execution of the Company’s new long-term profitable growth plan and optimization of service provider go-to-market activities.

Net Income (Loss)

Net income for the quarter was $4.8 million compared to a net loss of $8.3 million in the year-ago quarter, driven by lower operating expenses quarter over quarter, attributable to improved operating efficiency in both operations and support expense and selling expense, as well as a planned shift in the timing of advertising spend to align with the launch of the Company’s new freemium offerings.

Adjusted EBITDA1

Adjusted EBITDA1 was $13.4 million for the period, up from an adjusted EBITDA1 loss of $3.5 million in the year-ago period, attributable to improved operating efficiency and timing of marketing expenditures as discussed above.

Cash

Cash provided by operations for the second quarter was $5.1 million. At June 30, 2016, the balance of cash, cash equivalents and investments was $58.5 million.

1 Adjusted EBITDA is a non-GAAP financial measure.

Summary and Business Outlook

Although the transition to a new business model is showing new members and user engagement re-accelerating at exponential rates, the Company will withhold financial guidance until it can more precisely determine when this will translate into revenue growth and adjusted EBITDA.

Because the Company is principally a subscription-based business, its revenue is relatively resilient. The Company’s revenue growth remained nearly flat in the first half of 2016 despite changing from a paid to a freemium business model; the adverse revenue impact from migrating to a new technology platform; and the many other changes simultaneously made to turn around the business. While the Company’s subscription-based business model has provided stability, it necessarily follows that it will take time for revenue to re-accelerate as it now more than ever depends on the origination and renewal of longer term contracts with service providers.

Moreover, the Company recently began pursuing other new revenue initiatives to further monetize participating and especially non-participating service providers. The Company also sees opportunities to generate incremental revenue by expanding targeted advertising to monetize more traffic and upselling free members to paid tiers. These initiatives could yield incremental revenue in the next six months, but there is no firm basis yet on which to forecast their timing and magnitude.

1 Adjusted EBITDA is a non-GAAP financial measure.

 

Angie’s List, Inc.

Condensed Consolidated Balance Sheets

(in thousands)

     
June 30,
2016		 December 31,
2015
 
(Unaudited)
Assets
Cash and cash equivalents $ 34,575 $ 32,599
Short-term investments 23,913 23,976
Accounts receivable, net 16,890 17,019
Prepaid expenses and other current assets 18,298   19,026  
Total current assets 93,676 92,620
Property, equipment and software, net 84,226 77,635
Goodwill 1,145 1,145
Amortizable intangible assets, net 1,609   2,011  
Total assets $ 180,656   $ 173,411  
 
Liabilities and stockholders’ equity (deficit)
Accounts payable $ 7,614 $ 10,525
Accrued liabilities 29,581 20,287
Deferred membership revenue 29,250 32,702
Deferred advertising revenue 46,462 48,930
Current maturities of long-term debt —   1,500  
Total current liabilities 112,907 113,944
Long-term debt, net 57,950 56,134
Deferred membership revenue, noncurrent 3,108 3,742
Deferred advertising revenue, noncurrent 339 640
Other liabilities, noncurrent 1,152   1,332  
Total liabilities 175,456 175,792
Stockholders’ equity (deficit):
Common stock 67 67
Additional paid-in-capital 282,233 275,445
Treasury stock

(23,719)

 

(23,719)

 

Accumulated deficit

(253,381)

 

(254,174)

 

Total stockholders’ equity (deficit) 5,200  

(2,381)

 

Total liabilities and stockholders’ equity (deficit) $ 180,656   $ 173,411  
 
 

Angie’s List, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

     
Three Months Ended
June 30,		 Six Months Ended
June 30,
2016   2015 2016   2015
 
(Unaudited) (Unaudited)
Revenue
Membership $ 15,645 $ 16,910 $ 31,979 $ 34,249
Service provider 67,415   70,425   134,937   136,629  
Total revenue 83,060 87,335 166,916 170,878
Operating expenses
Operations and support 10,172 15,456 22,381 29,454
Selling 26,983 31,552 54,815 59,844
Marketing 14,432 28,726 33,547 47,555
Product and technology 13,323 9,571 23,357 17,987
General and administrative 11,995   9,586   30,042   18,312  
Total operating expenses 76,905 94,891 164,142 173,152
Operating income (loss) 6,155

