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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-K

(Mark One)

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

  For the fiscal year ended December 31, 2013

OR

Transition Report Pursuant to Section

xANNUAL REPORT PURSUANT TO SECTION 13 orOR 15(d) of the Securities Exchange Act ofOF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to


For the fiscal year ended December 31, 2016
OR
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to
Commission file number 001-35339


ANGIE’S LIST, INC.

(Exact name of registrant as specified in its charter)

Delaware

27-2440197

Delaware27-2440197
(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

1030 E. Washington Street

Indianapolis, IN

46202

(Address of principal executive offices)

(Zip Code)

(888) 888-5478

(Registrant’s telephone number, including area code)

(888) 888-5478
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

Common Stock, $0.001 par valueThe NASDAQ Global Market
(Title of each class)

(Name of each exchange on which registered)

Common Stock, $0.001 par value

The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act:

None.

(Title of Class)


None
(Title of each class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  

x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.    Yes  ¨    No  

x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  

¨




Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  

¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    

x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

¨

Accelerated filer

x

Non-accelerated filer

¨  (Do not check if a smaller reporting company)

Smaller reporting company

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  

x

The aggregate market value of the voting common stock held by non-affiliates of the registrant as of June 30, 2013,2016, computed by reference to the number of shares outstanding and using the price at which the stock was last sold, was $1,134,108,866.

$256,325,912.

As of February 27, 2014,17, 2017, the number of shares of the registrant’s common stock outstanding was 58,507,109.

59,429,518.



DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Definitive Proxy Statement relating to its 2014 annual meeting2017 Annual Meeting of stockholders,Stockholders, to be filed subsequent to the date hereof, are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated. Such Definitive Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the conclusion of the registrant’s fiscal year ended December 31, 2013.2016. Except with respect to information specifically incorporated by reference in this Annual Report on Form 10-K, the Definitive Proxy Statement is not deemed to be filed as part of this Annual Report on Form 10-K.





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PART I.

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Item 1A.

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Item 1B.

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PART I.

I


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

This Annual Report on Form 10-K (this “Form 10-K”) contains statements that constitute “forward-looking statements” that involve substantial risks and uncertainties. The statements contained in this Annual Report on Form 10-K that are not purely historical are forward-looking statements within the meaning of Section 27A of the Private Securities Litigation Reform Act of 1933, as amended (the “Securities Act”), and Section 21E1995. All statements other than statements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”),historical fact, including but not limited to, statements regarding our expectations, beliefs, intentions, strategies,market and industry prospects and future results of operations futureor financial position, future revenue, projected expenses and plans and objectives of management.made in this Form 10-K are forward-looking. In somemany cases, you can identify forward-looking statements by termsterminology, such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “project,” “will,” “would,” “should,” “could,” “can,” “predict,” “potential,” “continue,” “objective,”“may”, “should”, “will”, “expects”, “intends”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of thesesuch 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, profitability plans, evaluation of strategic alternatives, availability of debt or equity financing to support our liquidity needs 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 intended to identify forward-looking statements. However,concerning matters that are not allhistorical facts. Risks and uncertainties may affect the accuracy of forward-looking statements, contain these identifying words. In addition, someincluding, without limitation, those set forth in Item 1A of the industry and market data contained in this Annual Report on Form 10-K are based on data collected by third parties, including The Nielsen Company (“Nielsen”) and Merkle Inc. This information involves a number of assumptionsin other reports we file with the Securities and limitations. Although we believe that each source is reliable as of its respective date, we have not independently verified the accuracy or completeness of this information. TheseExchange Commission (“SEC”).

The forward-looking statements reflect our current views about future events and involve known risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievement to be materially different from those expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section entitled “Risk Factors” included in this Annual Report on Form 10-K. Furthermore, such forward-looking statements speakreport are made only as of the date hereof. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of this report. Exceptnew information, future events or otherwise, except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. We qualify all of our forward-looking statements by these cautionary statements.

law.

ITEM 1.    BUSINESS

Overview

Angie’s List operates

We operate a consumer-drivennational local services consumer review service and marketplace with a mission of improving the local service experience for both members and service providers. To that end, we help facilitate happy transactions between more than five million members and our collection of service providers in over 700 categories of service nationwide. Built on a foundation of more than ten million verified reviews of local services, our unique tools, services and content across multiple platforms enable members to research, hire,shop for and purchase local services for critical needs, as well as rate and review local professionals for critical needs, such as home, health care and automotivethe providers of these services. Our ratings and reviews, which are now available only to members free-of-charge following our introduction of a free membership tier during 2016, assist our members help our members find the bestin identifying and hiring a provider for their local service needs. We allow local service providers who are highly rated by our members to advertise discounts and other promotions to our members. As of December 31, 2013, we offered our service to approximately 2.5 million paying members in 253 local markets in the United States.

We help consumers purchase “high cost of failure” services in an extremely fragmented local marketplace. These services, which include home remodeling, plumbing, roof repair, health care and automobile repair, are typically expensive and carry a high cost to the consumer if performed poorly. Consumers seeking reputable providers of these services generally are forced to rely on incomplete data from word-of-mouth testimonials, local advertisements, the Yellow Pages or Internet search results, all of which may be incomplete, unreliable or misleading.


Our ratings are based exclusively on reviews from our members and we accept no anonymous reviews. As a result, we believe our reviews are a trusted resource for consumers to find high quality local service providers.

We also help local service providers find quality customers and differentiate themselves in a competitive marketplace. Our members represent an attractive, targeted group of consumers for service providers. Our typical member is between the ages of 35 and 64, is married, owns a home, is college educated and has an annual household income of at least $100,000, based on information derived and interpreted by us as a result of our own analysis from general demographic data provided by Nielsen.

Services
 
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The value proposition we offer to both consumers and local service providers strengthens our position as a trusted resource and allows us to deriveWe generate revenue from both members and service providers. As more members contribute reviewsproviders as reflected in the table below for the years ended December 31, 2016, 2015 and 2014:

  Year Ended December 31,
  2016 2015 2014
       
  (in thousands)
Revenue      
Membership $58,090
 $67,992
 $73,113
Service provider 265,239
 276,133
 241,898
Total revenue $323,329
 $344,125
 $315,011


Member Services. During 2016, we introduced a free membership tier that provides access to our service, we increaseratings and reviews in all markets free-of-charge for the breadth and depth of content offeredfirst time. We continue to members, attracting more members and enhancing the value of our service to reputable local service providers, for whom our members constitute a large pool of qualified customers for their services. We believe our high level of member engagementoffer paid membership tiers as well, and our consistently highprimary source of membership revenue remains subscription fees. The subscription fees are typically charged in advance and service provider renewal rates are evidencerecognized ratably over the term of the value we offer both members and service providers.

Our Services

membership, which is generally twelve months in length. We offer an efficient way for consumers and reputable service providers to find each other, always placing the interests of the consumer first.

Member Services

Applying the “ask-your-neighbor” approach across our target markets, we compile a breadth of highly relevant, member-generated ratings and reviews that provide insights which could otherwise be difficult for consumers cannotto obtain on their own. We collectactively monitor for fraudulent reviews, from both members and non-members, and we prohibit anonymous reviews. Only our members’only verified reviews factor into service providers’ ratings,ratings.


Under our current tiered pricing membership structure, we now offer a free tier (Green) and consumers must subscribetwo paid tiers (Silver and Gold). Each tier offers unique levels of service and benefits to our members, including varying degrees of online and phone support, access to discounts and our ratings and reviews. We actively monitor for fraudulent reviews.

Our members’ reviews span more than 720 categories of high cost of failure services such as home, health care and automotive services. Consumers may purchase monthly, annual and multi-year memberships to award-winning Angie’s List Magazine. The Angie’s List Health & Wellness or Fair Price Guarantee, which promises a fair price for purchases made in our e-commerce marketplace, and the Angie’s List Classic Cars in certain markets, or bundled membership packages that include access to reports on localService Quality Guarantee, which promises satisfaction with the quality delivered by service providers on purchases of services made through our e-commerce marketplace, are among the benefits afforded to our paid members.


We offer our services in all three lists. The followinga wide variety of categories, a sampling of which is highlighted in the table highlights some of the service provider categories included in each of our three lists.

below: 

Angie’s List

Angie’s List Health & Wellness

Angie’s List Classic Cars

Carpet cleaning

Dentists

Appraisals

Electrical

Alarms

Dermatologists

Driveways

Bodywork

Housecleaning
Pest Control

Handymen

Appliance Repair

Elder care

Dry Cleaning

Chrome work

Interior Design & Decorating
Plumbing

Auto Repair

ElectricalLandscapingPool & Spa Service
Builders - HomesFencingLawn & YardRemodeling
Carpet CleaningFlooringLightingRentals
ClosetsGarage DoorsMasonryRoofing
Decks & PorchesHandymanMovingSnow Removal
DoorsHeating & A/C

Hospitals

Painting

Custom painting

Housecleaning

OB/GYN

Detailing

Painting

Ophthalmologists

Engine modification

Plumbing

Pediatricians

Parts locators

Remodeling

Plastic surgeons

Restoration

Roofing

Primary care

Storage

Windows

Psychiatrists

Wheels and tires


Our members rate local service providers on an “A” throughto “F” grading scale based on six criteria:a variety of criteria, including overall experience, availability, price, quality, responsiveness, punctuality and professionalism.professionalism and other criteria, depending on the type of service provided. Ratings on each applicable criterion are averaged across all member reviews submitted for the service provider to produce the service provider’s grade on Angie’s List. Non-member reviews do not factor into the ratings, but appear in a separate section from the member reviews on a service provider’s profile. Service providers cannot influence their ratings on Angie’s List. In addition to a letter grade, we encourage members to provide a detailed description and commentary on the service experience. We also ask forrequest the approximate cost of the service, the date that the service was provided and whether the member would hire the local service provider again. Members canagain in the future. We allow members to report on each unique experience they have with a service provider. However, if a memberan individual submits more than one review onfor the same service provider within 180 days,a 180-day period, the second review is published only if we determine that it is for a separate, unique service experience. Member ratings determine which local service providers are eligible to offer discounts and other money-saving promotions.

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We do not allow our members to submit reviews anonymously.anonymously, and our certified data collection process prevents service providers from reporting on themselves or their competitors. We believe that this policy is critical to maintaining the integrity of our reviews. We permit local service providers to respond to reviews, both positive and negative, to provide our members with both sides of the story. We also deploy a variety of other resources, including a team of internal auditquality control and certification personnel and our proprietary fraud detection technology, to ensure that our members can trust the service provider reviews they find throughavailable via our service. We use automated techniques to screen all reviews for fraudulent activity, duplicate reviews, and vulgar language and fake or defamatory content prior to their publication. Flaggedpublication, and flagged reviews receive additional screening to ensure their accuracy, reliability and propriety.

We provide convenient access to our members’ratings and reviews on the Internet, by smartphoneour website and telephone. mobile applications.


We also provideremain committed to helping our members with live customer supportfind the best provider for their service needs. Accordingly, the sort logic utilized in search results displays our certified service providers, which must purchase advertising from us in order to obtain our inbound member call center and helpcertification, above service providers that are not certified, making it easier for our members resolve disputes withto find service providers throughthat have met certain eligibility requirements, agreed to offer a discount to members and generally demonstrated a strong interest in building relationships with and serving our complaint resolution process.

In 2013, 2012, and 2011, membership revenue accounted for approximately 27%, 31% and 38% of our total revenue, respectively.

members.


Service Provider ServicesServices.

Our primary source of service provider revenue is term-based sales of advertising to service providers. Our members are looking forseeking reputable providers of high cost of failurehigh-cost-of-failure services and useutilize our serviceplatforms and offerings to find them. Consumers subscribe to our service when they are ready to purchase. Local service providers with high ratings from our members benefit from access to thisthem, thereby providing a large, qualified pool of demand.

We offer localdemand and a strong value proposition to our service providers, thus establishing the basis for the service provider side of our business.

Service providers are able to take advantage of a variety of services and tools based on the nature and extent of their relationship with us. Our members rate service providers on an “A” to “F” scale, and we invite service providers with an averageoverall member grade of “A” or “B” or betterto complete our certification process to advertise their services and at least two reviews submitted in the last three years the opportunity to offerprovide exclusive discounts, promotions and e-commerce offers to our members through their online profiles, throughmembers. Service providers must meet certain criteria in order to become eligible for certification, including:

retaining an overall member grade of “A” or “B”;
passing an annual criminal background check;
attesting to proper licensing to perform listed work;
maintaining a company-verified profile page; and
remaining in good business standing with us.

Once the eligibility criteria outlined above are satisfied, a service provider must purchase advertising from us to obtain our inbound member call center and inAngie’s List Magazine.certification. If a service provider’s grade falls below a “B”provider fails to meet any of our eligibility criteria during the term of its contract, or if a service provider refuses to engageparticipate in our complaint resolution process or engages in what we determine to be dishonestprohibited behavior onthrough any of our service channels, we immediately terminate itspromptly suspend any existing advertising, discounts, promotions or e-commerce offers, and the service provider’s contract and suspend its discounts and other promotions.is subject to termination. This policy, which may causeresult in us to forgoforegoing revenue that we would otherwise would receive, is guided by our commitment to our consumer-first philosophy.

In addition to traditional advertising on our website and publications, we offer our membersmembers.


A certified service provider rotates among the opportunity to purchase services through us fromfirst service providers rated onlisted in search results for an applicable category, and their company name, overall rating, number of reviews, certification badge and basic profile information are displayed in the search results. Service providers without our website, which we refercertification are listed below our certified service providers in search results, and while the nature and extent of benefits afforded to as e-commerce. These offerings arenon-certified service providers is less than what is made available through both email promotions and through postings on our website. When the member purchases the service, the transaction is processed through Angie’s List. The member then can work directly with the service provider to schedule the service. These e-commerce offerings provide our members a discount and an easier way to complete their service needs.

Because our membership, not Angie’s List, determines which localcertified counterparts, non-certified service providers are eligible to advertise with us based on their reviews, service providers who advertise are known to be reputable. We believe that smaller local service providers particularly benefit from our service because they compete based on the quality and value of their services rather than the size of their marketing budgets.

A local service provider does not need to advertise with us to be included on Angie’s List or to manage its online profile. We encourage local service providersstill able to take an active role in managing their profiles and monitoring members’ ratings and reviews through our free Business Center service. Through this service, localplatforms. Our annual Super Service Award, for which both certified and non-certified service providers can update their profile contact information, sign up forare eligible, recognizes excellence among service providers that maintain a superior service record.


In addition to traditional advertising on our platforms, our e-commerce marketplace solutions offer members the opportunity to purchase services through us from highly-rated service providers. These e-commerce offerings are available through postings on our website and mobile applications as well as via email notification whenpromotions and offers and are an important aspect of our business. When a member completes an e-commerce purchase from our marketplace, we process the transaction and receive a new reviewportion of the price paid as revenue. E-commerce offerings provide our members with an easier and more convenient way to fulfill their servicesservice needs and respond to members’ reviews.

In 2013, 2012, and 2011, service provider revenue accounted for approximately 73%, 69% and 62% of our total revenue, respectively.

may offer a discount as well.
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Marketing and Sales

We focus our

Our primary strategy for new member acquisition is national advertising, including both offline and online media, with continued expansion into digital marketing platforms. Our marketing efforts primarilyare not only focused on acquiring new members and increasing market penetration, but also on improving our brand’s awareness and consideration and highlighting our products and services with the goal of driving qualified traffic to increaseand engagement on our market penetration. Ourplatforms. The marketing strategymix we employ includes a mix ofoffline advertising offline onvia national cable and broadcast television and national broadcast radio and magazines as well as onlinedigital advertising through search engine marketing, web display, affiliate and online display.retargeting. Our co-founder and Chief Marketing Officer, Angie Hicks, serves as the companyour spokeswoman. Additionally, we useWe also utilize our original content, search engine optimization (“SEO”) and other inbound marketing tactics to supplement our advertisingmarketing spend and further strengthen our brand through search engine optimization.

as well as to drive more engagement and transactions on our platforms.


Our sales personnel, focusesthe majority of whom are located at our headquarters in Indianapolis, Indiana, focus on originating and renewing service provider advertising contracts and identifying and converting e-commerce opportunities with service providers across the markets in which we operate in the United States.

Our Technology
Our proprietary technology platform is designed to create an engaging user experience for both our members and service providers, to enable us to collect and verify the integrity of our reviews and to help us connect our members to our online marketplace of services from our service providers. The majorityWe employ a team of this sales force is located atinternal product and engineering professionals, as well as external resources when necessary, dedicated to enhancing our headquarters in Indianapolis, Indiana,technology platform, developing new products and they will call upon eligible localservices for members and service providers and conducting product and quality assurance testing.
Key elements of our proprietary technology platform, which was enhanced with the introduction of our new technology platform across all markets during 2016, include:
Search. Our search technology combines structured and free-form content to enable our members to search for service providers in numerous categories. The search and sort functionality utilizes a number of factors, such as grade, number of reviews, service area and current discounts or other promotions, to connect our 253 paid membership marketsmembers with the most relevant service providers.

Targeted review acquisition. We developed a review targeting engine for collecting reviews on service providers. This engine enables us to identify individuals who may have hired a service provider found through our platforms, and we then encourage these individuals to submit a review of their service experience.

Fraud detection. We employ various technology-based algorithms and filters, as well as third-party tools, to detect fraudulent reviews. Our reviews are not anonymous and provide a degree of traceability and accountability not present in many competitor websites.

Service provider sales lead targeting. We utilize a scoring engine that assigns weights to a variety of attributes in order to effectively identify the United States.

most qualified prospective service provider leads for our service provider sales representatives to target.


Membership tools and service provider contracts. We use proprietary tools for managing memberships and renewals as well as targeted service provider contracts.

E-commerce tools. We utilize dynamic tools that enable consumers to purchase services through our e-commerce marketplace platforms from highly-rated service providers.

We developed our website and related infrastructure, which are hosted in a redundant fashion within multiple third-party co-location facilities and cloud computing services, with the goal of offering unique tools and support to facilitate improvement of the local service experience for both members and service providers.


Cybersecurity

The infrastructure and third-party services we utilize have been subject to various cybersecurity incidents from external sources, including vulnerability scanning, penetration attempts and distributed denial of service attacks. Additionally, individual workstations used by our employees have been exposed to malicious software or advanced persistent threats that are commonplace on the Internet. We maintain systems and processes to detect, alert and mitigate incidents related to malware, attempted intrusions and attacks against our technology and services, and we employ certain preventative measures to reduce the risk of such incidents. We believe our systems and processes are effective in mitigating the risks of cybersecurity threats. The cybersecurity incidents we have experienced to date have not materially impacted our business, results of operations, liquidity or financial condition or impaired our ability to accurately record, process, summarize or report information for financial reporting purposes, and there is no indication such incidents have resulted in a loss or breach of member, service provider or employee personal data.

Competition


We compete for membersconsumer attention with traditional, offline consumer resources and with onlinenumerous providers of consumer ratings, reviews and referrals on the basis of a number of factors, including, among other things, breadth of our service provider listings, reliability of our content, breadth, depth and timeliness of information, quality and availability of our products, services and technology and strength and recognition of our brand. We also compete for a share of local service providers’ overall advertising budgets with traditional, offline media companies and other Internetonline marketing providers on the basis of a number ofseveral factors, including, among other things, return on investment, the quality of our high quality membership profile, the effectiveness and relevance of our member discount program,and e-commerce initiatives, our pricing structureand monetization strategies and recognition of our brand. Our competitors include:

Traditional, offline competitors. We compete for members with a number of traditional, offline consumer resources, such as the Yellow Pages and Consumers’ CHECKBOOK. Many of these competitors also have consumer reviews and information about service providers available online.

Online competitors. We compete for members with “free to consumer” online ratings websites and referral services funded directly by service providers or by service provider advertising, such as HomeAdvisor, Inc., the “Diamond Certified” directory operated by American Ratings Corporation, Yelp, Inc., Kudzu, an indirect subsidiary of Cox Enterprises, Inc., and Insider Pages, an indirect subsidiary of IAC/InterActiveCorp. In our Angie’s List Health & Wellness categories, we compete for members with other online resources for patients, such as RateMDs, Inc. and Health Grades, Inc. Across all categories, we also compete with established Internet companies such as Facebook, Inc., Google, Inc., Groupon, Inc., LivingSocial, Inc., Microsoft Corporation and Yahoo! Inc.

Amazon Home & Business Services, Better Business Bureau, Consumers’ Checkbook, Facebook, Inc., Google AdWords Express, Groupon, Inc., HomeAdvisor, Inc., Houzz, Inc., Porch.com, Inc., Pro.com, Pro Referral.com (owned and operated by Red Beacon, Inc.), TaskRabbit, Inc., Thumbtack, Inc., the Yellow Pages and Yelp, Inc.

We are facing an increasingly competitive business environment as many of the competitors identified above continue to expand their presence, including increasing their advertising spend, entering international markets and improving their technology and product and service offerings, in the local services sector.
Research and Development

Our Technology

Our proprietaryresearch and development expenditures primarily consist of costs incurred related to the development of our new technology platform, is designed to create an engaging user experience for our members, to enable us to collect and verify the integrity of our members’ reviews and to help us to connect our members with relevant local service providers. We have a team ofincluding product and engineering professionals attechnology personnel and external resources, as applicable. For the years ended December 31, 2016, 2015 and 2014, development costs attributable to our headquarters in Indianapolis, Indiana and in Palo Alto, California dedicated to enhancing ournew technology platform developing new services for membersamounted to $13.7 million, $25.2 million and service providers and conducting product and quality assurance testing.

Key elements of our proprietary technology platform include:

Search. Our search technology combines structured and free-form content to allow members to search for service providers in numerous categories. Our search uses a number of factors, such as grade, number of reviews, service area and current discounts or other promotions to connect our members with the most relevant local service providers.

Targeted review acquisition. We have developed a review targeting engine for collecting reviews on local service providers from our members. This engine enables us to identify members who may have hired a service provider they found through Angie’s List, and we encourage these members to submit a review of their service experience.

$20.1 million, respectively.

Intellectual Property
 
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Fraud detection. We use various technology-based algorithms and filters to detect fraudulent reviews. Because most of our memberships are paid, our reviews are not anonymous and provide a degree of traceability and accountability not present in other sites.

Service provider sales lead targeting. We use a lead scoring engine to identify the most qualified service provider leads for our service provider sales representatives to target. This engine assigns scoring weights to a variety of attributes which we believe make service providers a good prospect for our sales representatives.

Membership, contracts and renewal tools. We have developed sophisticated and proprietary tools for managing memberships and markets, highly localized and targeted service provider contracts and automatic renewals of both memberships and service provider contracts.

E-commerce tools. We have developed tools to allow members to purchase services through us from service providers rated on our website. Our Big Deal and Storefront offerings give our members the option to receive email alerts of deals or search through service provider offerings on our website.

We have developed our website and related infrastructure with the goal of maximizing the availability of our service to our members and service providers. Our website and related infrastructure are primarily hosted on a network located at our headquarters and in a redundant third-party facility in Pittsburgh, Pennsylvania.

Intellectual Property

We protect our intellectual property rights by relying on federal, state and common law rights as well as contractual restrictions. We control access to our proprietary technology by entering into confidentiality and invention assignment agreements with our personnel and contractors and confidentiality agreements with third parties. In addition to these contractual arrangements, we also rely on a combination of trade secrets, trademarks, trade dress, domain names and copyrights to protect our intellectual property. We believe our domain names, trademarks and service marks are important to our marketing strategy and the continued development of awareness of our brand, and therefore, we pursue their registration in the United States and in certain locations outside the United States. As of December 31, 2013,2016, we havehad 25 registered 24 trademarks in the United States including “Angie’s List,” and twoone registered trademarkstrademark in Canada,Europe, as well as four pending trademark applications in the United States.

Personnel

As of DecemberJanuary 31, 2013,2017, we had 1,637employed approximately 1,567 full-time personnel in the United States. None of our personnel isare covered by a collective bargaining agreement. We believe that relations with our personnel are good.


Seasonality

While we believe seasonal trends have affected and will continue to affect our quarterly results, our trajectory of rapid growth may have overshadowed these effects to date.

We believe that our business willis subject to trends related to seasonal activity levels in the local services sector and that we may be subject toimpacted by such seasonality in the future, which may resultpotentially resulting in fluctuations in our revenue, operating expenses or overall financial results.

Generally, our highest volume of activity occurs in the second and third quarters of the year, corresponding to the periods of the year when consumers are typically most actively seeking our services.


Backlog

Service provider contract value backlog consists of the portion of service provider contract value at the end of the period that is not yet recognized as revenue. Our total service provider contract value backlog was $147.3 million and $162.5 million at December 31, 2016 and 2015, respectively.

Operating Segments and Geographic Areas

We manage our business on the basis of one operating segment. Substantially all of our revenue infor the year ended December 31, 20132016 was generated from members and participating service providers located in the United States.

States, separately stated as membership revenue and service provider revenue in our consolidated financial statements. The financial information received and reviewed by our President and Chief Executive Officer, who serves as our chief operating decision maker (“CODM”) with respect to our evaluation of segment reporting, contains detail on the components of our revenue streams, but operating expenses and assets and liabilities are only reported on a consolidated basis. Further, the financial information reviewed by our CODM does not contain margin information for, nor are operating expenses, assets or liabilities allocated to, each revenue stream. As the financial information reviewed by our CODM does not contain a measure of profit or loss by revenue stream, discrete financial information is not available, and operating results for each revenue stream are therefore not regularly reviewed by the CODM. Accordingly, the CODM does not possess enough information to assess performance and make resource allocation decisions by revenue stream, thus supporting our conclusion that the business is managed on the basis of one operating segment.

Available Information

We were organized in the State of Indiana in April 1995 as Brownstone Publishing, LLC. In April 2010, we became a Delaware corporation and changed our name to Angie’s List, Inc. Our principal executive offices are located at 1030 E.East Washington Street, Indianapolis, Indiana, 46202, and our telephone number is (888) 888-5478.

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Our website is located at www.angieslist.com, and our “Investor Relations” website is located at investor.angieslist.com.

investor.angieslist.com.

We file reports with the SecuritiesSEC and Exchange Commission (“SEC”), including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any other filings required by the SEC. We make available on our “Investor Relations” website, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. We use our “Investor Relations” website as a means of disclosing material non-public information and for complying with disclosure obligations under Regulation FD. Accordingly, investors should monitor investor.angieslist.com, in addition to following our press releases, SEC filings and public conference calls and webcasts. References to our website and our “Investor Relations” website in this report are intended to be inactive textual references only, and none of the information contained on our website or our “Investor Relations” website is part of this report or incorporated in this report by reference.

The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.


ITEM 1A     1A.    RISK FACTORS

Investing in our common stock involves a high degree of risk. Before deciding to invest in our common stock, you should carefully consider each of the following risk factors and all other information set forth in this Annual Report on Form 10-K. The following risks and the risks described elsewhere in this Annual Report on Form 10-K, including in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” could materially harm our business, financial condition, operating results, cash flow and future prospects. IfThese risks are not the only risks facing us as additional risks and uncertainties not currently known to us or that occurs, thewe currently deem to be immaterial also may become important factors that may materially affect our business, financial condition and future results. The trading price of our common stock could decline due to any of these risks or uncertainties, and you may lose all or part of your investment.

Risks Related to Our Business

investment as a result.

We have incurred annual net losses each year since inception,in the past, and we expect to continue tomay incur additional net losses as we continue to invest aggressively to grow and penetrateimplement our markets.

Webusiness strategies.

Aside from 2015, we have incurred significantannual net losses each year since inception. As a result, we had anour accumulated deficit of $252.3was $262.0 million as of December 31, 2013.2016. Consequently, we have funded our operations primarily through equity and debt financings. A key elementKey elements of our strategy has been to aggressively grow both the number of markets in which we offerbusiness strategies often include growing and strengthening our servicemembership and our penetration in each of these markets. In addition, we have expanded the number of local service provider categories that we maintain forbases, increasing traffic to and engagement across our members’ review, launched new productsplatforms and services for members and localincreasing revenue from service providers and significantly grown our service provider sales headcount and sales activity.providers. We anticipate that our expenses will continue to increase as we, continue to invest in growingamong other things, expand our paid membership base, increase the numbermember and variety of our service provider categories, increase the number of service providers participating as advertisers,bases, develop new marketing initiatives, incentivize consumers to interact and transact on our platforms, enhance our technology platform. In particular, we intend to continue to invest substantial resources in marketing to acquireplatform and launch new paid memberships, in selling to grow our base of participating service providersproducts and in technology to enhance our product offerings.services. These planned investments may consume a portion of our cash flow and may result in additional net losses andor negative cash flow. We also expect to incur increased operating expenses as we hire additional personnel and invest in our infrastructure to support anticipated future growth and the reporting and compliance obligations to which we are subject as a public company.In addition, in our efforts to increase revenue as the number of members has grown, we have expanded and expect to continue to expand our sales personnel. If our hiring of additional sales personnel does not result in a sufficient increase in revenue, the cost of this additional headcount will not be offset, which would harm our operating results and financial condition.

Ifflow impacts. Further, if our revenue does not grow or declines, or if our operating expenses exceed our expectations, we may not become profitable on a sustained basis.basis, or at all, which could harm our business, financial condition or results of operations.


Our inability to develop, execute and evolve our business strategies may adversely impact future results.
Our ability to successfully develop, execute and evolve our business strategies could require significant capital investment and management attention, which might result in the diversion of these resources from other business initiatives or opportunities. Additionally, any new or modified initiative is subject to risks, including market acceptance, competition, product differentiation, challenges to scale in our marketplace and the ability to attract and retain qualified management and other personnel. There can be no assurance we will be able to successfully develop, execute and evolve our business strategies, and if we ultimately are unable to successfully do so, our business, financial condition or results of operations could be adversely impacted.

We encountered, and may continue to encounter, difficulties related to the implementation of our new technology platform.

We began implementing our new technology platform, AL 4.0, in a limited number of markets in the fourth quarter of 2015, followed by a nationwide rollout during the first half of 2016. We encountered difficulties migrating to our new technology platform and, accordingly, experienced delays in implementing certain new products and services. We incurred costs to address the issues identified and also experienced revenue losses associated with non-renewal of service provider contracts and paid membership subscriptions, as well as declines in e-commerce unit sales, as a result of disruptions attributable to our new technology platform. If we encounter more issues as we add additional functionalities and introduce upgrades and enhancements to the platform, our reputation and overall business performance could be damaged. Further, our business operations and relationships will continue to be at risk if the new platform does not meet our performance expectations, or those of our users, which could harm our business in numerous ways, including, without limitation, losses of revenue, memberships or service provider contracts or damage to our reputation, all of which could negatively impact our financial condition or operating results.


We are exploring strategic alternatives, but there can be no assurance we will be successful in identifying or implementing any strategic alternative or that any such strategic alternative will yield additional value for stockholders.

We have commenced a review of strategic alternatives which could result in, among other things, a sale, merger, consolidation or business combination, asset divestiture, partnership or other collaboration agreements, or potential acquisitions or recapitalizations, in one or more transactions, or a continuance of existing operations under our current business plan and strategy or under new business plans or strategies. There can be no assurance that the exploration of strategic alternatives will result in the identification or consummation of any transaction. In addition, we could incur substantial expenses associated with identifying and evaluating potential strategic alternatives, including those related to employee retention payments, equity compensation, severance pay and legal, accounting and financial advisory fees, which could negatively impact our profitability. The public announcement of strategic alternatives may also yield a negative impact on sales if prospective or existing service providers are reluctant to commit to new or renewal contracts, if existing members decide not to renew or upgrade their memberships or to purchase e-commerce offers or consumers decide not to become members. The process of exploring strategic alternatives may be time consuming and disruptive to our future growthbusiness operations, and operating performance orthere is a risk that our negative cash flow or losses resulting fromcurrent employees will leave as a result of uncertainties related to our investment in membership acquisition failexploration of strategic alternatives. If we are unable to meet investor or analyst expectations,effectively manage the process, our operating results,business, financial condition and stock priceresults of operations could be adversely impacted. We also cannot be certain that any potential transaction or other strategic alternative, if identified, evaluated and consummated, will provide greater value to our stockholders than is reflected in the current stock price. Any potential transaction would be dependent upon a number of factors that may be beyond our control, including, among other factors, market conditions, industry trends, the interest of third parties in our business and the availability of financing to potential buyers on reasonable terms.

Our success depends in part upon our ability to increase our service provider revenue as our membership grows and our membership packaging, pricing and monetization strategies evolve.
Typically, we are able to charge higher rates for advertising when service providers are able to reach a larger base of potential customers. However, as we generally only adjust advertising rates at the time of contract renewal, growth in service provider revenue commonly trails increases in membership. Accordingly, growth of our membership base may not result in service provider revenue increases until future periods, if at all. In addition, we are subject to risks associated with the credit quality of our service providers, and our business could suffer if service providers to which we provide advertising and e-commerce services are unable to meet their contractual obligations to us. Further, as our business evolves and membership packaging, pricing and monetization strategies change, any resulting declines in membership revenue may not be offset by concurrent increases in service provider revenue. Ultimately, if we are unable to increase our service provider revenue as our business strategies evolve, our business, financial condition or results of operations could be harmed.

If we fail to attract, retain or deepen our relationships with service providers, our business, financial condition or operating results could be harmed.
For 2016 and 2015, we derived 82% and 80%, respectively, of our revenue from service providers, and we expect to continue to generate an increasing portion of our revenue from service providers in the future. Our ability to attract, retain and deepen our relationships with service providers and, ultimately, to generate revenue from service providers depends on a number of factors, including:

increasing the number of memberships in our markets;
maintaining high levels of member and service provider engagement;
enticing members to engage and transact via our e-commerce marketplace;
competing effectively for advertising dollars with other online and offline advertising providers;
continuing to enhance our advertising and e-commerce packaging and pricing strategies; and
developing new products and services that are attractive to both members and service providers.
We offer both offline and online advertising products as well as an array of e-commerce opportunities to certified service providers, and our business depends, in part, on service providers’ willingness to actively participate in the various initiatives we offer, including advertising on our platforms. Service providers may choose not to advertise or engage in e-commerce with us or may leave us for competing alternatives upon expiration or termination of their agreements with us. Failure to demonstrate the value of our products and services to service providers could result in reduced spending by, or loss of, existing or potential future participating service providers, which could materially harm our business, revenue or financial condition. 


We generally do not employ local “feet on the street” sales personnel to sell advertising or pitch e-commerce to service providers and instead rely on call center sales personnel. The resulting lack of a personal connection with service providers may impede us in growing or maintaining service provider revenue. As we expand our business, it will be important for us to continue to recruit, integrate and retain additional skilled and experienced sales personnel who can effectively communicate our value proposition to service providers. Accordingly, we could be adversely affected if we hire poorly or if sales personnel do not reach desired levels of effectiveness within a period of time consistent with our historical experience, thereby potentially harming our business, revenue or overall financial condition.

If we are unable to maintain high levels of member satisfaction and engagement, our business, financial condition or operating results could be adversely impacted.

We believe the success of our business strategies is contingent, in part, on our ability to provide our members with high-quality services and benefits that meet or exceed their expectations and therefore drive traffic to and engagement on our platforms. Member satisfaction and engagement may be inhibited for a number of reasons, including, but not limited to:

our failure to develop or offer new or improved products and services in a timely manner to keep pace with our competitors and the evolving needs of our members;
our inability to market our products and services in a cost-effective manner to prospective and existing members; and
our failure to provide a differentiated user experience, including regular upgrades and improvements to our products, services and technology platform.

If we are unable to provide our members with engaging products, services and technology, we may not be able to attract new members or retain existing members, which could yield, among other things, decreases in traffic, searches, service provider profile views or the quantity or quality of member reviews submitted, all of which could negatively impact our business, financial condition or operating results.

If we are unable to sustain or improve member engagement, our business, financial condition or operating results could be harmed.

As our business matures and we achieve higher penetration rates in the markets in which we operate, the traffic across our platforms may slow over time, and potentially decrease in certain periods. Accordingly, our success may become increasingly dependent on our ability to increase member engagement. A number of factors may negatively impact member engagement, including:

member engagement with products and services on competitors’ platforms;
decreases in the number, or perceived quality, of reviews contributed by our members;
failure to introduce new and improved products and services, or introduction of new products and services that do not effectively address member needs;
technical or other problems impairing the availability or reliability of our products and services or otherwise negatively impacting the user experience; and
damage to our brand reputation or image.

If we are unable to sustain or improve member engagement, our business, financial condition or operating results could be harmed.

If we are unable to introduce new or upgraded products, services or technology that consumers and service providers recognize as valuable, we may fail to generate additional traffic to and engagement on our platforms, attract and retain members and service providers or monetize the activity on our platforms. Our efforts to develop new and upgraded products, services or technology could require us to incur significant costs.

In order to attract and retain members and service providers, generate consumer traffic to and engagement on our platforms and monetize such traffic and engagement via service provider advertising, we will need to continue to invest in the development of new or upgraded products, services and technology that add value for members and service providers and differentiate us from our competitors. The success of new products, services and technology depends on several factors, including our ability to effectively address consumer needs and preferences and timely completion, introduction and market acceptance. If members and service providers do not recognize the value of our new products, services or technology, they may choose not to utilize or advertise on our platforms.

We may experience difficulties in developing and delivering new or upgraded products, services or technology, which may increase our expenses. Moreover, we cannot be certain that new or upgraded products, services or technology will work as intended or provide value to members or service providers. Additionally, some new or upgraded products, services or technology may be complex and challenging to effectively market to prospective and existing members and may also involve additional changes to our current pricing tiers.

We cannot guarantee current or prospective members and service providers will respond favorably to new products, services or technology. Furthermore, there are inherent risks associated with our efforts to enhance and improve the ease of use, responsiveness, functionality and features of our existing platforms, and we may not be able to manage such enhancements and improvements successfully. We may also choose to license or otherwise integrate applications, content and data from third parties, which may impose costs on our business and require the use of our own resources. We may be unable to continue to access such applications, content or data on commercially reasonable terms, or at all, all of which could harm our business, financial condition or results of operations.

If our efforts to increase memberships, retain existing paid memberships, drive traffic across our platforms or maintain high levels of member engagement are not successful, our growth prospects and revenue could be adversely affected.

 
6Our ability to grow our business and generate increased revenue depends, in part, on attracting new members, retaining our existing paid membership base and driving traffic to and high levels of engagement across our platforms. Growing our membership base and generating traffic to and engagement on our platforms will require us to continually address a number of challenges, and we may fail to do so successfully. Some of these challenges include:

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continuing to build our database of ratings and reviews of service providers;

increasing the number and variety of service providers reviewed by our members;
convincing prospective members of the benefits that can be derived from our products and services;
providing membership tiers that offer desirable benefits and levels of service at attractive price points;
delivering a compelling member experience, including relevant, high-quality discounts and deals and other promotional offers from our participating service providers; and
innovating to keep pace with changes in technology and competition.
Our inability to grow our membership base, retain existing paid memberships or generate traffic to and high levels of engagement across our platforms could negatively impact our business, financial condition or results of operations.

Our paid membership renewal rates and membership revenue have declined, and are likely to continue to decline, in connection with our introduction of a free membership tier during 2016, which could harm our business, financial condition or operating results.

Prior to June 2016, we only offered paid membership tiers to consumers. Following our introduction of a free membership tier in June 2016, our paid membership base is decreasing as new members are primarily joining via our free membership offering, and existing paid members are not renewing as paid members at rates consistent with our historical averages. Our paid membership renewal rates are likely to continue to decline as a result of a number of factors, including additional pricing changes in the future, adjustments to our product or service offerings, competitive pressures or general customer satisfaction, among other things. The introduction of a free membership tier may ultimately yield reductions in our revenue if we are unable to effectively monetize our free member traffic and engagement with service provider revenue, and our business, financial condition or operating results could be harmed as a result.


We have significantly increased our annual investmentcontinue to make substantial investments in membership acquisition. If the revenue generated by new paid memberships differsvaries significantly from our expectations, or if our membership acquisition costs or costs associated with servicing our members increase, we may not be able to recover our membership acquisition costs or generate profits from this investment.

We spent $87.5incurred marketing expense of $65.1 million and $80.2$83.8 million on marketingin 2016 and 2015, respectively, a portion of which was for the intended purpose of acquiring new members, in addition to acquire new memberships in 2013generating traffic to and 2012, respectively, andengagement across our platforms. We expect to continue to spend significant amounts to acquire additional memberships,invest in acquiring new members and driving engagement, primarily through national advertising. Our decisions regarding investments in membership acquisition are based upon our marginal marketing cost per paid membership acquisition and our analysis of the revenue we have historically generated per paid membership over the expected lifetime of such membership. Our analysis of the revenue that we expect new paid memberships to generate over their lifetimes depends uponon several estimates and assumptions, including our membership tier structure, paid membership renewal rates, future membership fees, e-commerce purchase rates and incremental advertising and e-commerce revenue from service providers driven by increased penetration in a particular market. Due to our recent expansion, our experience with long-term financial and operating trends is limited to a relatively small proportionthe growth of our overall number of paid membership markets. Our experience in markets in which we presently have low penetration rates may differ from our more established markets.

Our average revenue per marketbase and total revenue per paid membership in a geographic market have generally increased with the maturity and corresponding increased penetration of our markets in prior periods. In the future, we expect total revenue per paid membership to fluctuate from period to period, reflecting the timing of adjustments to advertising rates given the advertising contract terms and membership pricing innovations designed to drive increased penetration, among other factors. In addition, we intend to continue to evaluate and adopt new pricing and packaging strategies, such as reduced membership pricing, to support our strategy of driving increased membership growth and improved retention, which have caused and may continue to cause membership revenue per paid membership and total revenue per paid membership to decline in some or all of our membership cohorts.

markets. If our estimates and assumptions regarding the revenue we can generate from new paid memberships prove incorrect, or if the revenue generated by new paid memberships over the periods such members continue to subscribe differs significantly from that of paid memberships acquired in prior periods, we may be unable to recover our membership acquisition costs or generate profits froma return on our investment in acquiring new paid memberships. Moreover, if our membership acquisition costs or the costs associated with servicing our members increase, the return on our investment may be lower than we anticipate irrespective of the revenue generated by new memberships. If we cannot generate profits froma return on this investment, we may need to alter our growth strategy, and our growth rate, andbusiness, financial condition or results of operations may be adversely affected.


Our business depends on the strength of our brand, which has beenis built byon a foundation of authentic reviews and the trust of consumers, and the failure to maintain that authenticity and trust wouldcould damage our brand and harm our ability to maintain or expand our base of paid membershipsmembership and participating service providers.

provider bases.

Trust in the integrity of the “Angie’s List”our brand and in the objective, unbiased nature of our ratings and reviews has contributedcontributes significantly to our ability to attract new paid membershipsmembers and participating service providers. Maintaining consumer trust and enhancing our brand will dependdepends largely on our ability to maintain our commitment to and reputation for placing the interests of the consumerour members first. If our existing or potentialprospective members perceive that we areour focus is not focused primarily on helping them make more informed purchasing decisions about local services transactions or that the advertising revenue we receive from service providers interferes with the objective rating of service providers on the basis of member reviews,member-oriented, our reputation and the strength of our brand willcould be adversely affected. Complaints or negative publicity about our sales and business practices, products, services and technology, personnel andor customer service, irrespective of their validity, andor concerns regarding data privacy and security, issues could diminish consumers’ confidence in our service and adversely impact our brand. For example, in August 2012, a lawsuit seeking class action status, Fritzinger v. Angie’s List, Inc., was filed against us in the U.S. District Court for the Southern District of Indiana, alleging that we automatically renew membership fees at a higher rate than customers are led to believe, breaching our membership agreements.

  
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Trust in our brand could also will sufferbe impaired if we are not ableunable to maintain the quality and integrity of the ratings and reviews that appear on Angie’s List. We collect reviews from both members and non-members and make these reviews available to members onacross our website, although non-member reviews are not factored into the service providers’ ratings.platforms. While we useutilize various technology-based algorithms and filters to detect fraudulent reviews, and we believe that our prohibition of anonymous reviews provides a degree of traceability and accountability not present inon other websites, we cannot guarantee the accuracy of our reviews. Moreover, as our membership base of paid memberships expands and the number of local service providers rated and reviewed by our members grows, we may see an increase in fraudulent or inaccurate reviews. If fraudulent or inaccurate reviews - positive or negative - increase on Angie’s Listour platforms, and we are unable to effectively identify and remove such reviews, the overall quality of our ratings and reviews wouldcould decrease, our reputation as a source of trusted ratings and reviews maymight be harmed and consumers and local service providers maymight be deterred from using our products and services. We regularly employ steps designed to ensure that consumer reviews are not inaccurate or fraudulent and that service providers are rated according only to member reviews of them rather than their advertising with us or any other factor. If such steps prove ineffective or if members otherwise believe that we are not objective, weservices, which could lose their trust, andnegatively impact our brand, and business, could be harmed.

financial condition or results of operations.

In addition, our brand could be harmed if others use any of our trademarks are used inappropriately. For example, local service providers maymight use our trademarks without our permission, including our “SuperSuper Service Award, which is available only to local service providers that have maintainedmaintain superior service ratings. We have in the past taken, and will in the future take, action, including initiating litigation, to protect our trademarks and the integrity of our brand. If such efforts are unsuccessful, our brand and our business wouldcould be adversely affected.

If



Our stock price may be volatile, and the value of an investment in our effortscommon stock may decline.
The trading price of our common stock has historically demonstrated, and is likely to increase continue to exhibit, volatility, and could decline substantially within a short period of time. For example, as of February 17, 2017, since shares of our common stock were sold in our initial public offering in November 2011 at a price of $13.00 per share, our trading price has ranged from $3.73 to $28.32. The trading price of our common stock may be subject to wide fluctuations in response to various factors, some of which are beyond our control. In addition to the risk factors discussed herein, these factors include:
our operating performance and the operating performance of similar companies;
our business strategies and related initiatives;
the overall performance of the equity markets;
the number of shares of our paid memberships,common stock publicly owned and available for trading;
threatened or actual litigation;
changes in laws or regulations relating to retainour business;
any change in our board of directors or management;
publication of research reports about us or our industry, changes in securities analysts’ projections or recommendations, withdrawal of research coverage or our failure to meet analysts’ expectations;
large volumes of sales of shares of our common stock by existing paid membershipsstockholders; and
general political and economic conditions.
Securities class action litigation has often been instituted against companies following periods of volatility in the overall stock market or in the market price of a company’s securities. We have in the past been, and may in the future be, subject to maintain high levels of member engagement are not successful,stockholder class action lawsuits, which could result in substantial costs, divert our growth prospectsmanagement’s attention and revenue will be adversely affected.

Our ability to growresources and therefore harm our business, financial condition or results of operations.


The covenants in the instruments that govern our current indebtedness may limit our operating and financial flexibility.

The covenants in the financing agreement limit our ability to:
incur debt and liens;
pay dividends;
make redemptions and repurchases of capital stock;
make loans and investments;
make capital expenditures;
prepay, redeem or repurchase debt, other than under the financing agreement;
engage in acquisitions, consolidations, asset dispositions, sale-leaseback transactions and affiliate transactions;
change our business;
amend our material agreements;
issue and sell capital stock of subsidiaries;
receive distributions from subsidiaries; and
grant negative pledges to generate both membership revenue andother creditors.

The financing agreement also requires us to comply with certain financial covenants, including minimum active service provider revenue depends on attracting new paid memberships, retainingcontract value, minimum consolidated EBITDA, minimum liquidity and maximum consolidated capital expenditures, and is secured by a pledge of substantially all of our existing paid membership baseassets and, maintaining high levelsthrough a delayed draw term loan facility, provides a source of member engagement. We must convince prospective membersliquidity to enable us to fund our current and future operations, if necessary. A breach of any of the benefitscovenants or requirements in the financing agreement could result in a default under the financing agreement, unless we are able to obtain the necessary waivers or amendments. Upon the occurrence of our servicean event of default that is not waived, and existing memberssubject to any appropriate cure periods, the lenders could elect to exercise any of its continuing value. In addition, we must convince our memberstheir available remedies, which may include the right to submit reviews of local service providersnot lend any additional amounts to our database. We are dependent upon increased penetration and active member engagement in each of our markets to grow our database of reviews of local service providers, and in turn to enhance the value of our service to other members and prospective members in that market and to increase membership revenue per paid membership. We also depend on growing our paid membership base to increase our service provider revenue in that market by driving greater participation by service providers in our advertising programs and higher advertising rates. We cannot assure you that we will be successful in maintaining or expanding our paid membership base,us or, in increasing our revenue per paid membership.

In addition, we have historically relied upon high membership renewal rates and “word of mouth” referrals from existing memberscertain instances, to maintain and grow our paid membership base. If our efforts to satisfy our existing members are not successful, we may not be able to maintain our renewal rates or continue receiving those referrals. Furthermore, although we use our number of paid memberships as one indicator of the growth of our business, some of our members may not actively use our service or submit reviews of local service providers to our database. If member engagement does not meet our expectations, we may lose members or service providers who advertisedeclare all outstanding borrowings, together with us, and our revenue may not increase or may decline.

Our ability to increase the number of our paid memberships and to maintain high levels of member engagement will require us to address a number of challenges, and we may fail to do so successfully. Some of these challenges include:

continuing to build our database of member-generated ratings and reviews of local service providers;

increasing the number and variety of local service providers reviewed by our members;

convincing consumers of the benefits of our service, and making it easy for them to become paid members; 

delivering an optimal member experience, including relevant, high-quality discount, couponaccrued interest and other promotional offers from our participating local service providersfees, to be immediately due and compelling, easy-to-use e-commerce offerings; and

continuing to innovate and keep pace with changes in technology and our competitors.

Our inability to increase the number of our paid memberships and to maintain high levels of member engagement would have an adverse effect on our growth prospects, operating results and financial condition.

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Any failure to convince local service providers of the benefits of advertising with us would harm our business.

For 2013 and 2012, we derived 73% and 69%, respectively, of our revenue from service providers, and we expect to continue to derive an increasing percentage of our revenue from service providers in the future. Our ability to attract and retain participating service providers and, ultimately, to generate advertising revenue depends on a number of factors, including:

increasing the number of paid memberships in our existing markets;

maintaining high levels of member engagement;

competing effectively for advertising dollars with other online and offline advertising providers; and

continuing to develop and diversify our advertising offerings.

Historically, advertising markets for local service providers have been dominated by traditional offline advertising media, such as broadcast and cable television, broadcast radio, newspapers and the Yellow Pages. We offer both offline and online advertising products to eligible local service providers, and our business will depend in part on local service providers’ willingness to pay for our advertising products. Local service providers may view advertising with us as experimental and its long-term effectiveness as unproven, may choose not to advertise with us, or may leave us for competing alternatives upon expiration or termination of their agreements with us. Failure to demonstrate the value of our service would result in reduced spending by, or loss of, existing or potential future participating service providers, which would materially harm our revenue and business.

Unlike competitors such as Yellow Pages, we generally do not employ local “feet on the street” sales forces to sell advertising to service providers and instead rely on call center sales personnel. The resulting lack of a personal connection with local service providers may impede us in growing service provider revenue. As we grow, we will need to recruit, integrate and retain additional skilled and experienced call center sales personnel who can demonstrate our value proposition to service providers and increase the monetization of our membership base. We will be adversely affected if we hire poorly and if sales personnel do not reach levels of effectiveness within a period of time consistent with our historical experience or ifpayable. If we are unable to convince service providersrepay the borrowings with respect to advertise with us throughthe financing agreement when due, the lender would be permitted to proceed against our call center model.

Our success depends in part uponcollateral. If the lender takes any or all of these steps, our ability to increase our service provider revenue per paid membership as we increase our market penetration.

Historically, our service provider revenue per paid membership in a given market has generally increased with market penetration as we attracted more service providers and charged higher advertising rates as the pool of members using our service to actively seek local service providers has grown. Because we only increase advertising rates at the time of contract renewal, such rate increases in a given market may trail increases in market penetration. In addition, in certain markets we have not increased our advertising rates as rapidly as the number of paid memberships has grown. Moreover, trends in market penetration and growth in service provider revenue per paid membership in our largerbusiness, financial condition or less penetrated markets have differed from our experiences in our smaller or more penetrated markets. Accordingly, growth of our membership may not result in service provider revenue increases until future periods, if at all. In addition, we are subject to risks associated with the credit quality of our service providers. If service providers to whom we have provided advertising services are unable to meet their contractual obligations to us, our service provider revenue could decrease, and our results of operations could be harmed.

materially and adversely impacted, and we may be unable to continue to fund our operations.


If our security measures are breached and unauthorized access to our members’ or service providers’ data is obtained, our service may be perceived as not being secure, and members and service providers may curtail or terminate their use of our service.
 
9In the ordinary course of business, we collect and store in our data centers and networks sensitive data, including intellectual property, our proprietary business information and personally identifiable information of our members, service providers and employees. The secure processing, maintenance and transmission of this information is critical to our operations and business strategies. Our service involves the storage and transmission of our members’ and service providers’ proprietary information, such as credit card and bank account numbers, and security breaches could expose us to a risk of loss of this information, resulting in potential litigation and liability. Further, our payment services may be susceptible to credit card and other fraud schemes, including unauthorized use of credit cards, debit cards or bank account information, identity theft or merchant fraud, and could result in fines by credit card companies or the loss of our ability to accept credit and debit card payments.

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We

Despite the precautionary measures we have in place, we are subject to a number of risks related to intentional business disruptions, data protection breaches, piracy and will continueother security risks, and we expect to be faced with manyan ongoing target of attacks specifically designed to impede the performance of our products and services and harm our reputation as a company. If our security measures are breached as a result of third-party action, employee error, malfeasance or otherwise, and as a result, someone obtains unauthorized access to our members’ or service providers’ data, our reputation may be damaged, our business may suffer and we could incur significant liability. As techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures. The theft or unauthorized use or publication of our intellectual property, proprietary business information or personally identifiable information as a result of such events could adversely affect our competitive challenges, anyposition, reputation, brand or future sales of our products and services, and our customers may assert claims against us related to resulting losses of confidential or proprietary information. If an actual or perceived breach of our security occurs, the public perception of the effectiveness of our security measures could be harmed, and we could lose members and service providers, which could adversely affect our prospects,business, financial condition or results of operations and financial condition.

We compete for both members and service providers with a range of established and emerging companies. We compete for members on the basis of a number of factors, including breadth of service provider listings, reliability of our content, breadth, depth and timeliness of information and strength and recognition of our brand. We compete for a share of local service providers’ advertising budgets on the basis of a number of factors, including return on investment, our high quality membership profile, effectiveness and relevance of our service providers’ discount offers to our members, our pricing structure and recognition of our brand. Our current competitors for memberships and service providers include a number of traditional offline consumer resources, such as the Yellow Pages and Consumers’ CHECKBOOK. Many of these competitors also have consumer reviews and information about service providers available online. We also compete with “free to consumer” online ratings websites and referral services funded directly by service providers or by service provider advertising, such as HomeAdvisor, Inc., the “Diamond Certified” directory operated by American Ratings Corporation, Yelp, Inc., Kudzu, an indirect subsidiary of Cox Enterprises, Inc., and Insider Pages, an indirect subsidiary of IAC/InterActiveCorp. In our Angie’s List Health & Wellness categories, we compete for members with other online resources for patients, such as RateMDs, Inc. and Health Grades, Inc. Across all categories, we also compete with established Internet companies who have significantly greater resources and name recognition than we do.

To compete effectively for members, we must continue to invest significant resources in marketing and in the development of our products and services to enhance value for members. To compete effectively for service provider revenue, we must continue to invest significant resources in our sales force, in the development of existing and new advertising products, the acquisition of new paid memberships and the collection of our members’ reviews of local service providers. Many of our competitors for service providers utilize local sales forces or “feet on the street,” and we may be at a disadvantage as a result of our call center-based sales model. Failure to compete effectively against our current or future competitors could result in loss of current or potential participating service providers or a reduced share of our participating service providers’ overall advertising budget, which could adversely affect our pricing and margins, lower our service provider revenue and prevent us from achieving or maintaining profitability. We cannot assure you that we will be able to compete effectively for memberships or service providers in the future against existing or new competitors, and the failure to do so could result in loss of existing or potential paid memberships, reduced membership base and service provider revenue, increased marketing or selling expenses or diminished brand strength, any of which could harm our business.

If we are unable to replicate our performance in our larger markets, our operating results and financial condition will be harmed.

Our penetration rates in a number of our larger geographic markets lag those of our mid-size markets. Many of our largest markets, including New York City, Los Angeles and San Francisco, were converted to paid status beginning in 2006 and 2007, and these markets have produced the largest number of new members in recent years. However, the penetration rate in these larger markets has lagged, on a percentage basis, those of our mid-size markets that converted in the same time frame. We believe that a principal reason for the lower penetration rates in our larger markets is the manner in which we market Angie’s List. We have chosen to spend the majority of our marketing dollars on national advertising. We believe that this advertising strategy provides us the most cost-efficient manner of acquiring new paid memberships. However, advertising nationally means we deliver the same volume of advertising regardless of the size of market. Since each market differs in terms of the number of advertising outlets available, the impact of our spending on national advertising varies across markets. In our experience, smaller markets typically have fewer advertising outlets available than larger markets. We believe the same volume of advertising in a smaller market is more effective in building brand awareness and generating new memberships than in larger markets. We expect to continue to allocate our marketing dollars in accordance with our national advertising strategy and accordingly expect to continue to see lower relative penetration rates in the larger markets.

Slower penetration of our larger markets may delay or prevent us from increasing total revenue per paid membership in these markets. If we are unable to replicate the performance we have achieved in our most mature markets in our larger and less penetrated markets, or if growth in larger or less penetrated markets is significantly slower than we anticipate, our operating results and financial condition could be harmed.

operations.
 
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Interruptions or delays in service arising from our third-party cloud-based data services providers or our own systemstechnology infrastructure could impair the delivery of our serviceservices and harm our business.

We rely, in part, upon third-party co-location technology facilities and cloud-based data services vendors, including data center, Internetonline infrastructure and bandwidth, andas well as payment processing providers,vendors, none of which are under our control, to provide our products and services to our members and service providers. We do not controlOur own internal facilities, as well as the operation of theexternal third-party technology facilities and both our own facilities and the third-party data center facilityvendors we utilize, are vulnerable to damage or interruption from tornadoes, floods, fires, power loss, telecommunications failures, and similar events. They also are subject to break-ins, sabotage, intentional acts of vandalism, cyber-attacks, the failure of physical, administrative and technical securitycybersecurity measures, terrorist acts, human error, the financial insolvency of the third-party provider andproviders or other unanticipated problems or events. The occurrence of any of these events could result in interruptions in our service and unauthorized access to, or alteration of, the content and data contained on our systems or stored and the content and data that thesedelivered on our behalf by third-party vendors store and deliver onfacilities. As our behalf.

technology infrastructure is critical to the performance of our systems and our overall operations, such disruptions could negatively impact our ability to run our business, result in a loss of existing or potential members and service providers or increase our technology maintenance and support costs, all of which could adversely impact our operating results and financial condition. Further, our business interruption insurance may be insufficient to compensate us for any losses that may occur as a result of any such interruptions or delays.


Our technology infrastructure is critical to the performance of our systems and our overall operations. Certain aspects of our technology infrastructure run on a complex distributed system, or what is commonly known as cloud computing. We own, operate and maintain the primary elements of this system, but some elements of this system are operated by third parties that we do not control and which would require significant time to replace, thereby increasing our vulnerability to problems with the services they provide. We have experienced, and expect to continue to experience, interruptions and delays in service and availability for such elements. Any errors, failures, interruptions or delays experienced in connection with these cloud computing technologies and information services could negatively impact our brand and reputation, our relationship with our members our brand and reputation andservice providers or our ability to attract, retain and serve our members and service providers.


In addition, we have designed and builtdeveloped key portionsaspects of the software code and technical infrastructure for the technology platforms through which we serveprovide our products and services, and we plan to continue to maintain and develop certain elements of our technology platforms internally. Our software code and technical infrastructure are complex, and such efforts may therefore lead to increased product and technology expense, operational inefficiencies or interruptions in the delivery or degradation of the quality of our products and services. These issues may not be identified immediately, which couldresultcould result in further interruption, degradation or cost.

cost, thereby resulting in potential adverse impacts on our business, financial condition or results of operations.