(7,556)

 

2,774

(2,274)

 

Interest expense, net 1,352   784     1,968   1,696  
Income (loss) before income taxes 4,803

(8,340)

 

806

(3,970)

 

Income tax expense 6   9   13   19  
Net income (loss) $ 4,797   $

(8,349)

 

$ 793   $

(3,989)

 

 
Net income (loss) per common share — basic $ 0.08 $

(0.14)

 

$ 0.01 $

(0.07)

 

Net income (loss) per common share — diluted $ 0.08 $

(0.14)

 

$ 0.01 $

(0.07)

 

 
Weighted-average number of common shares outstanding — basic 58,710 58,517 58,662 58,517
Weighted-average number of common shares outstanding — diluted 59,644 58,517 59,638 58,517
 
Non-cash stock-based compensation expense
Operations and support $ 57 $ 29 $ 88 $ 49
Selling 430 149 709 160
Marketing 121 76 227 137
Product and technology 566 226 875 422
General and administrative 2,517   1,787   4,819   3,755  
Total non-cash stock-based compensation expense $ 3,691   $ 2,267   $ 6,718   $ 4,523  
 
Reconciliation of net income (loss) to Adjusted EBITDA (loss)
Net income (loss) $ 4,797 $

(8,349)

 

$ 793 $

(3,989)

 

Income tax expense 6 9 13 19
Interest expense, net 1,352 784 1,968 1,696
Depreciation and amortization 3,579 1,613 5,254 3,203
Non-cash stock-based compensation expense 3,691 2,267 6,718 4,523
Contingent liabilities and adjustments —

(480)

 

3,500

(960)

 

 

Non-cash long-lived asset impairment charge —   686   —   686  
Adjusted EBITDA (loss) $ 13,425   $

(3,470)

 

$ 18,246   $ 5,178  
 
 

Angie’s List, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

   
Three Months Ended
June 30,		 Six Months Ended
June 30,
2016   2015 2016   2015
 
(Unaudited) (Unaudited)
Operating activities
Net income (loss) $ 4,797 $

(8,349)

 

$ 793 $

(3,989)

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization 3,579 1,613 5,254 3,203
Amortization of debt discount, deferred financing fees and bond premium 166 184 333 355
Non-cash stock-based compensation 3,691 2,267 6,718 4,523
Non-cash long-lived asset impairment charge — 686 — 686
Non-cash loss on disposal of long-lived assets 18 279 171 279
Changes in certain assets:
Accounts receivable

(678)

 

533 129

(167)

 

Prepaid expenses and other current assets 3,808 860 728

(3,257)

 

Changes in certain liabilities:
Accounts payable

(2,052)

 

3,843

(2,542)

 

9,918
Accrued liabilities

(5,052)

 

(730)

 

9,557 10,002
Deferred advertising revenue

(2,161)

 

(1,029)

 

(2,769)

 

1,962
Deferred membership revenue

(1,031)

 

1,805  

(4,086)

 

(307)

 

Net cash provided by operating activities 5,085 1,962 14,286 23,208
 
Investing activities
Purchases of investments

(7,203)

 

(6,080)

 

(11,274)

 

(9,200)

 

Sales of investments 7,000

8,160

11,320 10,995
Property, equipment and software

(2,304)

 

(2,400)

 

(3,208)

 

(3,516)

 

Capitalized website and software development costs

(3,484)

 

(7,095)

 

(8,973)

 

(13,849)

 

Intangible assets

(7)

 

(113)

 

(129)

 

(206)

 

Net cash (used in) investing activities

(5,998)

 

(7,528)

 

(12,264)

 

(15,776)

 

 
Financing activities
Proceeds from exercise of stock options 498 — 500 —
Taxes paid on behalf of employees related to net share settlement

(303)

 

—

(430)

 

—
Payments on capital lease obligation

(59)

 

(54)

 

(116)

 

(108)