If security measures at third parties are breached, our ability to automatically renew paid memberships or process service provider payments could be harmed.

Many of our members and service providers shop at third parties, including retailers such as Target and Home Depot, and pay by credit card at such places. While we assume third parties adequately protect their customers’ personal information, including bank account and credit card details, the techniques used to obtain unauthorized access to such personal information change frequently, and third parties may be unable to implement sufficient preventive measures to protect that information. If any of our members’ or service providers’ bank account or credit card information is compromised by a security breach at a third-party, any such members or service providers may be forced to open a new bank account or obtain a new credit card, and the payment information we have on file for those impacted members and service providers would no longer be valid, impairing our ability to automatically process paid membership renewals and service provider payments. Our inability to automatically renew paid memberships and process service provider payments may have a significant negative impact on our revenue, and our business, financial condition or results of operations could be harmed as a result. 
We are involved in litigation matters that are expensive and time-consuming, and such matters could harm our business, financial condition or results of operations.
We are subject to claims and lawsuits and regularly involved in litigation, both as a plaintiff and as a defendant, related to our business and operations, and we anticipate that we will continue to be a target for litigation in the future. Any negative outcomes from litigation in which we are involved could result in payment of substantial monetary damages or fines or undesirable changes to our products, services or business practices, and accordingly, our business, financial condition or results of operations could be materially and adversely affected. Although the results of litigation and claims brought against us cannot be predicted with certainty, we currently believe the final outcome of such matters that we are currently facing will not have a material adverse impact on our business, financial condition, results of operations or cash flows, except as otherwise recorded within the consolidated financial statements. However, there can be no assurance of a favorable final outcome for all present and future legal matters, and regardless of the outcomes of present or future cases, any lawsuit can adversely impact our business due to potential defense and settlement costs, diversion of management resources and other factors. Any litigation to which we are a party may result in an onerous or unfavorable judgment that may not be reversed upon appeal, potentially leading to payments of substantial damages or fines, or we may decide to settle lawsuits on similarly unfavorable terms, which could adversely affect our business, financial condition or results of operations. See Note 9, “Commitments and Contingencies,” in the accompanying Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.

We are and will continue to be faced with many competitive challenges, any of which could adversely affect our business prospects, results of operations or financial condition.
We compete for consumer attention with numerous providers of consumer ratings, reviews and referrals on the basis of a number of factors, including, among other things, breadth of our service provider listings, reliability of our content, depth and timeliness of information, quality and availability of our products, services and technology and strength and recognition of our brand. We also compete for a share of service providers’ overall advertising budgets with traditional, offline media companies and online marketing providers on the basis of several factors, including, among other things, return on investment, the quality of our membership profile, the effectiveness and relevance of our discount and e-commerce initiatives, our pricing and monetization strategies and recognition of our brand.

To compete effectively, we must continue to invest significant resources in marketing, sales and technology. Many of our competitors continue to invest in the expansion of their businesses internationally. Failure to compete effectively against our current or future competitors, domestically or internationally, could result in losses of existing or prospective paid members, current or potential participating service providers or a reduced share of our participating service providers’ overall operating budgets, which could adversely affect our pricing and margins, lower our service provider revenue or prevent us from achieving or maintaining profitability. There is no guarantee we will be able to compete effectively in the future against existing or new competitors, and the failure to do so could result in losses of existing or potential paid memberships and participating service providers, increased marketing or selling expenses or diminished brand strength, any of which could harm our business, financial condition or results of operations.

If we fail to effectively manage our growth,business strategies, our business, operatingfinancial condition or results of operations may suffer.
Our business strategies have required, and financial results may suffer.

We have experienced, and expect to continue to experience, significant growth in newrequire, us to utilize substantial financial, operational and existing markets, which has placed, and will continue to place,technical resources, including placing significant demands on our management and our operational and financial infrastructure. We expect that our growth strategy will require us to commit substantial financial, operational and technical resources, and we expect that our marketing cost per paid membership acquisition may increase in the near term. Continued growth also could strain our ability to maintain reliable service levels for our members and participating service providers, to effectively monetize our membership base, to develop and improve our operational, financial and management controls, to enhance our reporting systems and procedures and to recruit, train and retain highly skilled personnel. Asproviders. If our operations continue to grow in size, scope and complexity, weit will needbe important for us to continue to improve and upgrade our systems and infrastructure, and we may determine we needit is necessary to open additional operational locations, such as call centers, to support our advertising and e-commerce sales efforts, which willcould require significant expenditures and allocation of valuable management resources. If we fail to maintain thea necessary level of discipline and efficiency, or if we fail to allocate limited resources effectively in our organization as it grows,we implement our business operating results andstrategies, our business, financial condition may suffer.

We may not maintain our current rate of revenue growth.

Our paid membership base has grown rapidly in recent periods in new and existing markets. As a result, our membership revenue and service provider revenue have increased quickly and substantially. We believe that our continued revenue growth will depend on, among other factors, our ability to:

improve our penetration of our existing markets by efficiently deploying marketing expenditures to attract new paid memberships and by retaining our existing paid memberships in these markets;

maintain high levels of member engagement and the quality and integrity of our members’ reviews of local service providers;

increase the number and variety of local service providers reviewed by our members and convince highly-rated local service providers to advertise with us;

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retain service providers that currently advertise with us and convince them to increase their advertising spending with us;

continue to develop and diversify our product offerings for local service providers;

recruit, integrate and retain skilled and experienced sales personnel who can demonstrate our value proposition to service providers;

provide our members and local service providers with superior user experiences;

react to changes in technology and challenges from existing and new competitors; and

increase awareness of our brand.

We cannot assure you that our paid membership base or our service provider participation will continue to grow or will not decline as a result of increased competition and the maturation of our business. If our growth rates were to decline significantly or become negative, it could adversely affect our financial condition and results of operations. You should not rely on our historical rate of revenue growth as an indication of our future performance.

The Company’s inability to implement its strategic plan and growth initiatives may have an adverse impact on future results.

The Company’s ability to succeed in its strategic plan and growth initiatives could require significant capital investment and management attention, which may result in the diversion of these resources from the core business and other business issues and opportunities. Additionally, any new initiative is subject to certain risks, including customer acceptance, competition, product differentiation, challenges to economies of scale in merchandise sourcing and the ability to attract and retain qualified management and other personnel. There can be no assurance that the Company will be able to develop and successfully implement its strategic plan and growth initiatives to a point where they will become profitable or generate positive cash flow. If the Company cannot successfully execute its strategic plan and growth initiatives, the Company’s financial condition and results of operations may be adversely impacted.

suffer.

Our future growth depends in part on our ability to effectively develop and sell additional products, services and features.

We invest in the development of new products, services and features with the expectation that we will be able to effectively offer them to consumers and local service providers. For example, we have introduced two e-commerce offerings, Angie’s List Big Deal and Storefront, which give our members the option to receive email alerts or search through service provider offerings on our website for deals. We plan to continue to develop additional advertising products for qualified local service providers. In addition, weoperating results may acquire vertical offerings that address additional “high cost of failure” segments of the market for local services.

Our future growth depends in part on our ability to sell these products and services, as well as additional features and enhancements to our existing offerings. As our new offerings evolve, we have adapted our sales and marketing strategies for them, and changes in these strategies may delay or prevent growth in these parts of our business. For example, we continue to refine our service provider eligibility criteria, pricing and our vendor credit and customer refund policies for our e-commerce offerings, which may cause our revenue from these offerings to fluctuate from period to period, in the future. Further, many of our current and potential service provider advertisers have modest advertising budgets. Accordingly, we cannot assure you that the successful introduction of new products or services will not adversely affect sales of our current products and services or that those service providers that currently advertise with us will increase their aggregate spending as a result of the introduction of new products and services. If our efforts to effectively develop and sell additional products, services and features are not successful, our business may suffer.

We invest in features, functionality and customer support designed to drive traffic and increase engagement with members and service providers; however, these investments may not lead to increased revenue.

Our future growth and profitability will depend in large part on the effectiveness and efficiency of our efforts to convert consumers and local service providers who visit Angie’s List into paid memberships and participating service providers, respectively. We have made and will continue to make substantial investments in features and functionality for our website that are designed to drive online traffic and user engagement and in customer support for local service providers who do not advertise with us. These activities do not directly generate revenue, and we cannot assure you that we will reap any rewards from these investments. If the expenses that we incur in connection with these activities do not result in sufficient growth in paid members and participating service providers to offset their cost, our business, financial condition and results of operations will be adversely affected.

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Our operating results may fluctuate, which makes our resultsperformance difficult to predict and could cause our results to fall short of expectations.

Our revenue and operating results have varied and may continue to vary significantly from quarter to quarter and year to year becauseas a result of a variety of factors, many of which are outside our control. As a result,Therefore, comparing our operating results on a period to period basis may not be meaningful. In addition to other risk factors discussed in this “Risk Factors” section,herein, factors that may contribute to the variability of our quarterly and annual results include:


our ability to retain our current paid memberships and build our paid membership base;

our ability to retain our service providers that currently advertise with us and convince them to increase their advertising spending with us;

our revenue mix and any changes we make to our membership fees or other sources of revenue;

our marketing costs or selling expenses;

our ability to effectively manage our growth;

the effects of increased competition in our business;

our ability to keep pace with changes in technology and our competitors;

costs associated with defending any litigation or enforcing our intellectual property rights;

the impact of economic conditions in the United States on our revenue and expenses; and

changes in government regulation affecting our business.

From time to timeretain our current paid memberships and build our overall membership base;

our ability to attract and retain participating service providers and convince them to increase their advertising spending and engagement across our platforms;
our ability to drive engagement and transaction volume across our platforms;
our revenue mix and any changes we change make to our membership tiers and fee structure, e-commerce take rates or other sources of revenue;
our marketing and selling expenses;
our ability to effectively manage our growth;
the compensation plans foreffects of increased competition in our sales personnel. For example,business and our ability to keep pace with our competitors’ advertising spending and technology innovations;
our ability to successfully develop new products and services;
costs associated with defending any litigation or enforcing our intellectual property rights; and
changes in the fourth quarter of 2012, we transitioned to a new compensation plan forgovernment regulation affecting our sales personnel responsible for new advertising originations. Any future changes to such compensation plans could disrupt our sales personnel, adversely affecting sales and reducing our revenue. We cannot guarantee that we will accurately forecast the impact of future changes to such compensation plans on our operating results.

business.

Seasonal variations in the behavior of our members and service providers also may cause fluctuations in our financial results. For example, we expect to continue to experience some effects of seasonal trends in member and service provider behavior due to decreased demand for home improvement services in winter months. In addition, advertising expenditures by local service providers tend to be discretionary in nature and may be sporadic reflecting overall economic conditions, the economic prospectsas a result of specific local service providers or industries, budgeting constraints and buying patterns and a variety of other factors, including seasonality, many of which are outside our control. We also expect revenue contributions from our e-commerce offerings to fluctuate from period to period as the offerings evolve and due to seasonality. While weWe believe seasonal trends have affected andour business will continue to affect our quarterly results, our trajectory of rapid growth may have overshadowed these effects to date. We believe that our business will be subject to seasonality in the future, which may result in fluctuations in our financial results.

Our revenue may be negatively affected if we are requiredresults from period to pay sales tax or other transaction taxes on all or a portion of our past and future sales in jurisdictions where we are currently not collecting and reporting tax.

We currently only pay sales or other transaction taxes in certain jurisdictions in which we do business. We do not separately collect sales or other transaction taxes. A successful assertion by any state, local jurisdiction or country in which we do not pay such taxes that we should be paying sales or other transaction taxes on the sale of our products or services, or the imposition of new laws requiring the payment of sales or other transaction taxes on the sale of our products or services, could result in substantial tax liabilities related to past sales, create increased administrative burdens or costs, discourage consumers and service providers from purchasing products or services from us, decrease our ability to compete or otherwise substantially harm our business and results of operations.

period.
 
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We depend on key personnel to operate our business, and if we are unable to attract, retain attract and integrate qualified personnel, our ability to develop and successfully grow our business could be harmed.

We believe that our future success depends, in part, upon the continued service of key members of our management team as well as our ability to attract and retain highly skilled and experienced sales, technicaltechnology and other personnel. Our co-founders, William S. OesterlePresident and Chief Executive Officer, Scott A. Durchslag, and our co-founder and Chief Marketing Officer, Angie Hicks, are critical to our overall management as well asand the development of our culture and strategic direction. In particular, the reputation, popularity and talent of Ms. Hicks is anare important factorfactors in the public perceptionsperception of Angie’s List, and the loss of her services or any repeated or sustained shifts in public perceptions of her could adversely affect our business.


In addition, qualified individuals are in high demand in the Internettechnology sector, and we may therefore incur significant costs to attract them.or retain qualified personnel. Competition for thesequalified personnel iscan be intense, and we may not be successful in attracting and retaining qualified personnel.such personnel as a result. Many of the companies with which we compete for experienced personnel have greaterpossess more resources than us. In addition, in making employment decisions, particularly in the technology sector, job candidates often consider the value of the stock optionscompensation they are towould receive in connection with their employment.If we are unable to attract and retain our executive officers and key employees, we may not be able to achieve our strategic objectives, and our business could be harmed.


We have historically relied primarily onprovide our executive officers and other key personnel with a mix of cash rather thanand equity compensation. With respect to equity compensation, forprior to 2015, we only offered stock options to these parties, but during 2015, we began granting time-based and performance-based restricted stock units to these parties as well. If share-based payment awards granted to executive officers and other key personnel lose value or, in the majoritycase of our workforce. Asstock options, are not in the money subsequent to the grant date, the viability of such weshare-based payment awards as a retention tool could be negatively impacted, which may have difficulty competing on a national scale for candidates focused on equity incentives.make it difficult to retain these employees. If we are unable to attract and retain executive officers and key personnel, to our headquarters in Indianapolis, Indiana or integrate recently hired executive officers and key personnel, our business, operatingfinancial condition or results and financial conditionof operations could be harmed.

If we cannot maintain our corporate culture as we grow, we could lose the innovation, teamwork and focus that contribute crucially to our business.

We believe that a critical component of our success has been our corporate culture, which we believe fosters innovation, encourages teamwork, cultivates creativity and promotes focus on execution. We have invested substantial time, energy and resources in building a highly collaborative team that works together effectively in an environment designed to promote openness, honesty, mutual respect and the pursuit of common goals. As we continue to develop the infrastructure of a public company and continue to grow, we may find it difficult to maintain these valuable aspects of our corporate culture. Any failure to preserve our culture could negatively impact our future success, including our ability to attract and retain personnel, encourage innovation and teamwork and effectively focus on and pursue our corporate objectives.


We may require additional capital to pursue our business objectives and respond to business opportunities, challenges or unforeseen circumstances. If capital is not available to us, our business, operatingfinancial condition or results and financial conditionof operations may be harmed.

We may require additional capital to operate or expand our business. In addition, somebusiness, and certain of the strategicour initiatives we have in early stages of development may requirenecessitate substantial additional capital resources before they begin to generate revenue. Our working capital may vary, which could require us to seek additional financing. Although we believe we possess adequate working capital resources to support the execution of our business strategies, we may need additional funding to accomplish our plans. Our working capital needs are extremely difficult to predict and may continue to be extremely difficult to predict even after we have settled on a strategic course of direction. We may therefore be subject to significant and rapid increases in our working capital needs that could require us to seek additional financing sources. Additional funds may not be available when we need them,needed, on terms that are acceptable to us, or at all. For example, the loan and security agreement governing our term loan and revolving creditdebt facility contains various restrictive covenants including restrictions onwith respect to the use of funds from our ability to dispose of assets, make acquisitions or investments, incur debt or liens, make distributions to our stockholders or enter into certain types of related party transactions,borrowings, and any debt financing secured by us in the future could involve furtheradditional restrictive covenants, which may make it more difficult for us to obtain additional capital and pursue business opportunities.capital. If we attempt to raise additional funds through the issuance of equity or convertible securities, the percentage ownership of holders of our common stock could be significantly diluted,and these newly issued securities may have rights, preferences or privileges senior to those of holders of our common stock.stock, which could adversely affect the availability of such funds. Furthermore, volatility in the credit or equity markets may have an adverse effect onnegatively impact our ability to obtain debt or equity financing, or the cost of such financing. If we do not have funds available to enhance our solutions, maintain the competitiveness of our technology and pursue business opportunities, wefinancing may not be ablefavorable. If sufficient funds are not available to service our existing members, acquire new members or attract or retain participating service providers, which could have an adverse effect onus, our business, operating results and financial condition.

If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired, which would adversely affect our business and our stock price.

Ensuring that we have adequate internal financial and accounting controls and procedures in place to produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be reevaluated frequently. We have in the past discovered, and may in the future discover, areas of our internal financial and accounting controls and procedures that need improvement.

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Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generallyaccepted accounting principles. Our management does not expect that our internal control over financial reporting will preventcondition or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our company will be detected.

Because we recognize membership revenue over the term of the membership and recognize service provider revenue ratably over the relevant contract period, downturns or upturns in membership or in service provider advertising may not be immediately reflected in our operating results.

We recognize membership revenue ratably over the term of a paid subscription and recognize service provider revenue ratably over the time period during which the advertisements are run. Because approximately 94% of our members subscribed on an annual or multi-year basis as of December 31, 2013, a large portion of our membership revenue for each quarter reflects deferred revenue from memberships purchased in previous quarters. Similarly, because our service provider contracts run for an average term of more than one year, a large portion of our service provider revenue each quarter reflects purchasing decisions made in prior periods. Therefore, an increase or decrease in new or renewed memberships or new or renewed service provider contracts in any one quarter will not necessarily be fully reflected in our revenue for that quarter but will affect our revenue in future quarters. Accordingly, the effect of significant downturns or upturns in membership or advertising sales may not fully impact our results of operations until future periods.

We may suffer liability as a result of the ratings or reviews posted on our website.

Our terms of use specifically require members and non-members submitting reviews to represent that their ratings and reviews are based on their actual first-hand experiences and are accurate, truthful and complete in all respects and that they have the right and authority to grant us a license to publish their reviews. However, we do not have the ability to verify the accuracy of these representations on a case-by-case basis. There is a risk that areview maycould be considered defamatory or otherwise offensive, objectionable or illegal under applicable law. Therefore, there is a risk that publication on our website of our ratings and reviews may give rise to a suit against us for defamation, civil rights infringement, negligence, copyright or trademark infringement, invasion of privacy, personal injury, product liability, breach of contract, unfair competition, discrimination, antitrust or other legal claims. From time to time, we are involved in claims and lawsuits based on the contents of the ratings and reviews posted on our website, including claims of defamation. To date, we have not suffered a material loss due to a claim of defamation. We expect that we will be subject to similar claims in the future, which may result in costly and time-consuming litigation, liability for money damages or injury to our reputation.

adversely impacted.


If we fail to generate or maintain expected high qualityhigh-quality reviews and reports from our members,consumers, we willmay be unable to provide members with the information they seek, which could negatively impact our membership and service provider retention and growth.

Our business depends, in part, on our ability to provide our members with the information they seek, which is directly dependent onimpacted by the quality and quantity of the reviews and reports provided by our members.consumers. For example, we may be unable to offer our members adequate information on local service providers if our members docontent is not contribute contentcontributed that is helpful or relevant to thea service category in a particular market. We may be unable to provide members with the information they seekmarket or if our membersconsumers are unwilling to contribute reviews and reports because ofdue to concerns they will be suedrelated to potential lawsuits or harassedharassment by service providers they review, instances of which have occurred in the past and may occur again in the future. In addition, we may not be able to provide members with the information they seekare seeking if the information on our site is not updated. We do not remove older reviews, and members may view these reviews as less relevant, helpful or reliable. If our site doesplatforms do not provide current information about local service providers, or members perceive reviews on our site as less relevant or stale, our brand, and business, financial condition or results of operations could suffer.

 
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Membership growth is impacted by traffic to our website from search engines, such asGoogle, Bing and Yahoo!, some of which offer products and services that compete directly with our services.offerings. If our website fails to rank prominently in unpaid search results, traffic to our site could decline,and our business wouldcould be adversely impacted.

A portion of our website traffic comes fromis generated by non-paid search results that appear on search engines, such as Google and Bing. For example, in 2013,member sales from search engine optimization (“SEO”) efforts grew 57% as compared to 2012.Google. While SEO has a much lower cost per acquisition as compared to many outbound marketing channels such asadvertising and has helpedhelps reduce our overall cost per membermembership acquisition, our ability to maintain high organic search rankings is not completely within our control. As such, our competitors’ SEO efforts may result in their websites receiving a higher search result page ranking than ours. Separately, Internetonline search engines could revise their methodologies in such a way that could adversely affect our search result rankings. For example, Google makes changes to its algorithm(s) every year,algorithms from time to time, any one of which could potentially impact our rankings,which we are dependent upon, to a certain extent, to drive traffic to and ultimately sales toengagement on our site.platforms. Our website has experienced fluctuations in search result rankings in the past, and we anticipate similar fluctuations in the future. Any reduction in the number of Internet users directed to our website through search engines could harm our business.

business, financial condition or results of operations.



If local service providers rated on our website do not meet the expectations of our members, or engage in unethical or illegal conduct, we may suffer reputational harm, liability or adverse effectsimpacts on our profitability and liquiditybusiness, financial condition or results of operations as a result.

Our business depends on our reputation for quality

Quality and integrity which mayare important foundations of our business that could be harmed by actions taken by local service providers that are outside our control. Given thatOur members utilize our members use our serviceplatforms and tools to gather information about projectsservices that oftentimes carry a high risk of failure and have the opportunityalso, at times, to purchase these services at a discounted raterates through our Big Deal and Storefront offerings, if theye-commerce offerings. If such services are performed incompetently, or if service providers fail to perform prepaid services, our reputation could be undermined.adversely affected. We cannot be certain that highly-rated local service providers will perform to the satisfaction of our members or that services purchased in advance through our Big Deal or Storefront offerings will be performed to the satisfaction of our members, or at all. In addition, unethical or illegal conduct by local service providers rated on our website could damage our reputation or expose us to liability arising from claims made by or on behalf of those harmed by such conduct.


We pay service providers in advance for all Big Deals and Storefronte-commerce offerings purchased by members.members in advance of the performance of the service. Under this payment model, service providers are paid regardless of whether the Big Deal ise-commerce offers are redeemed or the Storefront services are performed. SubjectWe offer guarantees around price and service quality to our paid members on work performed by service providers under e-commerce transactions executed on our platforms, and, subject to certain limitations, our members may request a refund from us on theirthese e-commerce transactions. As we do not have control overthe service providers andor the quality and price of the services they deliver, we develop estimates for refund claims. Our actual level of refund claims could prove to be greater than the level of refund claims we estimate, particularly as our revenue from e-commerce offerings grows and we develop additional e-commerce products, services and features.estimate. Moreover, our members may make requests for refunds with respect to which we are unable to recover reimbursement from ourthe applicable service providers. An increase in our refund rates, or our inability to recover from our service providers, as well as any failure of service providers rated on our website to meet the expectations of our members, could adversely affect our profitability and liquidity.

business, financial condition or results of operations.


Many peopleconsumers utilize mobile devices, such as smartphones and other mobile devices, as well as tablets, to access information about local service providers.our platforms. If we are not successful in developing products and services that can be efficiently and effectively utilized through the use of thesemobile technologies,or oursuch products and services are not widely adopted, our business could be adversely affected.

The number of people who seekconsumers seeking information about local service providers through mobile devices, including smartphones and tablets, has increased significantly over the past several years and is likely to continue to grow in the past few years.future. If our members are unable to access our ratings and reviews of service providers on their mobile devices, if we otherwise fail to develop and maintain effective mobile advertising and e-commercerelated products and services or if our mobile products and services are not widely adopted by our members, our business, financial condition or results of operations may suffer. Additionally, as new mobile devices and platforms are released, it is difficult to forecast the problemschallenges that may arise, and we may need to devote significant resources to the development, support and maintenance of these products. Finally, if we experience problems with continued integration of our mobile applications or mobile apps, into mobile devices, ifwe haveif we experience issues with providers of mobile operating systems or mobile application download stores such as Apple, Inc. or Google, or if we face increased costs to distribute our mobile apps,applications, our business, financial condition or results of operations could suffer.

 
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Failure to comply with federal and state laws and regulations relating to privacy and security of personal information, including personal health information, could result in liability to us, damage our reputation andor harm our business.

A variety of federal and state laws and regulations govern the collection, use, retention, sharing and security of personal information. We collect and utilize demographic and other information from and about our members as they interact with our service.various platforms. We may also may collect information from our members when they provide ratings and reviews of local service providers, purchase e-commerce offers, participate in polls or contests or sign up to receive email newsletters.emails from us. Further, we useutilize tracking technologies, including “cookies,” to help us manage and track our members’ interactions with our serviceplatforms and deliver relevant advertising. Claims or allegations that we have violated laws and regulations related to privacy and data security could in the future result in negative publicity andor a loss of confidence in us by our members and our participating service providers and may subject us to fines by credit card companies and the loss of our ability to accept credit and debit card payments.government fines. In addition, we have posted privacy policies and practices concerning the collection, use and disclosure of memberconsumer data on our websites and mobile applications. Several Internet companies have incurred penalties for failing to abide by the representations made in their privacy policies and practices.

In the course of rating and reviewing health care or wellness providers, our members may post personal health information about themselves or others, and the health care or wellness providers reviewed by our members may submit responses that contain private or confidential health information about reviewing membersthose that provided the reviews or others. While we strive to comply with applicable privacy and security laws and regulations regarding personal health information, as well as our own posted privacy policies, any failure or perceived failure to comply may result in proceedings or actions against us by government entities or others or could cause us to lose members and participatingor service providers, which could adversely affect our business.


We have incurred, and will continue to incur, expenses to comply with privacy and security standards and protocols for personal information, including personal health information, imposed by law, regulation, self-regulatory bodies, industry standards and contractual obligations. However, such laws and regulations are evolving and are subject to potentially differing interpretations, andinterpretations. Also, federal and state legislative and regulatory bodies may expand current, or enact new, laws or regulations regarding privacy matters. We are unable to predict what additional legislation or regulation in the area of privacy of personal information could be enacted or its effect on our operations and business.

If our security measures are breachedwe fail to comply with laws and unauthorized access is obtainedregulations relating to our members’ or service providersdata, our service may be perceived as not being secure,and members and service providers may curtail or terminate their use of our service.

In the ordinary course of business, we collect and store sensitive data, including intellectual property, our proprietary business information and that of our members and service providers and personally identifiable information of our members, service providers and employees in our data centers and networks. The secure processing, maintenance and transmission of this information is critical to our operations and business strategy. Our service involves the storage and transmission of our members’ and service providers’ proprietary information, such as credit card and bank account numbers,privacy and security breaches could expose us to a risk of loss of thispersonal information, litigation and possible liability. Our payment services may be susceptible to credit card and other payment fraud schemes, including unauthorized use of credit cards, debit cards or bank account information, identity theft or merchant fraud.

If our security measures are breached as a result of third-party action, employee error, malfeasance or otherwise, and as a result, someone obtains unauthorized access to our members’ data, our reputation may be damaged, our business, may suffer and we could incur significant liability. Astechniques used to obtain unauthorized accessfinancial condition or to sabotage systems change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures. If an actual or perceived breachresults of our security occurs, the public perception of the effectiveness of our security measuresoperations could be harmed,and we could lose members and service providers, which could adversely affect our business.

impacted.
 
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We are subject to a number of risks related to intentional business disruptions, cyber-attacks and piracy.

Despite a number of precautionary measures already in place and significant ongoing investments to protect against security risks, data protection breaches, cyber-attacks and other intentional disruptions of our products and offerings, we expect to be an ongoing target of attacks specifically designed to impede the performance of our products and offerings and harm our reputation as a company. Similarly, experienced third parties may attempt to penetrate our network security or the security of our website and misappropriate proprietary information or cause interruptions of our services. As the techniques used by such third parties to access or sabotage networks change frequently and may not be recognized until launched against a target, we may be unable to anticipate these techniques. The theft or unauthorized use or publication of our trade secrets and other confidential business information as a result of such an event could adversely affect our competitive position, reputation, brand and future sales of our products, and our customers may assert claims against us related to resulting losses of confidential or proprietary information. Our business could be subject to significant disruption, and we could suffer monetary and other losses and reputational harm, in the event of such incidents and claims.

We are subject to a number of risks related to accepting credit card and debit card payments.

We accept payments from ourservice providers and members primarily through credit and debit card transactions. For credit and debit card payments, we pay interchange and other fees, which may increase over time. An increase in those fees wouldcould require us to either increase the prices we charge for our service,services, which could cause us to lose members and membership revenue,yield declines in memberships or sufferservice provider participation, or incur an increase in our operating expenses, either of which could adversely affect our operating results.

business, financial condition or results of operations.

If we, or any of our processing vendors, experienceproblemsexperience problems with our billing software, or if the billing software malfunctions, it could adversely affect our member and service provider satisfaction and could cause one or more of the major credit card companies to disallow our continued use of their payment products. In addition, if our billing software fails to work properly and, as a result, we do notare unable to automatically charge our members’ or service providers’ credit cards on a timely basis, or at all, we could lose membership revenue, which could harm our operating results.

business, financial condition or results of operations.

We are also subject to payment card association operating rules, certification requirements and rules governing electronic funds transfers, including the Payment Card Industry Data Security Standard, or PCI DSS, a security standard with which companies that collect, store or transmit certain data regardingrelated to credit and debit cards, credit and debit card holders and credit and debit card transactions are required to comply. Our failure to fully comply fully with the PCI DSS may violate payment card association operating rules, federal and state laws and regulations and the terms of our contracts with payment processors and merchant banks. Such failure to comply fullycompliance failures may also may subject us to fines, penalties, damages andor civil liability and may result in the loss of our ability to accept credit and debit card payments. In addition, there is no guarantee that PCI DSS compliance will prevent illegal or improper use of our payment systems or the theft, loss or misuse of data pertaining to credit and debit cards, credit and debit card holders andor credit and debit card transactions.

If we fail to adequately control fraudulent credit card transactions, we may face civil liability, diminished public perception of our security measures andor significantly higher credit card-relatedcard costs, each of which could adversely affect our business, financial condition andor results of operations.

If we are unable to maintain our chargeback rate at acceptable levels, our credit card fees for chargeback transactions or our fees for many or all categories of credit and debit card transactions, credit card companies and debit card issuers may increase our fees or terminate their relationship with us. Any increases in our credit card andor debit card fees could adversely affect our results of operations, particularly if we elect not to raise ourthe rates for our serviceservices to offset the increase. TheMeanwhile, the termination of our ability to process payments on any major credit or debit card wouldcould significantly impair our ability to operate our business.

business and potentially negatively impact our financial condition or results of operations.

As we develop and sell new products services and features,services, we may be subject to additional and unexpected regulations, which could increase our costs or otherwise harm our business.

As we develop and sell new products and services that address new segments of the market for local services and expand our advertising services, we may become subject to additional laws and regulations whichthat could create unexpected liabilities for us, cause us to incur additional costs or restrict our operations. For example, our Angie’s List Health & Wellness offerings may become subject to complex federal and state health care laws and regulations, the application of which to specific products and services is unclear. Many existing health care laws and regulations, when enacted, did not anticipate the online health and wellness information and advertising products and services that we provide; nevertheless, they may be applied to our products and services.

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We have e-commerce offerings, such as Angie’s List Big Deal and Storefront, which allow our members to purchase services or products from our service providers. Transactions between members and local service providers in connection with these offerings may be subject to regulation, in whole or in part, by federal, state and local authorities.

In addition, theThe application of certain laws and regulations to some of our promotions are uncertain. These include laws and regulations such as the Credit Card Accountability Responsibility and Disclosure Act of 2009, or the CARD Act, and unclaimed and abandoned property laws. If theseour promotions wereare subject to the CARD Act, unclaimed and abandoned property laws or any similar state law or regulation, we may be required to record liabilities with respect to unredeemed promotions,and we may be subject to additional fines and penalties.

From time to time, we may also be notified of additionalnew laws and regulations, such as the Department of Labor’s recent revisions to the Fair Labor Standards Act, which governmental organizations or others may claim should be applicable to our business. Our failure to accurately anticipate the application of these laws and regulations, or otherany failure to comply, could create liability for us, result in adverse publicity or cause us to alter our business practices, which could cause our revenue to decrease or our costs to increase, orthus harming our business, to otherwisebe harmed.

financial condition or results of operations.



Our business depends on our ability to maintain, modify and scale the network infrastructure necessary to operate our websiteswebsite, mobile applications and applications.

related technologies and platforms.

Our members access reviews and other information through our websiteswebsite, mobile applications and applications.related technologies and platforms. Our reputation and ability to acquire, retain and serve our members and service providers areis dependent upon the reliable performance of our websiteswebsite and mobile applications and the underlying network infrastructure. As our membership base and service provider bases grow and the level of activity on our website and various related technology platforms increases, the amount of information shared onacross our websites and applicationstechnology infrastructure will continue to grow, and we will needtherefore require an increasing amount of network capacity and computing power.power to service our members and service providers. We have made, and expect to continue to make, substantial investments in our technology platforms, including data centers, equipment and related network infrastructure, as well as new technologies focused on driving enhanced customer experiences and business efficiencies, to support current and anticipated future growth and to effectively and efficiently handle the traffic and data flow on our websiteswebsite and the data submitted to us bysystems. The development, expansion, operation and maintenance of our members. The operation of these systemstechnology and network infrastructure is expensive and complex and could result in operational failures. In the event that our membership base or the amount of traffic on our websitesrequires significant internal and applications grows more quickly than anticipated, we may be required to incur significant additional costs.external resources. If we do not successfully develop, expand, operate or maintain or expand our technology and network infrastructure, successfully, or if we experience operational failures, our reputation could be harmed,and we could lose current and potentialprospective members and participating service providers, which could harmadversely impact our operatingbusiness, financial condition or results and financial condition.

of operations.

We may not be able to successfully prevent other companies including copycat websites, from misappropriating our data in the future.

From time to time, third parties have attemptedattempt to misappropriate our member-generated ratings and reviews and other confidential data regardingpertaining to our service providers, markets and sales procedures through website scraping, search robots, breach of confidentiality agreements or other means. We have deployed several technologies designed to detect and prevent such efforts. However, we may not be able to successfully detect and prevent all such efforts in a timely manner or assurebe certain that no misuse of our data occurs.

In addition, third parties operating “copycat” websites have attempted to misappropriate data from our network and to imitate our brand orand the functionality of our website. When we have become aware ofidentified such efforts by other companies, we have employed technological or legal measures in an attempt to halt their operations. In other circumstances, we have enforced confidentiality rights with former employees via legal actions. However, we may not be able to detect all such efforts in a timely manner, or at all, and even if we could, the technological and legal measures available to us may be insufficient to stop their operations.insufficient. In some cases, particularly in the case of companies operating outside of the United States, our available remedies may not be adequate to protect us against the damage to our business caused by such websites. Regardless of whether or not we can successfully enforce our rights against the operation of these websites,third parties, any measures that we may take could require us to expend significant financial or othertime and resources and have a significantly adverse effect onadversely impact our brand.

brand, business, financial condition or results of operations.


Failure to adequately protect our intellectual property could substantially harm our business and operating results.

We rely on a combination of intellectual property rights, including trade secrets, copyrights and trademarks, as well as contractual restrictions, to safeguard our intellectual property. We do not have any patents or pending patent applications. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy our digital content, aspects of our solutions for members and service providers, our technology, software, branding and functionality, or obtain and use other information that we consider proprietary. Moreover, policing our proprietary rights is difficult and may not always be effective. As we expand internationally, we may need to enforce our rights under the laws of countries that do not protect proprietary rights to as great an extent as do the laws of the United States.

  
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Our digital content is not protected by any registered copyrights or other registered intellectual property. Rather, our digital content is protected by statutory and common law rights, user agreements that limit access to and use of our data and by technological measures. Compliance with use restrictions is difficult to monitor, and our proprietary rights in our digital content databases may be more difficult to enforce than other forms of intellectual property rights.

As of December 31, 2013,2016, we havehad 25 registered 24 trademarks in the United States, including “Angie’s List,” and twoone registered trademarkstrademark in Canada,Europe, as well as four pending trademark applications in the United States. Some of our trade names may not be eligible to receive trademark protection. Trademark protection may also not be available, or sought by us, in every country in which our service may become available online. Competitors may adopt service names similar to ours or purchase our trademarks and utilize confusingly similar terms as keywords in Internet search engine advertising programs, thereby impeding our ability to build brand identity and possibly confusing consumers and local service providers. Moreover, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate marks similar to our trademarks. In addition, in the past, some local service providers have used our trademarks inappropriately or without our permission, including our “SuperSuper Service Award, which is available only to local service providers that have maintainedmaintain superior service ratings. We have taken in the past taken, and may in the future take, action, including initiating litigation, to protect our intellectual property rights and the integrity of our brand, but these efforts may prove costly, ineffective or both.


We currently hold the “Angie’s List” Internet domain name and various other related domain names. Domain names generally are regulated by Internet regulatorygoverning bodies. If we lose the ability to use a domain name in the United States or any other country, we wouldcould be forced to incur significant additional expense to market our solutions, including the development of a new brand and the creation of new promotional materials, which could substantially harm our business, and operating results.financial condition or results of operations. The regulation of domain names in the United States and in foreign countries is subject to change. Regulatory bodies could establish additional top-level domains, appoint additional domain name registrars or modify the requirements for holding domain names. As a result, we may not be able to acquire or maintain the domain names that utilize the “Angie’s List” name in all of the countries in which we currently intendmay conduct business in the future. Further, our digital content is not protected by any registered copyrights or other registered intellectual property and is instead protected by statutory and common law rights and by user agreements that limit access to conduct business.

and use of our data, and by technological measures. Compliance with use restrictions is difficult to monitor, and our proprietary rights in our digital content databases may be more difficult to enforce than other forms of intellectual property rights.


Litigation or proceedings before the U.S. Patent and Trademark Office or other governmental authorities and administrative bodies in the United States and abroad may be necessary in the future to enforce our intellectual property rights, to protect our domain names or to determine the validity and scope of the proprietary rights of others. Our efforts to enforce or protect our proprietary rights may be ineffective, could result in substantial costs and diversion of resources and could substantially harm our business, financial condition or results of operations.

In order to protect our trade secrets and other confidential information, we rely, in part, on confidentiality agreements with our personnel, consultants and third parties with whom we havemaintain relationships. These agreements may not effectively prevent disclosure of trade secrets and other confidential information and may not provide an adequate remedy in the event of misappropriation of trade secrets or any unauthorized disclosure of trade secrets and other confidential information. In addition, others may independently discover trade secrets and confidential information, and in such cases, we could not assert any trade secret rights against such parties. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our trade secret rights and related confidentiality and nondisclosure provisions, and failure to obtain or maintain trade secret protection, or our competitors being able to obtain our trade secrets or to independently develop technology similar to ours or competing technologies, could adversely affect our competitive business position.

Litigation or proceedings before the U.S. Patentposition and Trademark Office or other governmental authorities and administrative bodies in the United States and abroad may be necessary in the future to enforce our intellectual property rights, to protect our domain names and to determine the validity and scope of the proprietary rights of others. Our efforts to enforce or protect our proprietary rights may be ineffective, could result in substantial costs and diversion of resources and could substantiallytherefore harm our operating results.

business, financial condition or results of operations.


Assertions by third parties of infringement or other violationviolations by us of their intellectual property rights could result in significant costs and substantially harm our business, and operating results.

financial condition or results of operations.

Internet, technology and media companies are frequently subject to litigation based on allegations of infringement, misappropriation or other violations of intellectual property rights. Some Internet, technology and media companies, including some of our competitors, own large numbers of patents, copyrights, trademarks and trade secrets, any of which they may usecould be utilized to assert claims against us. Third parties may in the future assert that we have infringed, misappropriated or otherwise violated their intellectual property rights, and as we face increasing competition, the possibility of intellectual property rights claims against us grows. We cannot assure youguarantee that we are not infringing or violating any third-party intellectual property rights.

 
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We cannot predict whether assertionsAssertions of third-party intellectual property rights or any infringement or misappropriation claims arising from such assertions willcould substantially harm our business, and operating results.financial condition or results of operations. If we are forced to defend against any infringement or misappropriation claims, whether they are with or without merit, are settled out of court or are determineddecided in our favor, we may be required to expend significant time and financial resources on the defense of such claims. Furthermore, an adverse outcome of a dispute may require us to pay damages, potentially including treble damages and attorneys’ fees, if we are found to have willfully infringed a party’s patent or copyright rights, to cease making, licensing or using solutions that are alleged to infringe or misappropriate the intellectual property of others, to expend additional development resources to redesign our solutions, to enter into potentially unfavorable royalty or license agreements in order to obtain the right to use necessary technologies, content or materials andor to indemnify our partners and other third parties. Royalty or licensing agreements, if required or desirable, may be unavailable on terms acceptable to us, or at all, and may require significant royalty payments and other expenditures. Any of these events could seriously harm our business, operating results and financial condition. In addition, any lawsuits regardingLitigation related to intellectual property rights, regardless of their success,the outcome, could be expensive to resolve and wouldcould divert the time and attention of our management and technical personnel.

Any of these events could seriously harm our business, financial condition or results of operations.



Some of our services and technologies may useutilize “open source” software, which may restrict how we use or distribute our services or require that we release the source code of certain services subject to those licenses.

Some of our services and technologies may incorporate software licensed under so-called “open source” licenses, including, but not limited to, the GNU General Public License and the GNU Lesser General Public License. SuchThese open source licenses typically require that source code subject to the licenselicenses be made available to the public and that any modifications or derivative works to open source software continue to be licensed under open source licenses. These open source licenses typically mandate that certain proprietary software, when combined in specific ways with open source software, becomesis subject to the open source license. If we combine our proprietary software with open source software, we could be required to release the source code of our proprietary software.

We take steps to ensure that our proprietary software is not combined with, nor incorporates, open source software in ways that would require our proprietary software to be subject to an open source license. However, few courts have interpreted open source licenses, and the manner in which these licenses may be interpreted and enforced is therefore subject to some uncertainty. Additionally, we rely on multiple software programmersengineers to design our proprietary technologies, and although we take steps to prevent our programmersengineers from including open source software in the technologies and software code that they design, write and modify, we do not exercise complete control over the development efforts of our programmers,software engineers, and we cannot be certain that our programmersengineers have not incorporated open source software into our proprietary products and technologies or that they will not do so in the future. In the event that portions of our proprietary technology are determined to be subject to an open source license, we could be required to publicly release the affected portions of our source code, re-engineer all or a portion of our technologies or otherwise be limited in the licensing of our technologies, each of which could reduce or eliminate the value of our services and technologies and materially and adversely affect our business, financial condition or results of operations and prospects.

operations.


We rely on third parties to provide software and related services necessary for the operation of our business.

We incorporate and includeutilize third-party software into and within our product and service offerings and expect to continue to do so. The operation of our product and service offerings could be impaired if errors or defects occur in the third-party software that we use. Itutilize, and it may be more difficult for us to correct any such errors or defects in third-party software as the development and maintenance of the software is not within our control. Accordingly,control, thereby potentially adversely affecting our business couldbusiness. Further, we cannot be adversely affected in the event of any errors in this software. We cannot assure youcertain that any third-party licensors will continue to make their software available to us on acceptable terms, or at all, or to invest the appropriate levels of resources in their software to maintain and enhance its capabilities or to remain in business. Any impairment in our relationships with theseour third-party licensors could have an adverse effect onadversely impact our business, financial condition, results of operations or cash flow and financial condition. Theseflows. Additionally, third-party in-licenses may expose us to increased risk, including risks associated with the assimilation of new technology sufficient to offset associated acquisition and maintenance costs. The inability to obtain any of these licenses could result in delays in development of solutions until equivalent technology can be identified and integrated. Any such delays in servicesintegrated, which could cause our business, operating results and financial condition or results of operations to suffer.


Our revenue may be negatively affected if we are required to pay sales and use tax or other transaction taxes on all or a portion of our past and future sales in jurisdictions where we are currently not collecting and reporting tax.
 
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We are involved in litigation matters that are expensiveCurrently, we do not separately collect sales and time consuming,use or other transaction taxes from our members. Instead, we report and, if resolved adversely,applicable, pay sales and use and other transaction taxes on behalf of our members in certain jurisdictions and record an accrual for such taxes based on probable liability within other applicable jurisdictions. A successful assertion by any state or local jurisdiction in which we do not pay sales and use or other transaction taxes that we should be paying such taxes on the sale of our products or services, or the imposition of new laws requiring the payment of sales and use or other transaction taxes on the sale of our products or services, could result in substantial tax liabilities related to past sales, create increased administrative burdens or costs, discourage members and service providers from purchasing products or services from us, decrease our ability to compete or otherwise substantially harm our business, financial condition or results of operations.



We may suffer liability as a result of the ratings or reviews posted on our website.
Our terms of use specifically require members submitting reviews to represent that their ratings and reviews are based on their actual first-hand experiences and are accurate, truthful and complete in all respects and that they possess the right and authority to grant us a license to publish their reviews. However, we do not verify the accuracy of these representations on a case-by-case basis. There is a risk that a review may be considered defamatory or otherwise offensive, objectionable or illegal under applicable law. Therefore, there is a risk that publication of ratings and reviews on our website may give rise to a suit against us for defamation, civil rights infringement, negligence, copyright or trademark infringement, invasion of privacy, personal injury, product liability, breach of contract, unfair competition, discrimination, antitrust or other legal claims. From time to time, we are involved in claims and lawsuits based on the contents of the ratings and reviews posted on our website, including claims of defamation. To date, we have not suffered a putative class action lawsuit brought by members and stockholder class action lawsuits, and we anticipate that we will continuematerial loss due to a claim of defamation. We may be a target for lawsuitssubject to similar claims in the future. Any negative outcome from such lawsuitsfuture, which could result in payment of substantialcostly and time-consuming litigation, liability for monetary damages or fines or undesirable changesinjury to our products, services or business practices, and accordingly,reputation, thereby adversely impacting our business, financial condition or results of operationsoperations.

We may not realize the expected business benefits of our efforts to reorganize certain of our departments, and the reorganized departments could be materially and adversely affected. Although the results of such lawsuits and claims cannot be predicted with certainty, we currently believe that the final outcome of those matters that we currently face will not have a material adverse effect onprove difficult to integrate, disrupt our business financial condition, results of operations or cash flows, except as otherwise recorded within the consolidated financial statements.However, there can be no assurance that a favorable final outcome will be obtained in all our cases, and regardless of the outcome, any lawsuit can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. Any lawsuit to which we are a party may result in an onerous or unfavorable judgment that may not be reversed upon appeal or in payments of substantial damages or fines, or we may decide to settle lawsuits on similarly unfavorable terms, which could adversely affect our revenues and operating results.

We periodically make changes to the structure of various departments within our company in an effort to optimize performance, productivity or costs. Such reorganizations involve numerous risks, including:

potential failure to achieve the expected benefits of the reorganization;
difficulties in and the cost of reorganizing operations, services and personnel;
diversion of financial and managerial resources from existing operations;
potential loss of key employees;
inability to generate sufficient revenue to offset reorganization costs;
liabilities and expenses associated with the reorganization, both known and unknown; and
negative impacts due to a reduction in productivity and efficiency caused by the reorganization process.

If we fail to properly evaluate and execute internal reorganizations, our business may be seriously harmed, which could negatively impact our financial conditionscondition or results of operations.

Covenants in the loan and security agreement governing our term loan and revolving credit facility may restrict our operations, and if we do not effectively manage our business to comply with these covenants, our financial condition could be adversely affected.

The loan and security agreement governing our term loan and revolving credit facility contains various restrictive covenants, including restrictions on our ability to dispose of assets, make acquisitions or investments, incur debt or liens, make distributions to our stockholders or enter into certain types of related party transactions. We are also required to maintain certain financial covenants. Our ability to meet these restrictive covenants can be affected by events beyond our control, and we may be unable to do so. In addition, our failure to maintain effective internal controls to measure compliance with our financial covenants could affect our ability to take corrective actions on a timely basis and could result in our being in breach of these covenants. Our loan and security agreement provides that our breach or failure to satisfy certain covenants constitutes an event of default. Upon the occurrence of an event of default, which includes a material adverse change, our lenders could elect to declare all amounts outstanding under one or more of our debt agreements to be immediately due and payable. If we are unable to repay those amounts, our financial condition could be adversely affected.

Because we generate substantially all of our revenue in the United States, a decline in aggregate demand for local services in the United States could cause our revenue to decline.

Substantially all of our revenue is from members and participating service providers in the United States. Consequently, a decline in consumer demand for local services, particularly in the home improvement and health and wellness segments, or for consumer ratings and reviews could have a disproportionately greater impact on our revenue than if our geographic mix of revenue was less concentrated. In addition, as expenditures by service providers generally tend to reflect overall economic conditions, to the extent that economic growth in the United States remains slow, reductions in advertising by local service providers could have a serious impact on our service provider revenue and negatively impact our business.

If use of the Internet does not continue to increase, our growth prospects will be harmed.

Our future success is substantially dependent upon the continued use of the Internet as an effective medium of business and communication by consumers. Internet use may not continue to develop at historical rates, and consumers may not continue to use the Internet to research and hire local service providers. In addition, the Internet may not be accepted as a viable resource for a number of reasons, including:

actual or perceived lack of security of information or privacy protection;

possible disruptions, computer viruses or other damage to Internet servers or to users’ computers; and

excessive governmental regulation.

Our success will depend, in large part, upon third parties maintaining the Internet infrastructure to provide a reliable network backbone with the speed, data capacity, security and hardware necessary for reliable Internet access and services. Our growth prospects are also significantly dependent upon the availability and adoption of broadband Internet access and other high-speed Internet connectivity technologies.

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We face many risks associated with our long-term plan to expand our operations outside of the United States.

Expanding our operations into international markets is an element of our long-term strategy. However, offering our products and services outside of the United States involves numerous risks and challenges. Most importantly, acquiring paid memberships in foreign countries and convincing foreign service providers to advertise with us would require substantial investment by us in local advertising and marketing, and there can be no assurance that we would succeed or achieve any return on this investment. In addition, international expansion would expose us to other risks such as:

the need to modify our technology and sell our products and services in non-English speaking countries;

the need to localize our products and services to the preferences and customs of foreign consumers and local service providers;

difficulties in managing operations due to language barriers, distance, staffing, cultural differences and business infrastructure constraints;

our lack of experience in marketing, and encouraging viral marketing, in foreign countries;

application of foreign laws and regulations to us, including more stringent consumer and data protection laws;

fluctuations in currency exchange rates;

risk of member or local service provider fraud;

reduced or ineffective protection of our intellectual property rights in some countries; and

potential adverse tax consequences associated with foreign operations and revenue.

As a result of these obstacles, we may find it impossible or prohibitively expensive to enter foreign markets, or entry into foreign markets could be delayed, which could harm our business, operating results and financial condition.

We may acquire other companies or technologies, which could divert our management’s attention, result in additional dilution to our stockholders andor otherwise disrupt our operations and harm our operating results.

Our success will depend,depends, in part, on our ability to expand our product and service offerings and grow our business in response to changing technologies, member and service provider demands and competitive pressures. In some circumstances, we may determine to do so through the acquisition of complementary businesses or technologies rather than through internal development. We have limitedOur experience with respect to acquiring other businesses and technologies.technologies is limited. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various expenses infor identifying, investigating and pursuing suitable acquisitions, whether or not they are consummated. Furthermore, even if we successfully acquire additional businesses or technologies, we may not be able to integrate the acquired personnel, operations andor technologies successfully or effectively manage the combined business following the acquisition. We also may not achieve the anticipated benefits from the acquired business or technology. In addition, we may unknowingly inherit liabilities from future acquisitions that arise after the acquisition and are not adequately covered by indemnities. Acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affectimpact our operating results.results or the value of our common stock. If an acquired business or technology fails to meet our expectations, our operating results, business, and financial condition or results of operations may suffer.


Our ability to useutilize our net operating loss carryforwards and certain other tax attributes may be limited.

At

As of December 31, 2013,2016, we had federal net operating loss carryforwards of approximately $105.3$159.3 million and state net operating loss carryforwards of approximately $130.9$210.9 million. Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes, such as research tax credits, to offset its post-change income and taxes may be limited. In general, an “ownership change” generally occurs if there is a cumulative change in our ownership by “5-percent shareholders” that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. We may have experienced an ownership change in the past and may experience ownership changes in the future as a result of future transactions in our stock, some of which may be outside our control. As a result, if we earn net taxable income, our ability to useutilize our pre-change net operating loss carryforwards, or other pre-change tax attributes, to offset United StatesU.S. federal and state taxable income and taxes may be subject to limitations.

23

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Our business is subject to the risks of tornadoes, floods, fires, earthquakes and other natural catastrophic events and to interruption by man-made problems such as computer viruses or terrorism.

Our systems and operations are vulnerable to damage or interruption from tornadoes, floods, fires, power losses, telecommunications failures, terrorist attacks, acts of war, human errors, break-ins or similar events. For example, a significant natural disaster, such as a tornado, fire or flood, could have a material adverse impact on our business, operating results and financial condition, and our insurance coverage may be insufficient to compensate us for such losses that may occur. A portion of our technology team is located in the San Francisco Bay Area, a region known for seismic activity. In addition, acts of terrorism could cause disruptions in our business or the economy as a whole. Our servers may also be vulnerable to computer viruses, break-ins and similar disruptions from unauthorized tampering with our computer systems, which could lead to interruptions, delays, loss of critical data or the unauthorized disclosure of confidential customer data. We currently have limited disaster recovery capability,limitations, and our business, interruption insurancefinancial condition or results of operations may be insufficient to compensate us for losses that may occur. As we rely heavily on our servers, computer and communications systems and the Internet to conduct our business and provide high quality service to our members and service providers, such disruptions could negatively impact our ability to run our business, which could have an adverse effect on our operating results and financial condition.

Risks Related to Owning Our Common Stock

Our stock price may be volatile, and the value of an investment in our common stock may decline.

The trading price of our common stock has been, and is likely to continue to be volatile, and could decline substantially within a short period of time. For example, since shares of our common stock were sold in our initial public offering in November 2011 at a price of $13.00 per share, our trading price has ranged from $8.94 to $28.32. The trading price of our common stock may be subject to wide fluctuations in response to various factors, some of which are beyond our control. In addition to the factors discussed in this “Risk Factors” section, these factors include:

our operating performance and the operating performance of similar companies;

the overall performance of the equity markets;

the number of shares of our common stock publicly owned and available for trading;

threatened or actual litigation;

changes in laws or regulations relating to our solutions;

any major change in our board of directors or management;

publication of research reports about us or our industry, changes in securities analysts’ projections or recommendations, withdrawal of research coverage, or our failure to meet analysts’ projections;

large volumes of sales of shares of our common stock by existing stockholders; and

general political and economic conditions.

In addition, the stock market has experienced extreme price and volume fluctuations that often have been unrelated or disproportionate to the operating performance of listed companies. Securities class action litigation has often been instituted against companies following periods of volatility in the overall market and in the market price of a company’s securities. We are currently the subject of multiple stockholder class action lawsuits. These lawsuits, and any future stockholder class action lawsuits initiated against us, could result in very substantial costs, divert our management’s attention and resources and harm our business, operating results and financial condition.

Future sales of our common stock by stockholders could depress the market price of our common stock.

As of December 31, 2013, holders of approximately 15,069,628 shares, or 26%, of our common stock vested stock options and options which vest within 60 days and their transferees have rights, subject to some conditions, to require us to file registration statements covering the sale of their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. In addition, in November 2011, March 2012 and October 2013, we filed registration statements on Form S-8 under the Securities Act to register an aggregate of 10,830,475 shares of our common stock for issuance under our amended and restated omnibus incentive plan. This plan also provides for automatic increases in the shares reserved for issuance under the plan. These shares may be sold in the public market upon issuance and,once vested, any restrictions areprovided under the terms of the applicable plan or award agreement. If these additional shares are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.

therefore suffer. 
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We have incurred and will continue to incur increased costs as a result of becoming a reporting company.

We have faced and will continue to face increased legal, accounting, administrative and other costs as a result of becoming a reporting company. We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, and related SEC rules and regulations, the Dodd-Frank Act, the listing requirements of the NASDAQ Global Market and other applicable securities rules and regulations. Compliance with these rules and regulations has increased our legal and financial compliance costs and likely will continue to make legal, accounting and administrative activities more time-consuming and costly. We are also incurring substantially higher costs to obtain directors’ and officers’ insurance than we did as a private company. In addition, as we gain experience with the costs associated with being a reporting company, we may identify and incur additional overhead costs.

If securities or industry analysts publish inaccurate or unfavorable research about our business, cease coverage of our company or make projections that exceed our actual results, our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.

Furthermore, such analysts publish their own projections regarding our actual results. These projections may vary widely from one another and may not accurately predict the results we actually achieve. Our stock price may decline if we fail to meet securities and analysts’ projections.

Concentration of ownership among our officers and directors and their affiliates may limit the influence of new investors on corporate decisions.

Our officers, directors and their affiliated funds beneficially own or control, directly or indirectly, approximately 27%18% of theour company’s outstanding shares of common stock. As a result, if some of these persons or entities act together, they will have significant influence overcould be capable of meaningfully influencing the outcome of matters submitted to our stockholders for approval, including the election of directors and approval of significant corporate transactions, such as a merger or other sale of our company or its assets. This concentration of ownership could limit the ability of other stockholders to influence corporate matters and may have the effect of delayingdelay or preventingpreclude an acquisition or cause the market price of our stock to decline. Some of these persons or entities may have interests different from yours.

the rest of our stockholders.


Our business could be negatively affected as a result of actions of activist stockholders.

The actions of an activist stockholder could adversely affect our business. Specifically:

responding to common actions of an activist stockholder, such as public proposals and requests for special meetings, potential nominations of candidates for election to our board of directors, requests to pursue a strategic combination or other transaction or other special requests, could disrupt our operations, be costly and time-consuming or divert the attention of our management and employees;
perceived uncertainties as to our future direction in relation to the actions of an activist stockholder may result in the loss of potential business opportunities or the perception that we are unstable and need to make changes, which may be exploited by our competitors and make it more difficult to attract and retain key personnel as well as members and service providers;
pursuit of an activist stockholder’s agenda may adversely affect our ability to effectively implement our business strategies and create additional value for our stockholders; and
actions of an activist stockholder may cause fluctuations in our stock price based on speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.

Certain provisions in our charter documents and Delaware law could discourage takeover attempts and lead to management entrenchment.

Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could have the effect of delayingdelay or preventingprevent changes in control or changes in our management without the consent of our board of directors, including, among other things:

a classified board of directors with three year staggered terms, which could delay the ability of stockholders to replace a majority of our board of directors;

no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;

the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquiror;

 
25a classified board of directors with three-year staggered terms, which could delay the ability of stockholders to replace a majority of our board of directors;

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no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;
the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;
the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;
a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;
the requirement that a special meeting of stockholders may be called only by a majority vote of the Board of Directors, the Chairman of our Board of Directors, the Chief Executive Officer or the Secretary, which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors;
the requirement for the affirmative vote of holders of at least 66 2/3% of the voting power of all of the then-outstanding shares of the voting stock, voting together as a single class, to amend the provisions of our certificate of incorporation relating to the issuance of preferred stock and management of our business or our bylaws, which may inhibit the ability of an acquirer to amend our certificate of incorporation or bylaws to facilitate a hostile acquisition;
the ability of our board of directors, by majority vote, to amend our bylaws, which may allow our board of directors to take additional actions to prevent a hostile acquisition and inhibit the ability of an acquirer to amend our bylaws to facilitate a hostile acquisition; and

advance notice procedures with which stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company. 
 

the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;

a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;

the requirement that a special meeting of stockholders may be called only by a majority vote of our Board of Directors, the Chairman of our Board of Directors, our Chief Executive Officer, our President or our Secretary, which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors;

the requirement for the affirmative vote of holders of at least 66 2/3% of the voting power of all of the then-outstanding shares of the voting stock, voting together as a single class, to amend the provisions of our amended and restated certificate of incorporation relating to the issuance of preferred stock and management of our business or our amended and restated bylaws, which may inhibit the ability of an acquiror to amend our amended and restated certificate of incorporation or amended and restated bylaws to facilitate a hostile acquisition;

the ability of our board of directors, by majority vote, to amend our amended and restated bylaws, which may allow our board of directors to take additional actions to prevent a hostile acquisition and inhibit the ability of an acquiror to amend our amended and restated bylaws to facilitate a hostile acquisition; and

advance notice procedures with which stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror’s own slate of directors or otherwise attempting to obtain control of us.