 

Net cash provided by (used in) financing activities 136  

(54)

 

(46)

 

(108)

 

Net increase (decrease) in cash and cash equivalents $

(777)

 

$

(5,620)

 

$ 1,976 $ 7,324
Cash and cash equivalents, beginning of period 35,352   52,935   32,599   39,991  
Cash and cash equivalents, end of period $ 34,575   $ 47,315   $ 34,575   $ 47,315  
 

Conference Call Information

The Company will host a conference call today, July 27, 2016, at approximately 8:30 AM (ET) to discuss the quarterly financial results with the investment community. A live audio webcast of the event will be available on the Angie’s List Investor Relations website at http://investor.angieslist.com/.

A live domestic dial-in is available at (877) 380-5664 or (253) 237-1143 internationally. An audio replay will be available at (404) 537-3406 domestically or (855) 859-2056 internationally, using passcode 47982858 through August 1, 2016.

About Angie’s List

Finding a pro for a job well done is made easy online by visiting Angieslist.com. More than three million members nationwide use Angie's List, a leading provider of reviews, offers and information in over 700 service categories, to help them improve their homes. Built on a foundation of more than 10 million verified reviews of local service, Angie's List connects members directly to its online marketplace of services and offers unique tools and support designed to improve the local service experience for both members and service professionals. www.angieslist.com.

Non-GAAP Financial Measures

In addition to providing financial measurements based on generally accepted accounting principles in the United States (“GAAP”), we disclose in this press release financial information that was not prepared in accordance with GAAP. This information includes non-GAAP Adjusted EBITDA, which we define as earnings before interest, income taxes, depreciation, amortization, non-cash stock-based compensation expense, contingent liabilities and adjustments and non-cash long-lived asset impairment charges, as applicable, none of which represent normal, recurring cash operating expenses necessary to operate our business. We use Adjusted EBITDA internally in analyzing our financial results and performance and determined to disclose this measure as we believe it will be useful, as a supplement to GAAP measures, in evaluating our operating performance relative to our industry sector and competitors, thereby providing additional insight for investors to use with respect to our ongoing operating results and trends. Adjusted EBITDA is also a financial covenant with which we are required to comply under the financing agreement that governs our long-term indebtedness, further supporting our decision to disclose this measure. However, non-GAAP financial measures such as Adjusted EBITDA should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. We have significant uses of cash flows, including capital expenditures and other contractual commitments, interest payments and income taxes that are not reflected in Adjusted EBITDA. Adjusted EBITDA does not consider the potentially dilutive impact of issuing non-cash stock-based compensation to our management and other employees. It should also be noted that other companies, including companies in the same industry, may calculate Adjusted EBITDA in a different manner than we do. We have provided a reconciliation of the Adjusted EBITDA measure to the most directly comparable GAAP financial measure herein.

Forward-Looking and Cautionary Statements

This press release contains statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, each as amended. All statements other than statements of historical fact, including statements regarding market and industry prospects and future results of operations or financial position, made in this press release are forward-looking. In many cases, you can identify forward-looking statements by terminology, such as “may”, “should”, “will”, “expects”, “intends”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of such terms and other comparable terminology. The forward-looking information may include, among other information, statements concerning our estimated and projected earnings, revenues, costs, expenditures, cash flows, growth rates, financial results, our plans and objectives for future operations, changes to our business model, growth initiatives or strategies (including, but not limited to, merger and acquisition activity), profitability plans or the expected outcome or impact of pending or threatened litigation. There may also be other statements of expectations, beliefs, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. Risks and uncertainties may affect the accuracy of forward-looking statements.

For a discussion of these factors and other risks and uncertainties that may affect our business or cause actual results to differ materially from those contained in our forward-looking statements, please refer to the filings we make with the Securities and Exchange Commission from time to time, including our Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

These documents are or will be available online from the SEC or on the SEC Filings section of the Investor Relations section of our website at http://investor.angieslist.com. Information on our website is not part of this release. All forward-looking statements in this press release are based on information currently available to us, and we assume no obligation to update these forward-looking statements, whether as a result of new information, future events or otherwise.