We are also subject to certain anti-takeover provisions under the General Corporation Law of the State of Delaware, or the DGCL. Under Section 203 of the DGCL, a corporation may not, in general, engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or (i) our board of directors approves the transaction prior to the stockholder acquiring the 15% ownership position, (ii) upon consummation of the transaction that resulted in the stockholder acquiring the 15% ownership position, the stockholder owns at least 85% of the outstanding voting stock (excluding shares owned by directors or officers and shares owned by certain employee stock plans) or (iii) the transaction is approved by the boardBoard of directorsDirectors and by the stockholders at an annual or special meeting by a vote of 66 2/3% of the outstanding voting stock (excluding shares held or controlled by the interested stockholder). These provisions in our amended and restated certificate of incorporation and amended and restated bylaws and under Delaware law could discourage potential takeover attempts.

We do not intendattempts or make it more difficult for a third-party to pay dividends foracquire us, even if the foreseeable future.

We never have declared or paid any cash dividends onthird-party’s offer may be considered beneficial by many of our capital stock and do not intend to pay any cash dividendsstockholders. As a result, our stockholders may be limited in the foreseeable future. In addition, our debt agreements restrict ourtheir ability to make distributions to our stockholders. We anticipate that we will retain any future earningsobtain a premium for use in the development of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our board of directors.

their shares.


ITEM 1B.    UNRESOLVED STAFF COMMENTS

None.

 
26None.


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ITEM 2.    PROPERTIES

We own

As of December 31, 2016, we owned approximately 120,000195,000 square feet of office space at our headquarters in Indianapolis, Indiana, the majority of which we purchased in 2012. In addition, we leaseleased approximately 70,000127,000 square feet of office space in Indianapolis, Indiana Denver, Colorado and Palo Alto, California, pursuant to leases expiring in 20142020 and 2015.2021 and in Denver, Colorado under a lease expiring in September 2017. We believe our current facilities, will be adequate orboth owned and leased, are in good condition and suitable for the conduct of our business and that additional space will be available to us, as needed, on commercially reasonable terms for the foreseeable future.

ITEM 3.    LEGAL PROCEEDINGS

Information pertaining to legal proceedings can be found in “Item 8.Note 9, “Commitments and Contingencies,” in the accompanying Notes to Consolidated Financial Statements and Supplementary Data —Note 9. Commitments and Contingencies”included in Item 8 of this Annual Report on Form 10-K and is incorporated by reference herein.

ITEM 4.    MINE SAFETY DISCLOSURES

Not applicable.

 
27Not applicable.

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PART II


ITEM 5.    MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock has been listed on the Nasdaq Global Market under the symbol “ANGI” since our initial public offering on November 17, 2011. Prior to this time, there was no public market for our common stock. The following table shows the high and low sale prices per share of our common stock as reported on the Nasdaq Global Market for the periods indicated:

  

2013

 
  

High

  

Low

 

First Quarter

 $20.17  $11.14 

Second Quarter

 $27.66  $18.15 

Third Quarter

 $28.32  $19.05 

Fourth Quarter

 $22.62  $11.88 

  

2012

 
  

High

  

Low

 

First Quarter

 $19.82  $12.81 

Second Quarter

 $18.78  $11.77 

Third Quarter

 $16.06  $8.94 

Fourth Quarter

 $12.08  $8.95 

  2016
  High Low
First Quarter $10.19
 $7.66
Second Quarter 9.19
 6.46
Third Quarter 10.76
 6.32
Fourth Quarter 9.99
 6.99
  2015
  High Low
First Quarter $7.80
 $4.36
Second Quarter 7.38
 5.37
Third Quarter 6.44
 3.73
Fourth Quarter 11.25
 4.91
As of February 13, 2014,10, 2017, we had approximately 3,200 holders11 registered shareholders of record of our common stock.record. The number of beneficial stockholdersshareholders of record is substantially greater thanbased upon the actual number of shareholders registered at such date and does not include holders of record because a large portion of our common stock is held through brokerage firms.

shares in “street names” or persons, partnerships, associations, corporations or other entities identified in security position listings maintained by depositories.

We have never declared or paid, and do not anticipate declaring or paying, any cash dividends on our common stock. Additionally, the financing agreement that governs our outstanding long-term debt contains a covenant restricting our ability to make distributions, such as dividends, to stockholders. Any future determination as to the declaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on then existing conditions, including our financial condition,position, operating results, contractual restrictions, capital requirements, debt covenants, business prospects and other factors our board of directors may deem relevant.

For equity compensation plan information, refer to Item 12 in Part III of this Annual Report on Form 10-K.


Performance Graph

This

The performance graph shall not be deemed “filed” with the Securities and Exchange Commission for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of Angie’s List, Inc. under the Securities Act, except as shall be expressly set forth by specific reference in such filing.

The following graph shows a comparison from November 17,December 31, 2011 (the date our common stock commenced trading on the Nasdaq Global Market) through December 31, 20132016 of cumulative total returnreturns for our common stock, the Nasdaq Composite Index and the RDG Internet Composite Index. Such returns are based on historical results and are not intended to suggest future performance. Data for the Nasdaq Composite Index and the RDG Internet Composite Index assumeassumes reinvestment of dividends.

  

11/11

  

11/11

  

12/11

  

3/12

  

6/12

  

9/12

  

12/12

  

3/13

  

6/13

  

9/13

  

12/13

 

Angie’s List, Inc.

  100.00   88.88   123.85   145.31   121.85   81.38   92.23   152.00   204.31   173.00   116.54 

NASDAQ Composite

  100.00   98.59   98.88   112.93   109.79   115.53   111.06   125.24   131.16   146.57   162.74 

RDG Internet Composite

  100.00   96.54   97.63   123.61   117.15   127.66   116.03   119.03   123.52   139.64   160.39 

 
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The following selected consolidated financial and other data regarding our business should be read in conjunction with, and areis qualified by reference to, “Management’s Discussion and AnalysisItem 7 of Financial Condition and Results of Operations” andthis Form 10-K, as well as our consolidated financial statements and related notes included elsewhere in this report. Our historical results are not necessarily indicative of results to be expected in any future period.

  

Years Ended December 31,

 
  

2013

  

2012

  

2011

  

2010

  

2009

 

Revenue

                    

Membership

 $65,307  $47,717  $33,815  $25,149  $20,434 

Service provider

  180,335   108,082   56,228   33,890   25,166 

Total revenue

  245,642   155,799   90,043   59,039   45,600 

Operating expenses

                    

Operations and support(1)

  40,072   27,081   16,417   12,464   11,654 

Selling(1)

  90,143   58,596   33,815   16,892   12,671 

Marketing

  87,483   80,230   56,122   30,237   16,114 

Technology(1)

  26,197   16,870   9,109   6,270   5,062 

General and administrative(1)

  32,828   24,055   18,740   16,302   8,699 

Operating loss

  (31,081

)

  (51,033

)

  (44,160

)

  (23,126

)

  (8,600

)

Interest expense

  1,868   1,856   3,004   3,966   3,381 

Loss on debt extinguishment

        1,830       

Loss before income taxes

  (32,949

)

  (52,889

)

  (48,994

)

  (27,092

)

  (11,981

)

Income tax expense

  40   5   43   154    

Net loss

 $(32,989

)

 $(52,894

)

 $(49,037

)

 $(27,246

)

 $(11,981

)

                     

Net loss per common share—basic and diluted

 $(0.57

)

 $(0.92

)

 $(1.60

)

 $(0.99

)

 $(0.45

)

                     

Weighted average number of common shares outstanding— basic and diluted(2)

  58,230,927   57,485,589   30,655,532   27,603,927   26,666,918 
                     

(1)   Includes non-cash stock-based compensation as follows:

 

Operations and support

 $64  $  $  $  $ 

Selling

  147             

Technology

  17   762   786   496    

General and administrative

  3,836   2,181   3,056   6,203   76 
  $4,064  $2,943  $3,842  $6,699  $76 

We did not issue or pay cash dividends on our common stock for any of the years presented.
  Year Ended December 31,
  2016 2015 2014 2013 2012
           
  (in thousands, except share and per share data)
Revenue  
Membership $58,090
 $67,992
 $73,113
 $65,307
 $47,717
Service provider 265,239
 276,133
 241,898
 180,335
 108,082
Total revenue 323,329
 344,125
 315,011
 245,642
 155,799
Operating expenses          
Operations and support(1)
 40,293
 56,074
 52,760
 40,072
 27,081
Selling(1) (2)
 111,046
 116,027
 115,210
 87,688
 57,170
Marketing(1) (2)
 65,140
 83,789
 96,953
 96,712
 88,152
Product and technology(1)
 55,990
 36,661
 34,039
 27,570
 16,870
General and administrative(1) (2)
 53,954
 38,316
 26,411
 24,681
 17,559
Operating income (loss) (3,094) 13,258
 (10,362) (31,081) (51,033)
Interest expense, net 4,720
 2,971
 1,203
 1,868
 1,856
Loss on debt extinguishment 
 
 458
 
 
Income (loss) before income taxes (7,814) 10,287
 (12,023) (32,949) (52,889)
Income tax expense 43
 44
 51
 40
 5
Net income (loss) $(7,857) $10,243
 $(12,074) $(32,989) $(52,894)
           
Net income (loss) per common share — basic(3)
 $(0.13) $0.18
 $(0.21) $(0.57) $(0.92)
Net income (loss) per common share — diluted(3)
 $(0.13) $0.17
 $(0.21) $(0.57) $(0.92)
           
Weighted-average number of common shares outstanding — basic 58,860,152
 58,520,546
 58,510,106
 58,230,927
 57,485,589
Weighted-average number of common shares outstanding — diluted 58,860,152
 58,782,889
 58,510,106
 58,230,927
 57,485,589
           

(2)

The weighted average

(1)Includes non-cash stock-based compensation expense as follows:
Operations and support $159
 $109
 $65
 $64
 $
Selling 1,745
 482
 393
 147
 
Marketing 372
 230
 205
 178
 
Product and technology 1,949
 931
 856
 136
 762
General and administrative 10,519
 7,123
 6,370
 3,539
 2,181
Total non-cash stock-based compensation expense $14,744
 $8,875
 $7,889
 $4,064
 $2,943
           
(2)Prior year amounts related to marketing compensation and personnel-related costs and general marketing operating expenditures that were formerly recorded as general and administrative expense and selling expense were reclassified to marketing expense for consistency with the current period presentation. These reclassifications did not impact net income (loss) amounts previously reported.

(3)See Note 2, “Net Income (Loss) Per Common Share,” in the accompanying Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for further discussion of our computation of basic and diluted net income (loss) per common share.

  Year Ended December 31,
  2016 2015 2014 2013 2012
Other Data (unaudited):          
Total free memberships (end of period)(1)
 2,543,705
 
 
 
 
Total paid memberships (end of period)(1)
 2,550,941
 3,297,395
 3,041,651
 2,484,059
 1,787,394
Total memberships (end of period) 5,094,646
 3,297,395
 3,041,651
 2,484,059
 1,787,394
           
Gross free memberships added (in period)(2)
 2,509,146
 
 
 
 
Gross paid memberships added (in period)(2)
 348,302
 1,033,222
 1,242,485
 1,218,258
 1,092,935
Gross memberships added (in period) 2,857,448
 1,033,222
 1,242,485
 1,218,258
 1,092,935
           
Average paid membership renewal rate (in period)(3)
 69% 77% 77% 78% 78%
           
Participating service providers (end of period)(4)
 55,644
 54,402
 54,240
 46,329
 35,952
Total service provider contract value (end of period, in thousands)(5)
 $250,588
 $270,841
 $249,045
 $194,137
 $132,646
Total service provider contract value backlog (end of period, in thousands)(6)
 $147,335
 $162,478
 $153,137
 $121,370
 $82,145
           
(1)Total free memberships reflects the number of common shares for all periods priorfree members as of the end of the period who joined subsequent to April 30, 2010 is based on member units assuming conversionus dropping our ratings and reviews paywall in June 2016, as well as the number of former paid members who requested a change in membership status from paid to common stock atfree over the applicable rates effective upon reorganization as a corporation on April 30, 2010.

  

Years Ended December 31,

 
  

2013

  

2012

  

2011

  

2010

  

2009

 

Other Data (unaudited):

                    

Total paid memberships (end of period)(1)

  2,484,059   1,787,394   1,074,757   602,882   411,727 

Gross paid memberships added (in period)(2)

  1,218,258   1,092,935   716,350   355,580   219,140 

Marketing cost per paid membership acquisition (in period)(3)

 $72  $73  $78  $85  $74 

First-year membership renewal rate (in period)(4)

  74

%

  75

%

  75

%

  70

%

  67

%

Average membership renewal rate (in period)(4)

  78

%

  78

%

  78

%

  75

%

  73

%

Participating service providers (end of period)(5)

  46,329   35,952   24,095   15,060   10,415 

Total service provider contract value (end of period, in thousands)(6)

 $194,137  $132,646  $73,609  $43,050  $30,849 

(1)

Reflectssame time period. Total paid memberships represents the number of paid membershipsmembers at the end of each period presented. Total paid memberships as of December 31, 2015, 2014, 2013 and 2012 also includesincluded a de minimis number of complimentary memberships in what formerly comprised our paid markets for all periods presented. Themarkets. These complimentary memberships are no longer included in our paid membership counts and are therefore not reflected in the paid membership totals presented in the table above as of December 31, 2016.


(2)Gross free memberships added represents the total number of memberships lostnew free members added during the periods presented were 521,593, 380,298, 244,475, 164,425,reporting period. For the year ended December 31, 2016, this figure includes new free members added since we dropped our ratings and 140,902 for 2013, 2012, 2011, 2010, and 2009, respectively.

(2)

Reflectsreviews paywall in June 2016 but does not include former paid members who requested a change in membership status from paid to free over the same time period. Gross paid memberships added reflects the total number of new paid membershipsmembers added in a reporting period.

(3)

Reflects marketing expense divided by gross paid memberships added in a reporting period.

(4)

First-year membership renewal rate reflects the percentage of paid memberships expiring in the reporting period after the first year of membership that are renewed, and average membership renewal rate reflectsperiod.


(3)Reflects the percentage of all paid memberships expiring in the reporting period that are renewed. Renewal rates exclude monthly memberships.

renewed as paid members.

(5)

(4)

Reflects the total number of service providers under contract for advertising, e-commerce or both at the end of the period.


(6)

(5)

Reflects the total contract value of active service provider contracts at the end of the period. Contract value is the total payment obligation of a service provider to us, including amounts already recognized in revenue, of a service provider to us over the stated term of the contract.

  

As of December 31,

 
  

2013

  

2012

  

2011

  

2010

  

2009

 

Balance Sheet Data:

                    

Cash and cash equivalents

 $34,803  $42,638  $88,607  $9,209  $2,016 

Short-term investments

  21,055   10,460          

Working capital

  (21,672

)

  9,411   58,085   (18,378

)

  (15,331

)

Total assets

  105,643   96,229   111,398   22,601   12,299 

Total deferred revenue

  80,438   55,331   34,786   23,261   18,024 

Long-term debt, including accrued interest

  14,918   14,869   14,820   16,463   22,503 

Common stock and additional paid-in capital

  257,572   248,392   236,015   85,486    

Stockholders’ equity (deficit)

  (18,490

)

  5,319   45,836   (33,757

)

  (36,268

)


(6)Reflects the portion of service provider contract value at the end of the period that is not yet recognized as revenue.

31
  As of December 31,
  2016 2015 2014 2013 2012
           
  (in thousands)
Balance Sheet Data:  
Cash and cash equivalents(1)
 $22,402
 $32,599
 $39,991
 $34,803
 $42,638
Short-term investments(2)
 16,541
 23,976
 24,268
 21,055
 10,460
Working capital (20,703) (21,324) (13,325) (21,672) 9,411
Total assets(3)
 157,394
 173,411
 152,684
 105,246
 95,595
Total deferred revenue(4)
 67,993
 86,014
 87,579
 80,438
 55,331
Total debt, net(5)
 57,642
 57,634
 57,000
 14,521
 14,235
Common stock and additional paid-in capital 290,250
 275,512
 265,962
 257,572
 248,392
Stockholders' equity (deficit) 4,500
 (2,381) (22,174) (18,490) 5,319
           

Table Of Contents
(1)The decline in our cash and cash equivalents as of December 31, 2016 as compared to December 31, 2015 was primarily attributable to uses of cash in investing activities during the year for capital expenditures on our new technology platform as well as the impact of downward pressures on revenue associated with the migration to our new technology platform and the removal of our ratings and reviews paywall, the latter of which is yielding declines in our paid membership base.

(2)The decrease in short-term investments as of December 31, 2016 as compared to December 31, 2015 was due to our decision not to reinvest certain of these investments upon maturity during the year, instead electing to utilize such funds to support operations and make strategic investments in other areas of the business.

(3)The decline in total assets as of December 31, 2016 as compared to December 31, 2015 was largely the result of the aforementioned decreases in cash and cash equivalents and short-term investments, partially offset by a year over year increase in the balance of property, equipment and software, net, due to capital expenditures associated with our new technology platform. The year over year increases in total assets in 2015 and 2014 were attributable to capital expenditures for our new technology platform. The total asset amounts reflected in the table above for the years ended December 31, 2015, 2014, 2013 and 2012 do not agree to the presentation in previous years as a result of our adoption of Accounting Standards Update No. 2015-03 as of January 1, 2016, as further discussed in Note 1, “Description of Business, Basis of Presentation and Summary of Significant Accounting Policies,” in the accompanying Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.


(4)The decrease in total deferred revenue as of December 31, 2016 as compared to December 31, 2015 was due to the aforementioned downward pressures on both our membership and service provider revenue streams associated with the migration to our new technology platform and the removal of our ratings and reviews paywall during the year.

(5)The increase in total debt, net, as of December 31, 2014 as compared to December 31, 2013 was the result of the debt refinancing transaction completed in September of 2014. The total debt, net, amounts reflected in the table above for the years ended December 31, 2015, 2014, 2013 and 2012 do not agree to the presentation in previous years as a result of our adoption of Accounting Standards Update No. 2015-03 as of January 1, 2016, as further discussed in Note 1, “Description of Business, Basis of Presentation and Summary of Significant Accounting Policies,” in the accompanying Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this report.Annual Report on Form 10-K. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed inAlthough the Company believes the assumptions on which the forward-looking statements. Factors thatstatements contained herein are based are reasonable, any of those assumptions could cause or contributeprove to these differences includebe inaccurate. As a result, the forward-looking statements based upon those discussed belowassumptions also could be incorrect. Risks and elsewhereuncertainties may affect the accuracy of forward-looking statements, including, without limitation, those set forth in Item 1A of this report, particularlyAnnual Report on Form 10-K and in other reports we file with the “Risk Factors” section.

SEC.

Overview

We operate a consumer-drivennational local services consumer review service for ourand marketplace where members tocan research, hire, rate, review,shop for and purchase local services for critical needs, such as home, health carewell as rate and automotive services.review the providers of these services across the United States. Our ratings and reviews, which are now available only to members free-of-charge, assist our members help our members find the bestin identifying and hiring a provider for their local service needs. We had approximately 2.5 million paid memberships as of December 31, 2013. We allow localneeds, and our dynamic tools and products provide members with multiple ways to get work done while reducing the time and effort required to hire a service provider.

In March 2016, we unveiled a new long-term profitable growth plan featuring a redefined product and service experience for members and service providers who are highly ratedalike, transforming our legacy business model by our membersintroducing a free membership tier to advertise discounts and other promotionsprovide access to our members.

We generate revenue from bothratings and reviews at no charge. In addition to free memberships, our membersnew model provides consumers with revamped tiered membership options offering an array of premium services at varying price points. Service providers are also able to take advantage of a host of new services and tools under our service providers. We derive membership revenue from subscription fees and, in certain cases, non-refundable initiation fees for monthly, annual and multi-year memberships. These fees typically are charged in advance. Subscription fees are recognized ratably over the subscription period,and initiation fees are recognized ratably over the expected life of the membership. As of December 31, 2013, approximately 94% of our total membership base had purchased annual or multi-year memberships. These subscription fees represent a significant source of working capital and provide a relatively predictable revenue stream.

We derive service provider revenue principally from term-based sales of advertising to local service providers. Our members grade local service providers on an “A” to “F” scale, and we invite local service providers with an average grade of “B” or better and at least two reviews submitted in the last three years to advertise to our members through any or all of our website, email promotions, monthly magazine and call center. As of December 31, 2013,approximately 452,000 local service providers rated by our members were eligible to offer discounts and other promotions to our membersnew model based on these criteria. Service provider contracts can be prepaid or invoiced monthly at the optionnature and extent of the service providerprovider’s relationship with us. Our profitable growth plan entails three phases to be implemented over several years:


Strengthen and carry an early termination penalty. We recognize service provider revenue ratably overReposition the period in which an advertising campaign is run. We are expandingCore Business - includes redefining the paywall and launching premium member services, improving our consumer experience by scaling our new platform and optimizing the service provider sales personnelorganization to drive increasedbetter monetize consumer traffic;
Leverage the Home Services Platform - includes expanding value-added services provided on our platforms and improving our member and service provider revenue. relationships with personalized offerings; and
Expand to Adjacencies - includes expanding our member and service provider bases and developing partnerships to provide additional value-added services.

Our highnew model is designed to identify and leverage more ways to attract, engage and ultimately monetize consumer and service provider traffic on our platforms. As we continue to execute our long-term profitable growth plan, we are leveraging a monetization strategy comprised of three waves. The first wave of the strategy entails acquiring new members and improving membership engagement, and the second wave is focused on converting our growing membership base into service provider originations. The third wave, which is still several months away, targets increasing service provider renewal rates both in number of service providers renewing and as a percentage of initialthe contract value renewed, have provided us withof such renewals.
During 2016, we achieved or made progress against several key milestones integral to the execution of our long-term profitable growth plan, including, among other things, (1) completing the migration to our new technology platform, (2) dropping our ratings and reviews paywall, (3) launching a relatively predictable revenue stream.

In addition to traditional advertising on our website and publications, our e-commerce solutions offer our members the opportunity to purchase services through us from service providers rated highly on our website. These offerings are available through both email promotions and through postings on our website. When the member purchases the service, the transaction is processed through Angie’s List. The member then can work directly with thenew tiered membership model, (4) implementing new service provider monetization initiatives, including revamped presentation, certification badging and search logic, to scheduledifferentiate between advertisers and non-advertisers and (5) optimizing marketing and operations. Our progress against our new model during the service. These e-commerce offerings provide our membersyear yielded robust membership growth and a discount and an easier way to fulfill their service needs.

To establish a new market, we begin by offering free memberships and actively soliciting members’ reviews of local service providers. Asyear over year increase in the number of membersparticipating service providers.


For the year ended December 31, 2016, we incurred a net loss of $7.9 million on revenue of $323.3 million. While our progress with respect to the implementation and execution of our long-term profitable growth plan did not manifest in our financial results for the number of reviews of service providers grow,year, once fully implemented, we begin charging membership fees and offering advertising opportunities to eligible local service providers. Historically, we have begun to convert most markets to paid membership status within 24 months after launch.

Increasing new paid memberships is a keybelieve our growth strategy. Increased penetration in a market results in more member reviews of local service providers, which increasesplan will enhance the value of our serviceservices and generate accelerated growth, retention and engagement across our platforms, which we, in turn, believe will drive increased market penetration and revenue growth. Looking ahead to consumers and drives further membership growth in that market. Increased penetration in a market also drives increased advertising sales2017, we are focused on three key priorities: 1) building products to increase member engagement, 2) strengthening the value proposition to our service providers and supports higher advertising rates as3) continuing to improve our cost structure.


In connection with the pool of members actively seeking to hire service providers grows. However, our ability to increase advertising rates tends to lag increased penetrationimplementation of our markets due to our inability to increase rates under existing service provider contracts prior to renewal. Our primary strategy for new member acquisition is national offline and online advertising.

As described further in the “Market Cohort Analysis” below, we believe that our estimated penetration rate and average revenue per market will increase as markets mature, and over the long term, we believe that these increased revenues will more than offset our operating expenses. In addition, our advertising spending is focused on the acquisition of new members, rather than the maintenance of existing members. Given thatour advertising contracts are typically short-term, we can rapidly adjust marketing expense and thus decrease total operating expenses to reduce cash used in operations or generate cash and profits from operations should we begin to experience adverse trends in marketing cost per paid membership acquisition or wish to optimize for profitability at the expense of rapid growth. We believe that our high membership renewal rates and “word of mouth” referrals from existing members, combined with effective purchasing of lower volumes of advertising and increasing utilization of search engine optimization, or SEO, would enable us to maintain and potentially grow the size of our paid membership base at a lower level of overall advertising spending.

Recent Developments

On August 2, 2013, we acquired substantially all of the assets of SmartHabitat, Inc. (“BrightNest”) for a purchase price of $2.7 million. The purchase price consists of $2.2 million in cash paid at closing and an additional $0.5 million that is payable on the one-year anniversary of the closing, subject to certain performance criteria of BrightNest employees hired by us on the acquisition date. The acquisition of the BrightNest assets adds a user-friendly front end and personalized member experience with expanded content offerings and enhanced technologies. Revenues and expenses related to BrightNest, which were not material for the period ended December 31, 2013, are included in the consolidated results of operations from the date of acquisition.

Market Cohort Analysis

To analyze our progress in executing our expansionlong-term profitable growth plan, we compile certain financialare taking actions to improve margins and operating data regarding marketsbetter align our cost structure with our growth plan, and in doing so, we have entered,grouped byreduced our headcount during the years in whichfourth quarter of 2016. Additionally, with a focus on opportunities to further accelerate our growth, during the markets transitionedfourth quarter of 2016 we announced our intent to paid membership status. The table below summarizes this data for 2013 by the following cohorts. The pre-2003 cohort includes our ten most established markets, where we initially built out our business model. The markets in this cohort include several mid-sized urban markets in the midwest as well as Chicago and Boston. The 2003 through 2007 cohort includes the first major subset of markets, including many of our largest potential markets, that we targeted in our national expansion strategy. The markets in these older cohorts generally have achieved penetration rates that allow us to transition beyond introductory membership and advertising rates. The 2008-2010 and post-2010 cohorts include markets that have most recently converted to paid status and that still have predominantly introductory membership and advertising rates. The markets in these cohorts generally are smaller markets that we entered to fill out our national presence.

Cohort

 

# of
Markets

  

Avg.
Revenue/
Market(1)

  

Membership
Revenue/Paid
Membership(2)

  

Service
Provider
Revenue/Paid
Membership(3)

  

Avg. Marketing
Expense/
Market(4)

  

Total Paid
Memberships(5)

  

Estimated
Penetration
Rate(6)

  

Annual
Membership
Growth Rate(7)

 

Pre-2003

  10  $6,329,201  $39.16  $113.65  $1,317,075   470,206   11.5

%

  31

%

2003-2007

  35   4,385,040   34.39   97.74   1,384,373   1,350,130   9.0

%

  39

%

2008-2010

  103   253,976   16.84   36.08   193,802   574,024   9.3

%

  38

%

Post 2010

  105   24,119   12.46   26.17   56,170   89,699   4.9

%

 

n/a

 

Total

  253                   2,484,059         

(1)

Average revenue per market is calculated by dividing the revenue recognized for the markets in a given cohort by the number of markets in the cohort at year end.

(2)

Membership revenue per paid membership is calculated as our membership revenue in the cohort divided by the average number of paid memberships in the cohort. We calculate this average per market to facilitate comparisons among cohorts, but it is not intended to represent typical characteristics of actual markets within the cohort.

(3)

Service provider revenue per paid membership is calculated as service provider revenue in the cohort divided by the average number of paid memberships in the cohort. We calculate this average per market to facilitate comparisons among cohorts, but it is not intended to represent typical characteristics of actual markets within the cohort.

(4)

 Average marketing expense per market is calculated first by allocating marketing expense to each cohort based on the percentage of our total target demographic for all markets in such cohort, as determined by third-party data, and then dividing the allocated cohort marketing expense by the number of markets in the cohort at year end. We calculate this average per market to facilitate comparisons among cohorts, but it is not intended to represent typical characteristics of actual markets within the cohort. According to a January 2014 demographic study by Merkle Inc. that we commissioned, there were approximately 30 million households in the United States in our target demographic, which consists of homeowners aged 35 to 64 with an annual household income of at least $75,000. Approximately 27 million of these households were in our markets. The average number of households per market in our demographic target were 410,000, 430,000, 60,000 and 20,000 for the pre-2003, 2003-2007, 2008-2010 and post-2010 cohorts, respectively.

(5)

Includes total paid memberships as of December 31, 2013. Total paid memberships in each cohort includes a de minimis number of complimentary memberships in our paid markets for the period presented.

(6)

Estimated penetration rate is calculated by dividing the number of paid memberships in a given cohort as of December 31, 2013 by the number of households meeting our target demographic criteria in such cohort.

(7)

Annual membership growth rate is the rate of increase in the total number of paid memberships in the cohort between December 31, 2013 and 2012.

begin exploring strategic alternatives.
33

Table Of Contents

Our average revenue per market and total revenue per paid membership have generally increased with the maturity and corresponding increased penetration of our markets in prior periods. In the future, we expect total revenue per paid membership to fluctuate from period to period, reflecting the timing of our ability to adjust advertising rates given our advertising contract terms and membership pricing innovations designed to drive increased penetration. For example:

Our average advertising contract term is typically more than one year, and we are only able to increase rates for a given participating service provider upon contract renewal. As such, there is a lag in our ability to leverage increased penetration in a market into increased advertising rates;

In 80 of our markets, we offer members the opportunity to purchase only those segments of Angie’s List that are most relevant to them, which includes the original Angie’s List (covering 396 categories, including home, lawn, car and pets), Angie’s List Health & Wellness or Angie’s List Classic Cars. These segments continue to be offered in all other markets as a single bundle. We anticipate unbundling our offerings in more of our markets as market penetration increases and the number and categories of local service providers reviewed by members in such markets grow. We believe this pricing model enables us to offer a better value proposition to our members and preserve cross-selling opportunities as members’ needs evolve, although we also expect that this strategy may result in lower average membership fees per paid membership overall;

Increasingly we are seeing members opt for annual memberships, and as such, the percentage of our membership base on monthly memberships has declined. While we believe annual memberships are more beneficial to members and promote high renewal rates, these memberships generate lower proceeds than monthly memberships taken on an annualized basis; and

In certain markets we have elected to retain lower membership pricing than we have historically used to drive deeper penetration.

Our most important growth strategy remains driving increased membership growth, which creates the network effects of a more valuable service for consumers and a more attractive commercial platform for service providers. We intend to continue to evaluate and adopt innovative pricing and packaging strategies, such as deeply reduced membership pricing, to deliver compelling value to our members and thereby support membership growth and retention. Although these overall dynamics have caused and may continue to cause membership revenue per paid membership to decline sequentially in some of our cohorts, we believe that the increase in our membership base is critical for continuing to produce the overall growth in average revenue per market, service provider revenue per paid membership and total revenue per paid membership across all cohorts that we have experienced.

As a market matures, our penetration rate typically increases. Historically, while the absolute number of paid members may grow faster in large markets, our small and medium markets have often achieved greater penetration over a shorter time period than our larger markets. We believe that a principal reason for our lower penetration rates in large markets is the manner in which we market Angie’s List to our target demographic in such markets. We have chosen to spend the majority of our marketing dollars on national advertising. We believe that this advertising strategy provides us the most cost effective and efficient manner of acquiring new paid memberships. However, advertising nationally means we deliver the same volume of advertising regardless of the size of the market. Since each market differs in terms of the number of advertising outlets available, the impact of our spending on national advertising varies across markets. In our experience, smaller markets typically have fewer advertising outlets than larger markets. We believe the same volume of advertising in a smaller market is more effective in building brand awareness and generating new memberships than in larger markets. We expect to continue to see lower relative penetration rates in our larger markets for these reasons. As several of these larger markets are in the 2003-2007 cohort, over time our penetration rate in this cohort may lag other cohorts.

Key Operating Metrics

In addition to the line items in our consolidated financial statements, we regularly review a number of other operating metrics related to our membership and service provider bases to evaluate our business, determine the allocation of resources and make decisions regarding business strategies. We believe information on these metrics isare useful for investors and analysts to understand the underlying trends in our business. However, as our business evolves, the metrics we currently identify as critical to the evaluation of our operations and performance may change.

The following table summarizes our key operating metrics, which are unaudited, for the years ended December 31, 2013, 20122016, 2015 and 2011:

  

Years Ended December 31,

 
  

2013

  

2012

  

2011

 

Total paid memberships (end of period)

  2,484,059   1,787,394   1,074,757 

Gross paid memberships added (in period)

  1,218,258   1,092,935   716,350 

Marketing cost per paid membership acquisition (in period)

 $72  $73  $78 

First-year membership renewal rate (in period)

  74

%

  75

%

  75

%

Average membership renewal rate (in period)

  78

%

  78

%

  78

%

Participating service providers (end of period)

  46,329   35,952   24,095 

Total service provider contract value (end of period, in thousands)

 $194,137  $132,646  $73,609 

2014: 

  Year Ended December 31,
  2016 2015 2014
Total free memberships (end of period) 2,543,705
 
 
Total paid memberships (end of period) 2,550,941
 3,297,395
 3,041,651
Total memberships (end of period) 5,094,646
 3,297,395
 3,041,651
       
Gross free memberships added (in period) 2,509,146
 
 
Gross paid memberships added (in period) 348,302
 1,033,222
 1,242,485
Gross memberships added (in period) 2,857,448
 1,033,222
 1,242,485
       
Average paid membership renewal rate (in period) 69% 77% 77%
       
Participating service providers (end of period) 55,644
 54,402
 54,240
Total service provider contract value (end of period, in thousands) $250,588
 $270,841
 $249,045
Total service provider contract value backlog (end of period, in thousands) $147,335
 $162,478
 $153,137
Total paid memberships.Total paidfree 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, as well as the number of former paid members who requested a change in membership status from paid to free over the same time period. Total paid memberships represents the number of paid members at the end of each period presented. Total paid memberships as of December 31, 2015 and December 31, 2014 also includesincluded a de minimis number of complimentary memberships in what formerly comprised our paid markets for all periods presented.markets. These complimentary memberships are no longer included in our paid membership counts and are therefore not reflected in the paid membership totals presented in the table above as of December 31, 2016. We generally expect that there will be one membership per household and, as such, each membership may actually represent multiple individual consumers.

Gross paid memberships added. Gross free memberships added represents the total number of new free members added during the reporting period. For the year ended December 31, 2016, this figure includes new free members added since we dropped our ratings and reviews paywall in June 2016 but does not include former paid members who requested a change in membership status from paid to free over the same period. Gross paid memberships added reflects the total number of new paid membershipsmembers added in a reporting period. Gross paid memberships added increased substantially in each period presented, which we believe has been driven by our increasing investment in national advertising and, to a lesser extent, by “word of mouth” referrals from our existing members.

Marketing cost per paid membership acquisition. We calculate marketing cost per paid membership acquisition in a reporting period as marketing expense divided by gross paid memberships added in that period. As we advertise in national media, some of our marketing expense also increases the number of unpaid memberships. On a comparative basis, marketing cost per paid membership acquisition can reflect our success in generating new paid memberships through our SEO efforts and “word of mouth” referrals and experimentation and adjustments to our marketing expense to focus on more effective advertising outlets for membership acquisition. We typically have higher marketing expense in the second and third quarters of the year in order to attract consumers during the periods when we have found they are most actively seeking Angie’s List services. Our marketing expense is normally reduced in the fourth quarter, reflecting reduced consumer activity in the service sector and higher advertising rates generally due to holiday promotional activity.

Membership renewal rates. First-year membership renewal rate reflects the percentage of paid memberships expiring in the reporting period after the first year ofperiod.

Average paid membership that are renewed.renewal rate. Average paid membership renewal rate reflects the percentage of all paid memberships expiring in the reporting period that are renewed. Renewal rates do not include monthly memberships, which comprised approximately 6% of our total membership baserenewed as of December 31, 2013. Given the correlation between increased penetration and higher total revenue per paid membership, we view first-year membership renewal rate and average membership renewal rate as key indicators of expected operating results in future periods.members.

 
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Table Of Contents

Participating service providers. 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.

Total service provider contract value. We calculate service provider contract value as the total contract value of active service provider contracts at the end of the period. Contract value is the total payment obligation of a service provider to us, including amounts already recognized in revenue, over the stated term of the contract.

In addition, we also track

Total service provider contract value backlog as a key metric. Contract. Service provider contract value backlog consists of the portion of service provider contract value at the stated date which hasend of the period that is not yet been recognized as revenue. At December 31, 2013 and 2012, our contract value backlog was $121.4 million and $82.1 million, respectively.


Basis of Presentation and Recent Trends


The accompanying consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”). The consolidated financial statements include the accounts of Angie’s List, Inc. and our wholly owned subsidiaries and reflect all adjustments of a normal recurring nature considered, in the opinion of management, necessary to fairly report the results for the periods presented. All significant intercompany balances and transactions were eliminated in consolidation. Except as otherwise noted, the following discussion reflects the primary components of our current revenue and operating expenses, which are subject to change as our business evolves.

Revenue
Revenue

Membership revenue. Our members sign up for monthly, annual or multi-year subscriptions to our service. Membershipprimary source of membership revenue includesis subscription fees from paid members. Historically, we charge, and in certain cases, non-refundable initiation fees charged to new members. We chargeour members prepay, as applicable, the full price of membership at the commencement of the corresponding subscription period and at each renewal date, (whether monthly, annual or multi-year), unless the member chooses not to renew the membership before the renewal date. Our members prepay their membership fees at the commencement of the subscription period. We record prepaid membership fees as deferred revenue and generally recognize the fees as revenue ratably over the subscription period. We charge a non-refundable initiation fee in connection with monthly memberships and the lowest cost annual memberships in less penetrated markets. For the year ended December 31, 2013, we recognized revenue from non-refundable initiation fees over the expected lifeterm of the associated subscription, which is typically twelve months in length.


During 2016, we removed our ratings and reviews paywall and introduced a free membership whichtier in all markets for the first time. While we estimatedcontinue to be 15 months for monthly membershipsoffer paid membership tiers with premium services, our paid membership base is declining as new members are primarily joining via our free membership offering, and 76 months for annual and multi-year memberships, based onexisting paid members are not renewing as paid members at rates consistent with our historical experience.

averages, thereby negatively impacting our membership revenue.


Membership revenue accounted for 18%, 20% and 23% of total revenue for 2016, 2015 and 2014, respectively, and we expect membership revenue as a percentage of total revenue to continue to decline in future periods due to downward pressure on membership revenue associated with the evolution of our membership tier offerings and pricing, and in particular, the introduction of a free membership tier for consumers.
Service provider revenue. LocalOur primary sources of service provider revenue are term-based sales of advertising to service providers and our e-commerce marketplace. Service providers generally pay for advertisements, which carry an early termination penalty, in advance on a monthly or annual basis.basis at the option of the service provider. Our average advertising contract term in effect as of December 31, 20132016 was more than twelve months. Theapproximately one year, and the vast majority of our service provider contracts cover a period of twelve months. This term allowsmonths, providing us to havewith a relatively predictable revenue stream while providing usas well as an opportunity to adjust advertising rates at the renewal period as we introduce new products and services or our membership penetration of a given market increases.

We recognize revenue from the sale of website, mobile and call center advertising ratably over the time period in which the advertisements run. We recognize revenueRevenue from the sale of advertising placement in theAngie’s ListMagazinein the monthAngie’s ListMagazine publication is recognized in the period in which the publication, and therefore the advertisement, is published and distributed. As our penetration of a given market increases,Typically, we are typically able to charge higher rates for advertising becauseas service providers are able to reach a larger base of potential customers. However, as we generally only increaseadjust advertising rates at the time of contract renewal, growth in service provider revenue commonly trails increases in membership. Accordingly, as we continue to transition our business model, and our membership continues to grow, the anticipated corresponding increases in service provider revenue in a given market may trail increases in market penetration.not be immediate, or occur at all.

Our e-commerce offerings primarily consist of Big Deal and Storefront, which allow our membersmarketplace enables consumers to purchase services or products from ourhighly-rated service providers through us. Weon our platforms. When a consumer completes an e-commerce purchase, the transaction is processed by us, and we receive a portion of the offer price at the time of the purchase, recognizing thepaid as revenue, net of the total transaction. Revenuewhich is recognized on a net basis in the period the offere-commerce voucher is solddelivered to members and is included in service provider revenue.the purchaser. While we are not the merchant of record with respect to our members for these transactions, we do offer membersconsumers refunds in certain circumstances. RevenueAccordingly, revenue from e-commerce transactions is recorded net of a reserve for estimated refunds.

Our e-commerce revenue generally fluctuates from period to period as offerings and monetization strategies evolve and due to seasonality.


Service provider revenue accounted for 82%, 80% and 77% of total revenue for 2016, 2015 and 2014, respectively, and we expect service provider revenue as a percentage of total revenue to continue to increase in future periods as we evolve and enhance the value proposition we offer service providers and leverage new service provider monetization strategies in connection with the removal of our ratings and reviews paywall, notwithstanding any remaining negative impacts related to the migration to our new technology platform.


Operating expenses

Operations and support.Operations and support expense consists primarily of compensation and personnel-related costs associated with publishing theAngie’s List Magazine, operatingfor personnel we employ to operate our call center and providingprovide support to our members and service providers, including wages expenditures associated with publishing the Angie’s List Magazine and other employee benefits, credit card processing fees for member enrollment and other service provider transactions, on our website, report transcriptionmembership enrollments and data entry and amortization of the cost of acquired data. Operations and support expense does not include the cost of maintaining our website, which is included in technology expense. With the growth of our membership base, we expanded our call center staff to maintain high levels of customer service and encourage high renewal rates. We also use third-partye-commerce purchases. Costs incurred with marketing research firms to enable our members to submit reviews by telephone to enrich the content available to our members and expand the number of service providers eligible to advertise with us. We expect ourand offer e-commerce are also included in operations and support expense. Operations and support expense does not include costs associated with maintaining our website, which are included in product and technology expense. Operations and support expense as a percentage of revenue was 13%, 16% and 17% for 2016, 2015 and 2014, respectively. During 2016, we implemented a digital content distribution strategy wherein we increased digital delivery, and reduced print copy distribution, of the Angie’s List Magazine, and we also reduced operations and support headcount and experienced a decrease in credit card processing fees, all of which contributed to increasea year over year decline in absolute dollars in the future as we continue to grow our membershipoperations and scale our operations.support expense.

Selling. Selling expense consists primarily of commissions, wages and other employee benefits for the personnel focused on sellingwe employ to sell and renewingrenew advertising contracts to eligible service providers and to generate offers in our e-commerce deals. We pay substantially higher commissions to our service provider sales personnel for contractsmarketplace. Contracts with first-time participating service providers generally yield larger commissions for our sales personnel than we pay fordo contract renewals. Our e-commerce sales personnel responsible for e-commerce offers and purchases typically earn commissions based on the net revenue received from the sale of Big Deal and Storefrontsuch offerings. Selling expense also includes the cost of service provider marketing efforts, facilities related toexpenditures for sales personnel, suppliestraining and sales personnel training, as well as personnel-related costs for account management. Because sellingSelling expense primarily consistsas a percentage of commissions,revenue was 34%, 34% and 37% for 2016, 2015 and 2014, respectively. During 2016, we generally expect itrevised certain sales compensation plans, restructured our sales organization, including a reduction in our sales headcount as compared to fluctuate withthe prior year, and experienced a decrease in service provider revenue.contract value bookings, thereby contributing to a year over year decline in selling expense.

Marketing. Marketing expense consists primarily of national television, radio, print and print,online digital advertising and now also includes the marketing compensation and personnel-related costs and general marketing operating expenditures that were formerly classified as well as onlinegeneral and administrative expenses. While we continue to make investments in increasing our membership base and expanding our market reach, we also utilize advertising forto engage our members by highlighting our e-commerce offerings and new products and services. Accordingly, our marketing expense is not only a reflection of the purpose of acquiringcost incurred to attract new paid memberships. Asmembers but also the vast majority ofmarketing dollars we are spending to generate traffic to and engagement on our advertising spending is related to our growth strategy, and our advertisingplatforms. Our marketing contracts are typically short-term in length, and we can rapidlytherefore possess the ability to adjust marketing expense. We intendexpense in order to reduce total operating expenses and maximize cash from operations should we begin to experience adverse trends in returns on our marketing expenditures or wish to optimize our profitability through focused reductions in advertising spend during any given period. Consistent with the seasonality that characterizes our business, we generally expect marketing expense to peak in either the second or third quarter of the year. Marketing expense as a percentage of revenue was 20%, 24% and 31% for 2016, 2015 and 2014, respectively. Although we continue to invest substantial amountsmake investments in acquiringmarketing to acquire new paid memberships.memberships and drive engagement on our platforms, we reduced our marketing expense in 2016 in order to make strategic investments in other areas of the business.

TechnologyProduct and technology. TechnologyProduct and technology expense consists primarily of compensation and personnel-related costs, including wages, employee benefits,including stock-based compensation,depreciation and amortization expense and expenditures for professionaloutsourced services and facilities, all of which are related to the maintenance and support of our product and technology platforms and infrastructure, including our website. Product and technology expense as a percentage of revenue was 17%, 11% and 11% for 2016, 2015 and 2014, respectively. During 2016, we increased our product and technology headcount to execute on our technology platform migration and product roadmap, and we also experienced an increase in depreciation and amortization expense in connection with our new technology platform. As utilization of the platform commenced in 2016, certain expenditures, including internal labor, that do not represent qualifying upgrades, enhancements or new functionality are no longer classified as capitalized website and product development. Our technology expense has increased during the periods presented primarilysoftware development costs and are instead expensed as a result of the addition of technology personnel and enhancement of our technology platform. We expect technology expense to continue to increase in absolute dollars in future periods to support the growth in our members, service providers and personnel.incurred.

General and administrative. General and administrative expense, which no longer includes the marketing compensation and personnel-related costs and general marketing operating expenditures that are now classified as marketing expense, consists primarily of compensation and personnel-related costs including wages, benefits,including stock-based compensation,and expenditures for executive, legal, finance and human resources marketing and corporate communications personnel product management, as well as expenditures for outsourced services, professional fees, facilities expense, insurance premiums, acquisition costs, amortization of certain intangibles,facilities maintenance, depreciation of buildingbuildings and improvements and other miscellaneous corporate expenses. We expect generalexpenses, such as bad debt expense. General and administrative expenses to continue to increaseexpense as a percentage of revenue was 17%, 11% and 7% for 2016, 2015 and 2014, respectively. These increases were driven, in absolute dollarspart, by costs incurred for the development and execution of our long-term profitable growth plan, optimization of our service provider go-to-market activities and activist activity in future periodsour stock, as we support our growing organization.well as stock-based compensation expense.

Results of Operations

The following tables set forth our results of operations for the periods presented in absolute dollars and as a percentage of our revenue for those periods. The period-to-period comparison of financial results isbelow are not necessarily indicative of future results.

  

Years Ended December 31,

 
  

2013

  

2012

  

2011

 

Revenue

            

Membership

 $65,307  $47,717  $33,815 

Service provider

  180,335   108,082   56,228 

Total revenue

  245,642   155,799   90,043 

Operating expenses

            

Operations and support(1)

  40,072   27,081   16,417 

Selling(1)

  90,143   58,596   33,815 

Marketing

  87,483   80,230   56,122 

Technology(1)

  26,197   16,870   9,109 

General and administrative(1)

  32,828   24,055   18,740 

Operating loss

  (31,081

)

  (51,033

)

  (44,160

)

Interest expense

  1,868   1,856   3,004 

Loss on debt extinguishment

        1,830 

Loss before income taxes

 $(32,949

)

 $(52,889

)

 $(48,994

)

Income tax expense

  40   5   43 

Net loss

 $(32,989

)

 $(52,894

)

 $(49,037

)

(1)

Includes non-cash stock-based compensation as follows:

Operations and support

 $64  $  $ 

Selling

  147       

Technology

  17   762   786 

General and administrative

  3,836   2,181   3,056 
  $4,064  $2,943  $3,842 

The following table sets forth operating data

  Year Ended December 31,
  2016 2015 2014
       
  (in thousands)
Revenue  
Membership $58,090
 $67,992
 $73,113
Service provider 265,239
 276,133
 241,898
Total revenue 323,329
 344,125
 315,011
Operating expenses      
Operations and support(1)
 40,293
 56,074
 52,760
Selling(1)
 111,046
 116,027
 115,210
Marketing(1)
 65,140
 83,789
 96,953
Product and technology(1)
 55,990
 36,661
 34,039
General and administrative(1)
 53,954
 38,316
 26,411
Operating income (loss) (3,094) 13,258
 (10,362)
Interest expense, net 4,720
 2,971
 1,203
Loss on debt extinguishment 
 
 458
Income (loss) before income taxes (7,814) 10,287
 (12,023)
Income tax expense 43
 44
 51
Net income (loss) $(7,857) $10,243
 $(12,074)
(1) Includes non-cash stock-based compensation expense as follows:      
Operations and support $159
 $109
 $65
Selling 1,745
 482
 393
Marketing 372
 230
 205
Product and technology 1,949
 931
 856
General and administrative 10,519
 7,123
 6,370
Total non-cash stock-based compensation expense $14,744
 $8,875
 $7,889
  Year Ended December 31,
  2016 2015 2014
       
Revenue      
Membership 18 % 20% 23 %
Service provider 82 % 80% 77 %
Total revenue 100 % 100% 100 %
Operating expenses      
Operations and support 13 % 16% 17 %
Selling 34 % 34% 37 %
Marketing 20 % 24% 31 %
Product and technology 17 % 11% 11 %
General and administrative 17 % 11% 7 %
Operating income (loss) (1) % 4% (3) %
Interest expense, net 1 % 1% 1 %
Loss on debt extinguishment  % %  %
Income (loss) before income taxes (2) % 3% (4) %
Income tax expense  % %  %
Net income (loss) (2) % 3% (4) %

Comparison of the CompanyYears Ended December 31, 2016, 2015 and 2014
Revenue
  Year Ended December 31,    
  2016 2015 2014 2016 vs. 2015 2015 vs. 2014
           
  (dollars in thousands)    
Revenue          
Membership $58,090
 $67,992
 $73,113
 (15)% (7)%
Service provider 265,239
 276,133
 241,898
 (4)% 14 %
Total revenue $323,329
 $344,125
 $315,011
 (6)% 9 %
           
Percentage of revenue by type          
Membership 18% 20% 23%  
  
Service provider 82% 80% 77%  
  
Total revenue 100% 100% 100%  
  
2016 compared to 2015. Total revenue decreased $20.8 million for 2016 as compared to 2015.
Membership revenue decreased $9.9 million for 2016 as compared to 2015, primarily due to the year over year impact associated with a 66% decline in gross paid memberships added, an eight percentage point decrease in the average paid membership renewal rate and a 7% decrease in membership revenue per average paid membership. The declines in gross paid memberships added, paid membership renewal rates and membership revenue per average paid membership were largely the result of totalour introduction of a free membership tier in all markets in June 2016 in connection with the removal of our ratings and reviews paywall. Our paid membership base is decreasing as new members are primarily joining via our free membership offering, and existing paid members are not renewing as paid members at rates consistent with our historical averages, thereby negatively impacting our membership revenue. Adjustments in the level of our advertising spend also factored into the year over year decline in membership revenue. Our advertising spend decreased $25.5 million in 2016 as compared to 2015, further contributing to the aforementioned declines in gross paid memberships added and paid membership renewal rates, and, accordingly, membership revenue.

Service provider revenue decreased $10.9 million for 2016 as compared to 2015, due in large part to a decline in revenue from our e-commerce offerings. The year over year decrease in e-commerce revenue was the result of declines in e-commerce unit sales during the year, attributable to transitional challenges associated with the implementation of our new technology platform as well as limited new member e-commerce purchase activity. Additionally, decreases in service provider advertising renewal rates also contributed to the decline in service provider revenue for the years indicated below.

  

Years Ended December 31,

 
  

2013

  

2012

  

2011

 

Revenue

            

Membership

  27

%

  31

%

  38

%

Service provider

  73   69   62 

Total revenue

  100

%

  100

%

  100

%

Operating expenses

            

Operations and support

  16   17   18 

Selling

  37   38   38 

Marketing

  36   52   62 

Technology

  11   11   10 

General and administrative

  13   15   21 

Operating loss

  (13

)

  (33

)

  (49

)

Interest expense

  1   1   3 

Loss on debt extinguishment

        2 

Loss before income taxes

  (14

)

  (34

)

  (54

)

Income tax expense

         

Net loss

  (14%)  (34%)  (54%)

year. While we experienced a 2% increase in the number of participating service providers year over year, service provider contract value and contract value backlog decreased by $20.3 million and $15.1 million, respectively, over the same time period, reflecting, in part, the impact of certain disruptions associated with the migration to our new technology platform, as well as declines in the average pricing of service provider contracts. Typically, we are able to charge higher rates for advertising as service providers are able to reach a larger base of potential customers. However, as we generally only adjust advertising rates at the time of contract renewal, and given the timing of revenue recognition, which spreads advertising revenue over the life of each service provider contract, growth in service provider revenue commonly trails increases in membership. Accordingly, as we continue to transition our business model, and our membership continues to grow, the anticipated corresponding increases in service provider revenue, contract value and contract value backlog may not be immediate, or occur at all, as evidenced by the fact that the significant current year growth in our total membership base has not yet produced such increases. Further, as we expected at the outset of our long-term profitable growth plan, service provider revenue is lagging, and may continue to lag in the near-term, certain operating metrics.
38

Table Of Contents

Comparison of the years ended December 31, 2013, 2012 and 2011

Revenue

  

Years Ended December 31,

         
  

2013

  

2012

  

2011

  

2013 over 2012

  

2012 over 2011

 
  

(dollars in thousands)

         

Revenue

                    

Membership

 $65,307  $47,717  $33,815   37

%

  41

%

Service provider

  180,335   108,082   56,228   67

%

  92

%

Total revenue

 $245,642  $155,799  $90,043   58

%

  73

%

Percentage of revenue by type

                    

Membership

  27

%

  31

%

  38

%

        

Service provider

  73

%

  69

%

  62

%

        

Total revenue

  100

%

  100

%

  100

%

        

Total paid memberships (end of period)

  2,484,059   1,787,394   1,074,757   39

%

  66

%

Gross paid memberships added (in period)

  1,218,258   1,092,935   716,350   11

%

  53

%

Participating service providers (end of period)

  46,329   35,952   24,095   29

%

  49

%

20132015 compared to 20122014. Total revenue increased $89.8$29.1 million for 20132015 as compared to 2012.2014.


Membership revenue increased $17.6decreased $5.1 million year over year, primarily due to a 39%19% decrease in membership revenue per average paid membership for the year ended December 31, 2015 as compared to 2014, as well as a 17% decline in gross paid memberships added during 2015, partially offset by the impact associated with an 8% increase in the total number of paid memberships partially offset by an 8% decrease in average membership revenue per paid membership in 2013. The decrease in average membership revenue per paid membership primarily resulted from growth in paid memberships in less penetrated markets where average membership fees per paid membership are lower. This decline also reflectedover the effect of allowing members in our more penetrated markets to purchase only those segments of Angie’s List that are most relevant to them at a lower membership rate than applicable for the full service. As of December 31, 2013, there were 80 markets in which we offered members the opportunity to purchase individual segments. We offer only bundled memberships to members in less penetrated markets. In addition, in 2013 we reduced prices in certain markets which also yielded a decline in revenue per average paid membership.same time period. The decrease in membership revenue per average paid membership also resulted from an increase from 91%was largely the result of reductions in average membership fees across all markets due to 94%tiered membership pricing. The decline in totalgross paid memberships constituting annualadded year over year was attributable to adjustments in the level of our marketing spend, as well as the messaging associated with that spend, in 2015 as compared to 2014. We decreased advertising spend $15.9 million year over year while simultaneously shifting our marketing focus from solely driving member growth to also highlighting our e-commerce offerings and multi-year memberships. Consumers pay more per month for a monthly membership than for an annual membership. Therefore, in periods in which our percentage ofmarketplace initiatives, as well as new products and services, thus negatively impacting gross paid memberships shifts to more annualadded, and multi-year memberships, ourthereby membership revenue, per paid membership decreases.

year over year.

Service provider revenue increased $72.3$34.2 million to 73% of total revenue,year over year, primarily as a result of a 29%6% increase in the number of local service providers participating in our advertising programs and a 22% increase inprovider revenue per average participating service provider. Service provider revenue primarily consistsas well as a year over year increase in service provider contract value of revenue from advertising contracts with service providers.9%. As our penetration of a given market increases, we are typically able to charge higher rates for advertising becauseas service providers are able to reach a larger base of potential customers. However, as we generally only increase advertising rates at the time of contract renewal, increases in service provider revenue in a given market may trail increases in market penetration. We also includeRevenue from our e-commerce revenue of $22.1 million and $14.5 millionin 2013 and 2012, respectively, in service provider revenue. Our e-commerce revenue is generated by our Angie’s List Big Deal and Storefront offerings. We expect the revenue contribution from these offerings to fluctuatemarketplace fluctuates from period to period as the offerings and monetization strategies evolve and due to seasonality.

2012 compared Near-term reductions in average e-commerce take rates contributed to 2011. Totala realization of slower service provider revenue increased $65.8 million for 2012growth rates in 2015 as compared to 2011.

Membership revenue increased $13.9 million primarily due to a 66% increase in the total number of paid memberships, partially offset by a 17% decrease in membership revenue per average paid membership in 2012. The decrease in membership revenue per average paid membership resulted primarily from growth in paid memberships in less penetrated markets where average membership fees per paid membership are lower. This decline also reflected the effect of allowing members in our more penetrated markets to purchase only those segments of Angie’s List that are most relevant to them at a lower membership rate than applicable for the full service. We offer only bundled memberships to members in less penetrated markets. The decrease in membership revenue per average paid membership in 2012 is also the result of a shift to more annual and multi-year memberships as a percentage of total paid memberships.

Service provider revenue increased $51.9 million to 69% of total revenue primarily as a result of a 49% increase in the number of local service providers participating in our advertising programs and an increase in revenue per average participating service provider. Service provider revenue primarily consists of revenue from advertising contracts with service providers. As our penetration of a given market increases, we are typically able to charge higher rates for advertising because service providers are able to reach a larger base of potential customers. However, because we only increase advertising rates at the time of contract renewal, increases in service provider revenue in a given market may trail increases in market penetration. We also included our e-commerce revenue of $14.5 million and $6.7 million in service provider in 2012 and 2011, respectively. Our e-commerce revenue is generated by our Angie’s List Big Deal and Storefront offerings.

2014.


Operations and support

  

Years Ended December 31,

         
  

2013

  

2012

  

2011

  2013 over 2012  2012 over 2011 
  

(dollars in thousands)

         

Operations and support

 $40,072  $27,081  $16,417   48

%

  65

%

Percentage of revenue

  16

%

  17

%

  18

%

        

  Year Ended December 31,    
  2016 2015 2014 2016 vs. 2015 2015 vs. 2014
           
  (dollars in thousands)    
Operations and support $40,293
 $56,074
 $52,760
 (28)% 6%
Percentage of revenue 13% 16% 17%  
  
Non-cash stock-based compensation expense $159
 $109
 $65
    

20132016 compared to 2012.2015. Operations and support expense increased $13.0decreased $15.8 million for 20132016 as compared to 2012.2015. The most significant factors contributing to the year over year decline in operations and support expense were a $5.5 million reduction in compensation and personnel-related expenditures and a $5.5 million decrease in publication costs. The reduction in compensation and personnel-related expenditures was driven by a 31% decrease in operations and support headcount year over year, while the decline in publication costs was the result of our implementation of a digital content distribution strategy whereby we increased digital distribution, and reduced print copy distribution, of the Angie’s List Magazine as compared to the prior year, generating a year over year decrease in the costs incurred to provide the magazine to our members. A year over year decline in credit card processing fees of $2.4 million, which was largely attributable to lower transaction volumes across our platforms in 2016, also contributed to the decrease in operations and support expense.


2015 compared to 2014. Operations and support expense increased $3.3 million for 2015 as compared to 2014. This increase was due in part to a $5.3$2.0 million increase in operations and support personnel-relatedpublication costs associated with the increased circulation of the Angie’s List Magazine as we increasedcontinued to expand our headcount to servicemembership and, concurrently, the distribution of our growing member and service provider base.monthly publication during 2015. Additionally, there waswe experienced a $2.0$1.8 million increase in credit card processing fees year over year due to the increased volume of membership enrollment and service provider transactions. We also incurred a $3.7 million increase in publication-related costs associated with the increased circulation of our monthlyAngie’s List Magazine due to the continued expansion of our membership base. We expect operations and support expense to continue to increase in absolute dollars as we grow our membership and service provider base. Operations and support expense as a percentage of revenue decreased to 16% from 17% as a result of the increase in revenue and our realization of economies of scale as we service our members and service providers.

2012 compared to 2011. Operations and support expense increased $10.7 million for 2012 compared to 2011. This increase was due in part to a $4.4 million increase in call center costs as compared to the prior year, period as we increased our headcountattributable to service ourthe growing membervolume of membership enrollments and service provider base. Theretransactions on our platforms. These increases were partially offset by a decrease in operations and support outsourced service expenditures of $1.0 million, attributable to a reduction in our utilization of external resources for certain operations and support functions in 2015.


Selling
  Year Ended December 31,    
  2016 2015 2014 2016 vs. 2015 2015 vs. 2014
           
  (dollars in thousands)    
Selling $111,046
 $116,027
 $115,210
 (4)% 1%
Percentage of revenue 34% 34% 37%  
  
Non-cash stock-based compensation expense $1,745
 $482
 $393
    
2016 compared to 2015. Selling expense decreased $5.0 million for 2016 as compared to 2015. The year over year decline in selling expense was, in part, the result of a $2.8 million decrease in selling compensation and personnel-related costs for commissions, wages and other employee benefits, which was attributable to changes in our sales compensation plans and organizational structure, including an 8% year over year decline in our sales organization headcount, during the year, as well as the impact of lower service provider contract value bookings. Prior year event costs also influenced the year over year reduction in selling expense, contributing to decreases in 2016 to (i) travel, meals and entertainment of $1.1 million, (ii) selling-related outsourced services of $0.6 million and (iii) service provider marketing expenditures of $0.6 million.

2015 compared to 2014. Selling expense increased $0.8 million for 2015 as compared to 2014, primarily attributable to costs we incurred to host a three-day service provider conference in May 2015, which contributed to year over year increases in selling-related outsourced services of $1.4 million and selling-related travel, meals and entertainment of $1.1 million. Although selling expense generally correlates with fluctuations in service provider revenue, we experienced year over year leverage and efficiency in selling expense as service provider revenue increased 14% for 2015 as compared to 2014, while selling expense increased 1% over the same time period. Headcount was the most significant factor contributing to the leverage and efficiency in selling expense, as there was an 11% reduction in the total number of sales personnel we employed at December 31, 2015 compared to December 31, 2014, and when coupled with the impact of changes in our sales compensation structure during 2015, yielded a $1.9 million decrease in selling compensation and personnel-related costs for commissions, wages, training and other employee benefits year over year.
Marketing
  Year Ended December 31,    
  2016 2015 2014 2016 vs. 2015 2015 vs. 2014
           
  (dollars in thousands)    
Marketing $65,140
 $83,789
 $96,953
 (22)% (14)%
Percentage of revenue 20% 24% 31%  
  
Non-cash stock-based compensation expense $372
 $230
 $205
    
2016 compared to 2015. Marketing expense, which now includes the marketing compensation and personnel-related costs and general marketing operating expenditures that were formerly classified as general and administrative expense, decreased $18.6 million for 2016 as compared to 2015. While we continue to make investments in increasing our membership base and expanding our market reach, we also utilize advertising to highlight our products and services and drive engagement on our platforms. Accordingly, our marketing expense is not only a reflection of the cost incurred to attract new members but also the marketing dollars we are spending to generate traffic to and transactions on our platforms. For the year ended December 31, 2016, the most significant factor contributing to the year over year decrease in marketing expense was a $2.2$25.5 million decline in advertising spend. Although we accelerated our advertising spend during the third quarter of 2016 to highlight our new free membership offerings and related initiatives, the level at which we spent on advertising was lower in 2016 than in 2015 as we purposefully reduced such costs, while focusing on the efficiency and effectiveness of our spend, in the current year in order to make strategic investments in other areas of the business. The year over year decline in marketing expense associated with reductions in advertising spend was partially offset by a $3.8 million increase in credit card processingmarketing-related outsourced service expenditures, a portion of which was attributable to fees duepaid to the increased volume of membership enrollment and service provider transactions. We also incurredour advertising creative agency, a $2.1$1.8 million increase in marketing compensation and personnel-related costs associated with the collection of member reviews of service providers as we continued to increase the content on our website. Publication-related costs increased by $1.3and a $1.6 million due to a 68% increase in circulation of our monthlyAngie’s List Magazine which is consistent with the growth of our membership base. Operations and support expense as a percentage of revenue decreased to 17% from 18% as a result of the increase in revenue and our realization of economies of scale as we service our members and service providers.

Selling

  

Years Ended December 31,

         
  

2013

  

2012

  

2011

  2013 over 2012  2012 over 2011 
  

(dollars in thousands)

         

Selling

 $90,143  $58,596  $33,815   54

%

  73

%

Percentage of revenue

  37

%

  38

%

  38

%

        

2013 compared to 2012. Selling expense increased $31.5 million for 2013 compared to 2012. This increase is largely due to an increase in service provider revenue, which increased 67% over the prior year. Additionally, we increased the number of sales personnel and management responsible for originating new advertising contracts and e-commerce transactions by 39%marketing costs related to 773. We also increased the number of sales personnel and management responsible for contract renewals by 38%our efforts to 192 from December 31, 2012.

Selling expense as a percentage of revenue decreased to 37% in 2013 from 38% in 2012, primarily as a result offurther enhance our transition to a new compensation structure for our sales personnel. Additionally, as selling expense primarily consists of commissions, we expect it to fluctuaterelationships with service provider revenue and the composition of that revenue over time.

2012 compared to 2011. Selling expense increased $24.8 million for 2012 compared to 2011. This increase is due to an increase in service provider revenue. Service provider revenue increased 92% over the prior year. We increased the number of our sales personnel and management responsible for originating new advertising contracts and e-commerce transactions by 60% to 558. Additionally, the number of our sales personnel and management responsible for contract renewals increased by 117% to 139 from December 31, 2011.

Selling expense as a percentage of revenue remained consistent for 2012 as compared to 2011.

Marketing

  

Years Ended December 31,

         
  

2013

  

2012

  

2011

  2013 over 2012  2012 over 2011 
  

(dollars in thousands)

         

Marketing

 $87,483  $80,230  $56,122   9

%

  43

%

Percentage of revenue

  36

%

  52

%

  62

%

        

Gross paid memberships added in the period

  1,218,258   1,092,935   716,350         

Marketing cost per paid membership acquisition

 $72  $73  $78         

2013 compared to 2012. Marketing expense increased $7.3 million for 2013 compared to 2012, primarily due to a planned increase in national advertising spending for 2013 to acquire new members.

Marketing expense as a percentage of revenue decreased from the prior year period due to total revenue increasing at a greater rate than marketing expense increased in absolute dollars. Even with the current year increase in marketing expense, our marketing cost per paid membership acquisition decreased from $73 to $72 as a result of improved brand awareness, successful SEO efforts, improved effectiveness in purchasing advertising and the “word of mouth” benefits of increased penetration.providers. Consistent with the seasonality that characterizes our business, our marketing expense and marketing cost per paid membership acquisition typically peak in the second and third quarters of the year. Wewe generally expect marketing expense to decrease as a percentagepeak in either the second or third quarter of revenue in 2014.

the year.


20122015 compared to 2011. 2014. Marketing expense, increased $24.1which includes the marketing compensation and personnel-related costs and general marketing operating expenditures that were reclassified from general and administrative expense, decreased $13.2 million for 20122015 as compared to 2011,2014. Although we continued to make significant investments in increasing our paid membership base and expanding our market reach via national offline and online advertising, we purposefully reduced our marketing spend in 2015 as compared to 2014 as we focused on the efficiency and effectiveness of our spend while making strategic investments in other areas of the business. In 2014, we began to shift our marketing focus from solely driving member growth to also highlighting our e-commerce offerings and marketplace initiatives, as well as new products and services, and that strategy remained in place in 2015. As such, our marketing expense for 2015 was not only a reflection of the cost incurred to obtain new members but also the marketing dollars we spent to generate traffic to and transactions on our platforms.

Product and technology
  Year Ended December 31,    
  2016 2015 2014 2016 vs. 2015 2015 vs. 2014
           
  (dollars in thousands)    
Product and technology $55,990
 $36,661
 $34,039
 53% 8%
Percentage of revenue 17% 11% 11%  
  
Non-cash stock-based compensation expense $1,949
 $931
 $856
  
  

2016 compared to 2015. Product and technology expense increased $19.3 million for 2016 as compared to 2015. The increase in product and technology expense was largely the result of year over year increases in compensation and personnel-related costs and depreciation and amortization expense of $8.9 million and $5.6 million, respectively. The year over year increase in product and technology compensation and personnel-related costs was primarily attributable to the 30% growth in our product and technology headcount from December 31, 2015 to December 31, 2016, as we strengthened our product and technology organizations to execute on our technology platform migration and product roadmap, while the year over year increase in depreciation and amortization expense was due to our new technology platform, which we placed in service as of the end of the first quarter of 2016. Product and technology expense was also negatively impacted by a planned$2.9 million increase in national advertising spendingoutsourced services expenditures. As utilization of our new technology platform has now commenced, certain expenditures, including internal labor, that do not represent qualifying upgrades, enhancements or new functionality are no longer classified as capitalized website and software development costs and are instead expensed as incurred.

2015 compared to 2014. Product and technology expense increased $2.6 million for 20122015 as compared to acquire new members.

Marketing2014. The increase in product and technology expense aswas largely attributable to a percentage of revenue decreased from the prior$3.0 million year periodover year increase in technology-related outsourced services, due to total revenue increasing atthe maintenance and support of our existing technology infrastructure, including our website, in order to service our membership and service provider bases while development efforts around our new technology platform continued throughout the year. The increase in product and technology expense associated with outsourced service expenditures was partially offset by the impact of the non-cash long-lived asset impairment charges recorded in the fourth quarter in each of the two previous years. In the fourth quarter of 2014, we recorded a greater rate than$1.8 million long-lived asset impairment charge for certain capitalized website and software development assets, while in the fourth quarter of 2015, we recorded a $0.9 million long-lived asset impairment charge related to certain software assets.


General and administrative
  Year Ended December 31,    
  2016 2015 2014 2016 vs. 2015 2015 vs. 2014
           
  (dollars in thousands)    
General and administrative $53,954
 $38,316
 $26,411
 41% 45%
Percentage of revenue 17% 11% 7%  
  
Non-cash stock-based compensation expense $10,519
 $7,123
 $6,370
  
  
2016 compared to 2015. General and administrative expense, which no longer includes the marketing compensation and personnel-related costs and general marketing operating expenditures that are now classified as marketing expense, increased $15.6 million for 2016 as compared to 2015. The most significant driver of the increase in absolute dollars. Even withgeneral and administrative expense year over year was a $6.3 million increase in outsourced service expenditures and professional fees due to third-party consulting costs incurred for, among other things, the currentdevelopment and execution of our long-term profitable growth plan, optimization of our service provider go-to-market activities and activist activity in our stock. General and administrative expense was also negatively impacted by a $2.8 million legal settlement accrual recorded in relation to the Moore litigation (see Note 9, “Commitments and Contingencies,” in the accompanying Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for additional information). A $3.3 million increase in compensation and personnel-related costs, largely attributable to stock-based compensation expense, and a $2.3 million increase in bad debt expense, primarily related to e-commerce receivables, also contributed to the year over year increase in general and administrative expense. Additionally, there was a cumulative $2.2 million net benefit to general and administrative expense in 2015, related to adjustments to a legal settlement accrual for a prior legal obligation, which did not recur in 2016, further impacting the year over year fluctuation in general and administrative expense.

2015 compared to 2014. General and administrative expense, which does not include the marketing compensation and personnel-related costs and general marketing operating expenditures that were reclassified to marketing expense, increased $11.9 million for 2015 as compared to 2014. The most significant driver of the increase in general and administrative expense year over year was a $10.2 million increase in compensation and personnel-related costs, including $0.8 million related to non-cash stock-based compensation expense, due to the impact of headquarters personnel added during 2015 in strategic growth areas such as human resources, finance and project management, as well as the addition of our marketing cost per paid membership acquisition decreased from $78new President and Chief Executive Officer in September 2015. While general and administrative non-cash stock-based compensation expense increased year over year, the 2015 amount was favorably impacted by approximately $1.2 million of forfeitures during the year. General and administrative expense was also negatively impacted by a $2.3 million increase in outsourced service expenditures, attributable to $73third-party consulting fees as a resultwell as costs incurred related to the identification and hiring of improved brand awareness, successful web search efforts, improved effectiveness in purchasing advertisingour new President and Chief Executive Officer and the “worddevelopment of mouth” benefits of increased penetration. Consistent with the seasonality that characterizes our business, our marketingprofitable growth plan. Additionally, we incurred a $0.7 million non-cash long-lived asset impairment charge to general and administrative expense and marketing cost per paid membership acquisition typically peak induring the second quarter of 2015 related to our decision not to pursue our previously announced Indianapolis campus expansion plan. The aforementioned factors contributing to the year over year increase in general and third quartersadministrative expense were partially offset by the impact of the year.

adjustment of the legal settlement accrual for a prior legal obligation, amounting to $2.2 million for the year ended December 31, 2015.

Interest expense
 
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Technology

  

Years Ended December 31,

         
  

2013

  

2012

  

2011

  2013 over 2012  2012 over 2011 
  

(dollars in thousands)

         

Technology

 $26,197  $16,870  $9,109   55

%

  85

%

Percentage of revenue

  11

%

  11

%

  10

%

        

Non-cash stock-based compensation

 $17  $762  $786         

20132016 compared to 2012.2015. TechnologyInterest expense increased $9.3was $4.7 million for 20132016 as compared to 2012.$3.0 million for 2015, reflecting the impact of recurring monthly interest payments on our outstanding long-term debt and monthly interest charges for deferred financing fee and debt discount amortization, partially offset by capitalized interest on website and software development recorded during the first quarter of 2016. The year over year increase in technologyinterest expense was primarily attributable to a $5.1 million increasereduction in personnel-related costscapitalized interest in 2016 as compared to 2015 as we ceased capitalizing interest on website and a $2.9 million increasesoftware development as of the end of the first quarter of 2016 in technology-related outside consulting and professional fees as well as costs incurred to continue to develop our technology platform and service our growing base of members and service providers. This was offset by a decrease in non-cash stock based compensation related to forfeitures occurring in the current year.

Technology expense as a percentage of revenue remained consistent comparedconnection with the prior year. We expectmigration to our new technology expense to increase in absolute dollars and as a percentage of revenue as we continue to develop our technology and product offerings.

platform.


20122015 compared to 2011. Technology expense increased $7.8 million for 2012 compared to 2011. The increase in technology expense was primarily attributable to a $3.9 million increase in personnel-related costs as we continued to develop our technology platform, including expanding our mobile offerings and establishing a technology presence in Palo Alto, California. We also incurred additional technology costs related to servicing our growing base of members and service providers.

For these reasons technology expense increased as a percentage of revenue compared with the prior year.

General and administrative

  

Years Ended December 31,

         
  

2013

  

2012

  

2011

  2013 over 2012  2012 over 2011 
  

(dollars in thousands)

         

General and administrative

 $32,828  $24,055  $18,740   36

%

  28

%

Percentage of revenue

  13

%

  15

%

  21

%

        

Non-cash stock-based compensation

 $3,836  $2,181  $3,056         

2013 compared to 2012. General and administrative expense increased $8.8 million for 2013 compared to 2012. The increase is partially explained by a $42014.0 million charge recorded during the fourth quarter of 2013 reflecting the expected settlement of pending litigation for which we have entered into a settlement agreement that is subject to court approval. Additionally, there was an approximately $1.8 million year over year increase in bad debt expense related to uncollectible receivables as well as a $1.7 million increase in non-cash stock-based compensation due to additional grants during 2013. The remaining portion of the fluctuation in general and administrative expense is attributable to increases in headquarters staff and outside consulting and professional fees and other public company costs. These increases were partially offset by non-recurring costs incurred of $0.7 million for fees related to the follow-on sale of common stock in May 2012 that were not present in the current year. General and administrative expense as a percentage of revenue decreased primarily due to the increase in revenue and our realization of economies of scale.

2012 compared to 2011. General and administrative expense increased $5.3 million for 2012 compared to 2011. Personnel-related costs increased $2.1 million primarily as a result of an increase in our headquarters staff, and we incurred an additional $1.2 million in outside consulting and professional services fees to support our growing public company. We also incurred $0.7 million for non-recurring fees related to the follow-on sale of common stock in May 2012. Non-cash stock-based compensation expense decreased by $0.9 million primarily due to restricted grants that immediately vested as a result of our initial public offering in 2011.

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Table Of Contents

Interest expense

2013 compared to 2012. Interest expense was approximately $1.9$3.0 million for both 2013 and 20122015 as debt balances remained constant.

2012 compared to 2011. Interest expense decreased $1.1$1.2 million for 2012 compared to 2011, as2014, reflecting the resultimpact of a decrease in averagerecurring monthly interest payments on our outstanding long-term debt outstanding in 2012 as well as lowerand monthly interest rates associated with the refinancing of our primarycharges for deferred financing fee and debt obligations during 2011.

Loss on debt extinguishment

Loss on debt extinguishment in 2011 was duediscount amortization related to the refinancing of our primarySeptember 2014 debt obligations,which resulted in pre-payment penaltiesfinancing transaction, partially offset by capitalized interest on website and write-offs of debt discounts and unamortized loan fees. We did not incur any loss on debt extinguishment in 2013 or 2012.

software development.


Liquidity and Capital Resources

General

At December 31, 2013,2016, we had $34.8$22.4 million in cash and cash equivalents and $21.1$16.5 million in short-term investments. Cash and cash equivalents consists of bank deposit accounts and money market funds as well as any investments in certificates of deposit, U.S. Treasury securities or corporate bonds with contractual maturities of three months or less, which, at times, may exceed federally insured limits. Short-term investments consist of certificates of deposit, U.S. Treasury securities and corporate bonds with maturities greaterof more than 90 days but less than one year. To date, the carrying valuevalues of these investments approximate their fair values, and we have incurred no material loss in these accounts.

We have historically financed our operations primarily through private and public sales of equity and to a lesser extent, from borrowings. Our principal sources of operating cash flows are receipts forfrom service provider advertising and membership fees, and service provider transactions. We continue to invest aggressively to growwhile our business. Over the past three years, our largestmost significant uses of cash in operating activities have beengenerally relate to expenditures for our national advertising campaigns to expand our membership base and commissions paid to service provider sales personnel aspersonnel.
Our operating cash flows in future periods will be impacted by our level of investment in advertising, changes in membership and service provider revenue has increased.

Ourpricing and monetization strategies, the impact of new products and services, the size, composition and compensation structure for our sales organization and general fluctuations in employee headcount, among other things. We expect positive operating cash flows fromin some periods and negative operating activities are influenced by certain timing differences. Membership fees fromcash flows in others, depending on seasonality and the extent of our members are generally collected at the beginninginvestments in future growth of the membership period and are a part of our working capital although the associated revenue is recognized over the term of the subscription period. Additionally, from time to time we amend our commission plans for sales personnel,andbusiness or changes to these plans can have a positive or negative impact on prepaid commissions depending on the structure of the commission plan in place.

our business model.


We believe that our existing cash and cash equivalents and short-term investments will be sufficient to fund our operations for, at leasta minimum, the next 12twelve months. From timeAdditionally, we believe our liquidity and capital resources will be adequate to time,meet our long-term cash requirements, including the long-term debt and operating lease contractual obligations highlighted herein, and there are no known material adverse trends or uncertainties related to cash flows or capital requirements as of December 31, 2016 that we believe will result in material changes in our ability to meet our obligations as they become due over the next twelve months. While we may explore additional financing sources, including equity, equity-linked or debt financing, in the future in order to develop or enhance our services, to fund expansion, to respond to competitive pressures, to acquire or to invest in complementary products, businesses or technologies or to lower our cost of capital, which could include equity, equity-linked and debt financing. We cannot assure you that any additionalthere is no guarantee such financing will be available to us on acceptable terms, if at all.


Summary cash flow information for the years ended December 31, 2013, 20122016, 2015 and 20112014 is set forth below.

  

Years Ended December 31,

 
  

2013

  

2012

  

2011

 

Net cash provided by (used in) operating activities

 $8,906  $(33,397

)

 $(33,135

)

Net cash used in investing activities

  (21,857

)

  (22,006

)

  (4,276

)

Net cash provided by financing activities

  5,116   9,434   116,809 

  Year Ended December 31,
  2016 2015 2014
       
  (in thousands)
Net cash provided by operating activities $1,635
 $26,691
 $4,629
Net cash (used in) investing activities (11,379) (34,537) (41,152)
Net cash provided by (used in) financing activities (453) 454
 41,711
Net Cash Provided By (Used in) Operating Activities

We have experienced negative operating cash flows in previous years principally due to our aggressive investment in sales personnel and national advertising campaigns for the purpose of acquiring new members. Our operating cash flows will continue to be affected principally by the extent to which we continue to pursue our growth strategy, including investing in national advertising, changes in price per average paid membership, the expansion of our sales personnel to originate service provider contracts, investing in technology personnel and equipment, and other increases in headcount to grow our business. Our largest source of operating cash flows is cash collections from our members and service providers.

 
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Table Of Contents

Cash provided by operating activities of $1.6 million for 2013 of $8.9 millionthe year ended December 31, 2016 was generatedachieved despite a net loss of $33.0$7.9 million, primarily due to non-cash activity of $36.2 million during the year, including stock-based compensation expense of $14.7 million and depreciation and amortization expense of $13.1 million. OurA $2.0 million decrease in prepaid expenses and other current assets, which was largely a byproduct of our efforts to identify operating expense efficiencies and cost savings, as well as changes in the timing and duration of certain prepaid contracts, also contributed to cash provided by operating activities was attributablefor 2016. The most significant use of cash in operating activities during 2016 related to a deferred revenue, increase of $25.1which declined $18.0 million as a result of andownward pressures on both our membership and service provider revenue streams associated with the migration to our new technology platform and the removal of our ratings and reviews paywall during the year. Additionally, we experienced a $3.9 million net decrease in accounts payable and accrued liabilities year over year due, in part, to a decline in the balance of trade accounts payable and the expected timing of payment of such costs.


Our net income of $10.2 million for the year ended December 31, 2015 was the most significant factor contributing to cash from operating activities of $26.7 million for the year. Operating cash flow for 2015 was also positively impacted by $23.6 million of non-cash activity, including stock-based compensation expense of $8.9 million, depreciation and amortization expense of $6.4 million, bad debt expense of $5.7 million and two separate long-lived asset impairment charges amounting to $1.6 million during the year. Additionally, a net increase in accounts payable and accrued liabilities of $2.9 million year over year, largely the result of increases in and the expected timing of payment of trade accounts payable, also contributed to our operating cash flow for 2015. Uses of cash from operations for the year included a $7.6 million fluctuation in accounts receivable, attributable to increases in service provider billings outstanding at year-end, as well as a $0.9 million increase in prepaid expenses and other current assets associated with certain technology service agreements, offset by a reduction in prepaid commissions related to a decline in the number of sales personnel we employ and the continued evolution of our sales compensation structure. The $1.6 million year over year net decrease in deferred advertising and membership revenue, which was primarily the result of declines in membership revenue associated with our realization of lower membership revenue per paid member, also negatively impacted our operating cash flow for the year.
Cash provided by operating activities in 2014 of $4.6 million was achieved despite a net loss of $12.1 million, primarily as a result of the impact of non-cash activity during the year. Operating cash flows were positively impacted by stock-based compensation expense of $7.9 million, depreciation and amortization expense of $5.6 million, bad debt expense of $5.0 million and a non-cash long-lived asset impairment charge of $1.8 million associated with the abandonment of certain capitalized website and software development assets. Additionally, the change in total deferred revenue contributed to current year cash provided by operations, amounting to $7.1 million, as we experienced year over year increases in both the number of our paid memberships and in the number of service providers participating in our advertising programs, a $6.6programs. Uses of cash from operations included $4.4 million net increase in accounts payable and accrued liabilities primarily related to increases in accrued compensation, the impact of a $4.0 million current period legal accrual and the expected timing of payment of these balances, and a decreaseyear over year increase in prepaid expenses of $6.2 million primarily attributable to our change in compensation structure for our sales personnel responsible for new advertising originations. In addition, our net loss included approximately $11.4 million of non-cash expenses, which included $4.1 million of stock-based compensation expense, $4.1 million of depreciation and amortization, $2.7 million of bad debt expense and $0.5 millionother current assets, attributable to the amortizationcontinued evolution of debt discount and deferred financing fees. Uses of cash included a $7.3 million increase in accounts receivable attributable to an increase in service provider billings.

Our use of cash in operating activitiesour compensation structure for 2012 was primarily attributable to our net loss of $52.9 million, reflecting continued investments in our national advertising campaigns, an increase in our sales personnel as well as other headcount increases and other expenses to grow our business. This net loss included $8.0 million of non-cash expenses, which included $2.9 million of stock-based compensation expense, $2.8 million of depreciation and amortization, $2.0 million of bad debt expense, and $0.3 million of amortization of debt discount and deferred financing fees. Additional uses of cash included an $8.0 million increase in prepaid expenses primarily as a result of the timing of payment of commissionssuch payments. Further, increases in service provider billings during 2014 contributed to our sales personnel and a $5.8$7.8 million increasefluctuation in accounts receivable associated with the growth in service provider revenue. These uses ofthat also negatively impacted operating cash in operating activities were offset in part by a $4.8 million increase in accounts payable and accrued liabilities, primarily attributable to increases in accrued marketing expenses and accrued but unpaid commissions, and increases in deferred revenue of $20.5 million, as a result of an increase both in the number of our paid memberships and in the number of service providers participating in our advertising programs.

Our use of cash in operating activities for 2011 was primarily attributable to our net loss of $49.0 million, reflecting continued investments in our national advertising campaigns, an increase in our sales personnel, as well as other headcount increases and other expenses to grow our business. This net loss included $8.6 million of non-cash expenses, which included $3.8 million of stock-based compensation expense, $1.7 million of depreciation and amortization, $0.6 million of accrued interest on debt maturity, $0.8 million of bad debt expense and $0.6 million attributable to the amortization of debt discount and deferred financing fees. Non-cash expenses also included a $1.1 million write-off attributable to our debt refinancing during 2011. Additional uses of cash included a $6.1 million increase in prepaid expenses primarily as a result of the timing of payment of commissions to our sales personnel and the cash payment of accrued interest of $2.7 million. These uses of cash in operating activities were offset in part by a $6.6 million increase in accounts payable and accrued liabilities primarily attributable to increases in accrued marketing expenses and accrued but unpaid commissions, and increases in deferred revenue of $11.5 million as a result of an increase both in the number of our paid memberships and in the number of service providers participating in our advertising programs.

flows.


Net Cash Used in(Used In) Investing Activities

Our use of cash in investing activities in 2013of $11.4 million for the year ended December 31, 2016 was primarily attributable to the purchase, net of sales, of $10.8total combined $18.6 million in investmentscapital expenditures for property, equipment and software during the period, consisting of $13.7 million in corporate bonds, commercial papercapitalized website and certificates of deposit with maturities between ninety days and one year, $8.1software development costs related to our new technology platform as well as $4.9 million for facilities improvements and information technology hardware and software, $2.2partially offset by $7.4 million in sales, net of purchases, of short-term investments at maturity during 2016. While we will continue to make capital investments in our technology platform and infrastructure in 2017, there were no material commitments for the purchasecapital expenditures in place as of BrightNest assets in August 2013 and $0.8 million for data acquisition to acquire consumer reports on service providers.

December 31, 2016.


Our use of cash in investing activities in 2012of $34.5 million for 2015 was primarily attributable to the purchase of $10.5total combined $34.3 million in investmentscapital expenditures for property, equipment and software during the year, consisting of $25.2 million in corporate bondscapitalized website and certificates of deposits with maturities between ninety days and one year,software development costs related to the purchasedevelopment of our headquarters facility including landnew technology platform and buildings$9.1 million for $6.8 million, including the costs and fees to acquire the properties, $2.9 million in officefacilities improvements and information technology investments,hardware and $2.0 million for data acquisition.

software.


Our use of cash in investing activities of $41.2 million in 20112014 was largely attributable to $2.9the total combined $36.9 million in informationcapital expenditures for property, equipment and software during the year, consisting of $20.1 million for capitalized website and software development costs related to the development of our new technology investmentsplatform and mobile applications and $16.7 million for campus expansion and improvement efforts and upgrades and additions to further improve ourtechnology hardware and software for members,software. Additionally, our purchases of short-term investments exceeded sales at maturity during the year, amounting to $3.3 million, further contributing to our use of cash in investing activities in 2014. We also spent $1.0 million during 2014 on data acquisition costs to acquire consumer reports on service providers and our growing employee base, $1.2 million for data acquisition and $0.2 million in other expenditures on property and equipment.

to purchase a website domain name.


Net Cash Provided byBy (Used In) Financing Activities

Our use of cash in financing activities of $0.5 million for the year ended December 31, 2016 was primarily attributable to taxes paid for net share settlements associated with the vesting of restricted stock units and performance awards of restricted stock units during the year, amounting to $2.5 million, partially offset by $2.0 million in proceeds from stock option exercises. Financing cash flows were also impacted by proceeds from our employee stock purchase plan ($0.5 million), payments on our capital lease obligation ($0.2 million) and the first of three equal annual installments for a fee payable to our lender in connection with the completion of the second amendment to the financing agreement during 2016 ($0.2 million).

Net cash provided by financing activities of $0.5 million for 2013 consisted solely of2015 was attributable to proceeds from the exerciseexercises of employee stock options.

options during the year, partially offset by payments on our capital lease obligation.
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Net cash provided by financing activities for 2012 includedof $41.7 million in 2014 was largely attributable to the debt refinancing transaction completed in September of 2014, which yielded gross proceeds of $8.6 million from our follow-on offering of common stock, net of underwriting discounts and expenses and additional offering-related expenses. Additionally, we obtained proceeds of $0.8 million as a result of the exercise of stock options.

Net cash provided by financing activities for 2011 included proceeds of $88.6 million from our initial public offering of common stock and simultaneous sale of stock to one of our directors, net of underwriting discounts and expenses and additional offering-related expenses the sale of preferred stock of $57.9 million, and the issuance of $15.0 million of new long-term debt. These$60.0 million. The debt proceeds were offset in part by stock repurchases of $21.9a $15.0 million and both scheduled and early debt extinguishment payments aggregating $21.8 million. We also incurred $0.9 million of financing costscash outflow related to the issuanceretirement of newour previous debt obligationsfacility, cash paid for financing costs of $2.0 million and fees paid to the lender of $1.2 million. Financing cash flows were also impacted by an additional $0.5 million in contingent consideration that was paid out during 2014 to satisfy our final obligation under the current period.

2013 BrightNest acquisition, which was due and payable on the one-year anniversary of the closing of the transaction.


Debt Obligations

On August 31, 2011,September 26, 2014, we entered into an $85.0 million financing agreement, comprised of a loan and security agreement that provides for a $15.0$60.0 million term loan and a $15.0$25.0 million revolving credit facility. A portiondelayed draw term loan, to provide increased financial flexibility for investments in growth while simultaneously reducing our interest rate.

On June 10, 2016, we entered into a first amendment to the financing agreement which, among other things, (i) extended the commencement of our quarterly repayment obligations under the term loan from September 30, 2016 to September 30, 2017; (ii) revised the financial covenants for minimum consolidated EBITDA, as defined in the financing agreement, for periods ending after June 30, 2016; (iii) revised the financial covenant related to minimum required liquidity from $10.0 million to $30.0 million; (iv) removed the financial covenant related to minimum membership revenue for periods ending after March 31, 2016; and (v) modified the basis for the calculation of the revolving credit facility is available for letters of credit and corporate credit cards. The term loan bearsapplicable interest atrate.
On November 1, 2016, we entered into a per annum rate equalsecond amendment to the greaterfinancing agreement which, among other things, (i) added a new financial covenant related to consolidated active service provider contract value beginning with the period ending December 31, 2016; (ii) revised the financial covenants for minimum consolidated EBITDA, as defined in the financing agreement and subsequently modified under the second amendment, for periods ending after September 30, 2016; (iii) revised the financial covenant related to minimum required liquidity; (iv) modified the basis for the calculation of (i) the current cashapplicable interest raterate; (v) modified the dates under which the prepayment premium is applicable; and (vi) modified certain terms related to the delayed draw term loan. Additionally, the second amendment set forth a $0.6 million fee to be paid by us to the lender, in three equal annual installments, in connection with the execution of LIBOR plus 10% or (ii) 10.5%,the amendment, and this fee was capitalized along with the existing unamortized fees paid to lender contra liability and is being amortized to interest expense over the remaining term of the financing agreement.

The financing agreement requires monthly interest-onlyinterest payments on the first business day of each month until maturity on any principal amounts outstanding under either debt facility. In accordance with the second amendment to the financing agreement, if our consolidated EBITDA for the trailing four consecutive fiscal quarters is less than $20.0 million or our qualified cash, as defined in August 2015. The revolving credit facility requires monthly interest-only payments on advances, whichthe financing agreement, is less than $20.0 million as of the applicable period end, amounts outstanding under the financing agreement bear interest at a per annum rate, at our option, equal to (i) the LIBOR rate for the interest period in effect, subject to a floor of 0.5%, plus 5%9.50% or (ii) the reference rate, which is based on the prime rate as published by the Wall Street Journal, subject to a floor of 3.25%, plus 8.50%. In addition, whenIf our qualified cash is greater than $20.0 million, and our consolidated EBITDA for the trailing four consecutive fiscal quarters is:

greater than $20.0 million but less than 50%$25.0 million, the applicable LIBOR interest rate is 8.5%, and the applicable reference interest rate is 7.5%;
greater than $25.0 million but less than $30.0 million, the applicable LIBOR interest rate is 7.5%, and the applicable reference interest rate is 6.5%; or
greater than $30.0 million, the applicable LIBOR interest rate is 6.5%, and the applicable reference interest rate is 5.5%.

The financing agreement obligates us to make quarterly principal payments on the term loan of $0.8 million on the last day of each calendar quarter, commencing with the quarter ending September 30, 2017, and to repay the remaining balance of the revolving credit facility is drawn,term loan at maturity. We are required to make principal payments on the outstanding balance of the delayed draw term loan equal to 1.25% of the amount of such loan funded at or prior to the last day of each calendar quarter and to repay the remaining outstanding balance of the delayed draw term loan at maturity. From the effective date of the financing agreement through September 26, 2017, we are also required to pay a non-usage charge of 0.50%commitment fee equal to 0.75% per annum of the average unused portionunborrowed amounts of the revolving credit facility. Thedelayed draw term loan providesloan.

We may prepay the amounts outstanding under the financing agreement at any time and are required to prepay the loans with (i) the net proceeds of certain asset sales, issuances of debt or equity, and certain casualty events, and (ii) up to 50% of consolidated excess cash flow, as defined in the financing agreement, for penalties for early prepayment.each fiscal year during the term of the financing agreement, commencing with the year ended December 31, 2015. We did not have excess cash flow as of December 31, 2016. As specified by the second amendment to the financing agreement, we must pay a 1% premium on prepayments made on or before November 1, 2017, subject to certain exceptions set forth in the financing agreement. Our obligations under the financing agreement are guaranteed by each of our subsidiaries and are secured by first priority security interests in all of their respective assets and a pledge of the equity interests of our subsidiaries. The term loan and revolving credit facility provide for additional interest upon an event of default and are secured by substantially all of our assets. In connection with entering into the loan and security agreement, we issued a warrant to purchase 88,240 shares of common stock to one of the lenders. The fair value of this warrant was recorded as a discount to thedelayed draw term loan with the amount of the discount being amortized as interest expense through the loan’s maturity.mature on September 26, 2019. As of December 31, 2013,2016, we had $14.9$57.6 million in outstanding borrowings under the term loan, net of unamortized deferred financing fees of $1.1 million and available creditunamortized fees paid to the lender of $15.0$1.3 million, both of which are being amortized into interest expense over the term of the financing agreement, and availability of $25.0 million under the revolving credit facility.

delayed draw term loan.


The loan and securityfinancing agreement contains various restrictive covenants, including restrictions on our ability to dispose of assets, make acquisitions or investments, incur debt or liens, make distributions to our stockholders or repurchase outstanding stock, enter into certain typesrelated-party transactions and make capital expenditures, other than upon satisfaction of related party transactions.the conditions set forth in the financing agreement. We are also are required to comply with certain financial covenants, including a minimum asset coverage ratio,consolidated EBITDA, as defined in the financing agreement and non-financial covenants.subsequently modified under the second amendment, minimum liquidity, minimum consolidated active service provider contract value and maximum consolidated capital expenditures. Upon an event of default, which includes certain customary events such as, among other things, a failure to make required payments when due, a failure to comply with covenants, certain bankruptcy and insolvency events, defaults under other material adverseindebtedness or a change in control, the lenders may accelerate amounts outstanding, terminate the agreement and foreclose on all collateral. We were in compliance with all financial and non-financial covenants at December 31, 2013.

2016.


Off-Balance Sheet Arrangements

We do not engage in any off-balance sheet activities. Weactivities, other than long-term non-cancellable operating leases as described herein, nor do not havewe maintain any off-balance sheet interestinterests in variable interest entities, which include special purposespecial-purpose entities andor other structured finance entities.


Contractual Obligations

We

In the normal course of business, we enter into long-term contractual obligations and commitments, in the normal course of business, primarily related to debt obligations and non-cancellable operating leases. Our contractual cash obligations atAs of December 31, 2013 are2016, our material contractual obligations consisted of long-term debt comprised of a $60.0 million term loan scheduled to mature on September 26, 2019 and long-term non-cancellable operating leases expiring through 2021, as set forth in the table below.

  

Total

  

Less than
1 Year

  

1-3 Years

  

3-5 Years

  

More than
5 Years

 

Long-term debt obligations, including accrued interest

 $17,750  $1,650  $16,100  $  $ 

Operating lease obligations

  787   663   124       

Total contractual obligations

 $18,537  $2,313  $16,224  $  $ 

  Total 
Less than
1 Year
 2-3 Years 4-5 Years 
More than
5 Years
Long-term debt obligations, including interest(1)
 $73,781
 $6,733
 $67,048
 $
 $
Operating lease obligations(2)
 7,112
 2,134
 4,234
 744
 
Total contractual obligations $80,893
 $8,867
 $71,282
 $744
 $

(1)Represents principal and estimated interest payments to be made over the remaining term of our long-term debt obligation issued in September 2014 and subsequently amended in June and November 2016. In connection with the second amendment to the financing agreement completed in November 2016, the basis for the calculation of the applicable interest rate was modified such that the rate is now contingent upon our performance in relation to certain predetermined qualified cash and consolidated EBITDA thresholds. As such, we utilized an estimate of the applicable interest rate in effect following the release of our financial results for the period ended December 31, 2016, 8.75%, in determining the estimated interest payments included in the long-term debt obligation amounts presented in the table above. See Note 8, “Debt and Credit Arrangements,” in the accompanying Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for additional information.

(2)Represents future payments due under long-term non-cancellable operating leases expiring through 2021. See Note 9, “Commitments and Contingencies,” in the accompanying Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for additional information.

Critical Accounting Policies and Estimates

Our financial statements are prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. The preparation of thesethe consolidated financial statements requires us to make estimates and assumptions that affectimpact the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.

We believe the following critical accounting policies involverepresent areas that entail significant areas of management’smanagement judgment andor estimates in the preparation of our consolidated financial statements.

For a complete summary of the accounting policies we deem to be significant, see Note 1, “Description of Business, Basis of Presentation and Summary of Significant Accounting Policies,” in the accompanying Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.

Capitalized Website and Software Development Costs

As of December 31, 2016 and 2015, our gross capitalized website and software development costs amounted to $60.8 million and $47.9 million, respectively. In accordance with authoritative guidance, we begin to capitalize website and software development costs for internal use when planning and design efforts are successfully completed and development is ready to commence. Costs incurred during planning and design, together with costs incurred for training and maintenance, are expensed as incurred and recorded in product and technology expense within the consolidated statements of operations. We place capitalized website and software development assets into service and commence depreciation/amortization when the applicable project or asset is substantially complete and ready for its intended use. Once placed into service, we capitalize qualifying costs of specified upgrades or enhancements to capitalized website and software development assets when the upgrade or enhancement will result in additional functionality.


We capitalize internal labor costs, including compensation, benefits and payroll taxes, incurred for certain capitalized website and software development projects related to our technology platform. Our policy with respect to capitalized internal labor stipulates that labor costs for employees working on eligible internal use capital projects are capitalized as part of the historical cost of the project when the impact, as compared to expensing such labor costs, is material. As of December 31, 2016 and 2015, cumulative internal labor costs amounting to $17.6 million and $11.1 million, respectively, were recorded as capitalized website and software development costs and included in the balance of property, equipment and software reflected in the consolidated balance sheets.

We also capitalized a portion of the interest on funds borrowed in relation to the development of our technology platform. Our policy with respect to capitalized interest specifies that interest costs on eligible long-term internal use capital projects are capitalized as part of the historical cost of the project when the impact, as compared to expensing such interest costs, is material. For the year ended December 31, 2016, total interest costs incurred amounted to $5.6 million, of which $0.9 million was recorded as capitalized website and software development costs. For the year ended December 31, 2015, total interest costs incurred amounted to $5.1 million, of which $2.2 million was recorded as capitalized website and software development costs. For the year ended December 31, 2014, total interest costs incurred amounted to $2.6 million, of which $1.4 million was recorded as capitalized website and software development costs.

Stock-Based Compensation
 
45

Table Of Contents

Membership Revenue Recognition

We recognize revenue when all ofDetermining the following conditions are met: there is persuasive evidencefair value of an arrangement, the service has been providedemployee share-based payment award requires significant judgment. All share-based payments to the customer, the collectionemployees, including grants of the fees is reasonably assuredstock options, restricted stock units (“RSUs”) and the amountperformance awards of fees to be paid by the customer is fixed or determinable. Our revenue includes membership revenue, which includes non-refundable initiation fees and membership fees for monthly, annual and multi-year memberships, and service provider revenue, which includes revenue from service provider advertising.

We recognize revenue from membership fees on a straight-line basis during the contractual period over which the service is delivered. We amortize revenue from the initiation fees of members over the average membership life on a straight-line basis. The estimated membership lives of monthly members and annual members for 2013restricted stock units (“PRSUs”), are 15 months and 76 months, respectively,measured based on historical experience. Estimates made by us may differ from actual customer lives. These differences may impact initiation fee revenue, depending on whether the estimated customer life decreases or increases. A change in the estimated customer life by one year in either direction would have a minimal impact to total revenue.

Stock-Based Compensation

We measure stock-based compensation expense for personnel at the grant date fair value of the award and recognizeawards, with the resulting expense generally recognized on a straight-line basis, subject to certain limited exceptions, over the vesting period. Determiningperiod during which the fair value of an award requires judgment.

employee is required to perform service in exchange for the award.


We estimate the fair value of stock-based paymentstock option awards using the Black-Scholes option-pricing model. The determination of the fair value of a stock-basedstock option award on the date of grant using the Black-Scholes option-pricing model is affectedimpacted by our stock price on the grant date of grant as well as assumptions regarding a number of complex and subjective variables. These variables include our expected stock price volatility over the expected term of the award, actual and projected employee stock optionshare-based payment award exercise behaviors, the risk-free interest rate for the expected term of the award and expected dividends. The value of the portion of the award that is ultimately expected to vest is recognized as an expense in our statements of operations.

The following table summarizes the weighted-averageweighted-average grant date fair value and the weighted-average assumptions relatingutilized to ourestimate the fair value of stock options granted during 20132016 and 2012:

  

2013

  

2012

 

Dividend yield

  0

%

  0

%

Volatility

  57

%

  60

%

Risk-free interest rate

  1.02

%

  0.71

%

Expected term, in years

  4.9   4.4 
Weighted-average estimated fair value of options granted during the year $9.38  $6.04 

2015: 

  2016 2015
Dividend yield 0% 0%
Volatility 64.6% 53.1%
Risk-free interest rate 1.26% 1.48%
Expected term, in years 5.00
 5.00
Weighted-average grant date fair value $4.76
 $2.95
We useutilize an expected dividend rateyield of zero based on the fact that we currentlydo not have noa history or current expectation of paying cash dividends on our capital stock. AsThe risk-free interest rate is based on yields of U.S. Treasury securities with a maturity similar to the estimated expected term of the stock options. The expected term represents the period of time the stock options are expected to be outstanding based on our common stock had never been publicly traded priorhistorical experience. Prior to November 17, 2011, we estimated2016, the expected volatility assumption was estimated based on historical volatilities for publicly traded common stock of our awards from the historical volatility of selected publiccomparable peer companies within the internet and media industry with comparable characteristics to us, including similaritysimilarities in size, lines of business, market capitalization, revenue andor financial leverage as well asover the expected volatility of our publicly traded common shares. The risk-free interest rate is based on the implied yield currently available on U.S. Treasury issues with terms approximately equal to theestimated expected life of the option.stock options. As we believe there is now sufficient historical data available with respect to the volatility of our common stock, effective January 1, 2016, we began utilizing our own historical volatility data for the volatility input to our calculation of the estimated fair value of stock option awards, which yielded an increase to the weighted-average volatility assumption year over year.

RSUs are measured based on the fair market value of the underlying stock on the date of grant and typically vest over a period of four years from the date of grant. Once vested, shares will generally either be issued net of the applicable tax withholding requirements to be paid by us on behalf of employees, or a portion of the shares issued will subsequently be sold by employees to satisfy the tax obligations created by the vesting of RSUs.

The PRSUs granted during 2015 to Scott A. Durchslag, our President and Chief Executive Officer, are market condition performance share-based payment awards that are earned and vest in separate tranches, contingent upon our achievement of certain predetermined stock price targets. We estimated the fair value of the PRSUs granted to Mr. Durchslag as of the date of grant using a Monte Carlo option-pricing simulation model, and we are recognizing stock-based compensation expense over the requisite service period of the award. Key inputs to the valuation included the fair market value of our underlying stock on the grant date, our expected stock price volatility over the expected term of the award and the risk-free interest rate for the expected term of the award. The PRSUs granted during 2016 to our executive officers and other members of our senior leadership team are subject to our performance with respect to certain predetermined performance conditions over a defined performance period. These share-based payment awards were measured based on our historical experience. A 10% changethe fair market value of the underlying stock on the date of grant, and we are recognizing stock-based compensation expense, if any, over the vesting period based on the projected probability of achievement of the performance conditions as of the end of each reporting period during the performance period. As necessary, we may periodically adjust the recognition of such expense in response to changes in our stock-based compensation would impactforecasts with respect to the performance conditions. Once vested, shares earned under PRSU awards will generally either be issued net incomeof the applicable tax withholding requirements to be paid by $0.4 million and is immaterial.

Recentus on behalf of employees, or a portion of the shares issued will subsequently be sold by employees to satisfy the tax obligations created by the vesting of PRSUs.


In connection with our adoption of Accounting Pronouncements

For detailed information regarding recently issued accounting pronouncements and the expected impact on our financial statements, seeStandards Update 2016-09 (see Note 1, “Summary“Description of Business, Basis of Presentation and Summary of Significant Accounting Policies”Policies,” in the accompanying Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.

10-K for additional information) during 2016, we elected to begin accounting for forfeitures of share-based payment awards as they occur in lieu of the previous practice of estimating the number of awards expected to be forfeited and adjusting the estimate when it was no longer probable that the corresponding service condition would be fulfilled.

The assumptions utilized in calculating the fair value of employee share-based payment awards represent our best estimates at the time of grant, but such estimates involve inherent uncertainties and the application of judgment. If actual results differ from our estimates, or we determine it is necessary to utilize different assumptions with respect to the valuation of share-based payment awards, our stock-based compensation expense could be materially different in the future.

Loss Contingencies

We are involved, from time to time, in various lawsuits, claims, investigations and other legal and regulatory proceedings, both as a plaintiff and as a defendant, related to our business and operations. Certain of these matters include speculative claims for substantial or indeterminate amounts of damages. We evaluate the likelihood of any judgments or outcomes with respect to these matters and determine loss contingency assessments on a gross basis after considering the probability of incurrence of a loss and whether a loss is reasonably estimable. In addition, we consider other relevant factors that could impact our ability to reasonably estimate a loss. A determination of the amount of reserves required, if any, for these contingencies is made after analyzing each matter. Our reserves may change in the future due to new developments or changes in strategy in handling these matters. We record a liability when we believe it is both probable that a loss has been incurred and the amount can be reasonably estimated. If we determine a loss is possible and a range of loss can be reasonably estimated, we disclose the range of the possible loss in the Notes to Consolidated Financial Statements.

Significant judgment is required to determine probability or possibility, as well as the estimated amount, as applicable, of a loss contingency. On at least a quarterly basis, as necessary, we review and evaluate developments with respect to our legal matters that could impact the amount of an associated liability previously accrued as well as the related ranges of possible losses disclosed and make adjustments and changes as appropriate. For example, during the first quarter of 2016, we recorded a $3.5 million contingent legal liability for the Moore litigation and related cases in connection with the settlement of this matter, representing our best estimate of the costs to be incurred as of that date. Each quarter thereafter, we reviewed the activity and any new developments under the Moore settlement to determine if an adjustment to the contingent liability previously recorded was necessary, and during the fourth quarter of 2016, our evaluation yielded a conclusion that such an adjustment was needed following completion of the election period for settlement class members, resulting in a $0.7 million reduction to our accrual for this matter, bringing our best estimate of loss to $2.8 million as of December 31, 2016.

As the outcome of litigation is inherently uncertain, if one or more legal matters are resolved against us for amounts in excess of our expectations, our business or consolidated financial statements could be materially adversely affected.


Income Taxes

We are subject to corporate federal and state income taxes in the United States at prevailing corporate rates. Income taxes are accounted for under the asset and liability method. Under this method, we accrue income taxes payable or refundable and recognize deferred tax assets and liabilities based on differences between the book and tax basis of assets and liabilities. We measure deferred tax assets and liabilities using enacted rates in effect for the years in which the differences are expected to reverse and recognize the effect of a change in enacted rates in the period of enactment. Significant judgment is required in evaluating our uncertain tax positions, as applicable, and determining our provision for income taxes and recording the related income tax assets and liabilities.

After determining the total amount of deferred tax assets, we determine whether it is more likely than not that some portion of the deferred tax assets will not be realized. If we conclude that a deferred tax asset is not likely to be realized, a valuation allowance is established against that asset to record it at its expected realizable value. As of December 31, 2016, we recorded a full valuation allowance on our deferred tax assets. We generated a pre-tax book net loss of $7.8 million for the year ended December 31, 2016, and aside from the year ended December 31, 2015, we have incurred a pre-tax book net loss in each year since our inception. Further, we had accumulated deficits of $262.0 million and $254.2 million as of December 31, 2016 and December 31, 2015, respectively. We are also in a three-year cumulative pre-tax net loss position, amounting to $9.6 million, and when considered in the context of future reversals of existing taxable temporary differences, projected future taxable income and tax planning strategies, we believe there is significant negative evidence justifying the presence of a valuation allowance. We periodically review deferred tax assets for recoverability, and should there be a change in our ability to recover deferred tax assets, the tax provision would be adjusted in the period in which the assessment changed.

We establish assets and liabilities for uncertain positions taken or expected to be taken in income tax returns using a more-likely-than-not recognition threshold, and we include in income tax expense any interest and penalties related to uncertain tax positions. We recognize the financial statement benefit of a tax position only after determining the relevant tax authority would more likely than not sustain the position following an audit. We concluded that we have no unrecognized tax benefits to be recorded for the year ended December 31, 2016.

Our effective tax rate has historically varied from the statutory rate, primarily due to the tax impact of state income taxes, stock-based compensation expense, research and development credits and the valuation allowance. Our future provision for income taxes could be adversely impacted by adjustments to the valuation of our deferred tax assets or liabilities, including the valuation allowance, or changes in tax laws, regulations or accounting principles and interpretations. We are subject to examination of our income tax returns by tax authorities in the United States, and we regularly assess the likelihood of adverse outcomes resulting from these examinations in determining the adequacy of our provision for income taxes.

Recent Accounting Pronouncements
 
46For detailed information regarding recently issued accounting pronouncements and the expected impact on our consolidated financial statements, see Note 1, “Description of Business, Basis of Presentation and Summary of Significant Accounting Policies,” in the accompanying Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.

Table Of Contents


ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK

We are exposed to market risks in the ordinary course of business. Quantitative and qualitative disclosures about such market risks are set forth below.

Interest Rate Fluctuations

We

As of December 31, 2016, we had $22.4 million in cash and cash equivalents of $34.8and $16.5 million at December 31, 2013, which was held in short-term investments. Cash and cash equivalents consists of bank deposit accounts and money market funds for working capital purposes. In addition,we had short-termas well as any investments of $21.1 million in certificates of deposit, U.S. Treasury securities or corporate bonds with contractual maturities of three months or less, which, at times, may exceed federally insured limits. Short-term investments consist of certificates of deposit, U.S. Treasury securities and corporate bonds with maturities greaterof more than 90 days but less than one year. The Company hasWe possess the ability and intent to hold these investments to maturity. Declines in interest rates may reduce future investment income on these deposits. Wematurity, and we do not enter intomake investments for trading or speculative purposes. We are paid interest on our deposits at variable rates and receive interest payments on held to maturityheld-to-maturity investments at fixed rates.

We Declines in interest rates may reduce future investment income on our deposits and could also negatively impact the fair value of our held-to-maturity investments. As we possess both the ability and intent to hold our investments to maturity, such interest rate declines would have no impact on our results of operations. Further, given their short-term maturities, we believe our cash and cash equivalents, which are primarily utilized for working capital purposes, are relatively insensitive to interest rate fluctuations. Based on a sensitivity analysis, we do not believe that a hypothetical 10%1% (100 basis points) or 5% (500 basis points) increase or decrease in interest rates as of December 31, 20132016 would have a materialmaterially impact on our investment income.

income or portfolio of investments. Any gains or losses resulting from such fluctuations would only be realized to the extent we sold the investments prior to maturity.

In August 2011,September 2014, we entered into a loan and securityfinancing agreement that providesprovided for a $15.0$60.0 million term loan and a $15.0$25.0 million revolving credit facility.delayed draw term loan. The term loan bears interest at a per annum rate equal tofinancing agreement was subsequently amended in June 2016 and again in November 2016, and the greaterbasis for the calculation of (i) the current cashapplicable interest rate was modified by these amendments. Amounts outstanding under the financing agreement bear interest as outlined in Note 8, “Debt and Credit Arrangements,” in the accompanying Notes to Consolidated Financial Statements included in Item 8 of LIBOR plus 10% or (ii) 10.5%, and requires monthly interest-only payments until maturity in August 2015.this Form 10-K. The revolving credit facilityfinancing agreement requires monthly interest-only payments on advances, which bear interest at a per annum rate equal to LIBOR plus 5%.the first business day of each month until maturity on any principal amounts outstanding under either debt facility. As of December 31, 2013,2016, we had $14.9$57.6 million in outstanding net borrowings under the term loan and available creditavailability of $15.0$25.0 million under the revolving credit facility.delayed draw term loan. The fair value of our long-term debt will fluctuate should there be movements in interest rates applicable to our long-term debt in the future, increasing in periods of declining rates of interest and declining in periods of increasing rates of interest. A hypothetical 1% (100 basis points) or 5% (500 basis points) increase in the interest rate applicable to our long-term debt as of December 31, 2016, utilizing a rate of 8.75% as the base rate, would yield an additional $1.6 million and $7.9 million in interest expense, respectively, over the remaining life of our outstanding long-term debt, which matures in September of 2019.

Inflation Rate Fluctuations

If our expenses were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs with corresponding price increases. We do not believe an immediate 10% increase in interest rates would have a material effect on interest expense, and therefore,we do not expectinflation has materially impacted our operatingbusiness, financial condition or results or cash flowsof operations to be materially affected to any degree by a sudden change in market interest rates.

date.
47

Table Of Contents

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Angie’s List, Inc.

Consolidated Financial Statements

Years Ended December 31, 2013, 20122016, 2015 and 20112014

Contents

Page No.

49

Consolidated Financial Statements

50

51

52

53

54

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of Angie’s List, Inc.

We have audited the accompanying consolidated balance sheets of Angie’s List, Inc. as of December 31, 20132016 and 2012,2015, and the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 2013.2016. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Angie’s List, Inc. at December 31, 20132016 and 2012,2015, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2013,2016, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Angie’s List, Inc.’s internal control over financial reporting as of December 31, 2013,2016, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“1992 framework”)(2013 framework) and our report dated February 28, 201421, 2017 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Indianapolis, Indiana

February 28, 2014

 
49Indianapolis, Indiana

Table Of Contents
February 21, 2017

 

Angie’s List, Inc.

(in thousands, except share data)

  

December 31,

 
  

2013

  

2012

 

Assets

        

Cash and cash equivalents

 $34,803  $42,638 

Restricted cash

  50   50 

Short-term investments

  21,055   10,460 

Accounts receivable, net of allowance for doubtful accounts of $1,107 and $922 at December 31, 2013 and 2012

  12,385   7,787 

Prepaid expenses and other current assets

  13,651   19,810 

Total current assets

  81,944   80,745 

Property and equipment, net

  18,657   12,079 

Goodwill

  1,145   415 

Amortizable intangible assets, net

  3,500   2,356 

Deferred financing fees, net

  397   634 

Total assets

 $105,643  $96,229 
         

Liabilities and stockholders’ equity (deficit)

        

Accounts payable

 $6,838  $6,489 

Accrued liabilities

  21,770   14,058 

Deferred membership revenue

  35,560   27,627 

Deferred advertising revenue

  39,448   23,160 

Total current liabilities

  103,616   71,334 

Long-term debt, including accrued interest

  14,918   14,869 

Deferred membership revenue, noncurrent

  4,909   4,330 

Deferred advertising revenue, noncurrent

  521   214 

Deferred income taxes

  169   163 

Total liabilities

  124,133   90,910 

Commitments and contingencies (Note 9)

        

Stockholders’ equity (deficit)

        

Preferred stock, $0.001 par value: 10,000,000 shares authorized, no shares issued or outstanding at December 31, 2013 and December 31, 2012

      

Common stock, $0.001 par value: 300,000,000 shares authorized, 67,014,757 and 66,425,988 shares issued and 58,456,045 and 57,867,276 shares outstanding at December 31, 2013 and December 31, 2012, respectively

  67   66 

Additional paid-in-capital

  257,505   248,326 

Treasury stock, at cost: 8,558,712 shares of common stock at December 31, 2013 and December 31, 2012

  (23,719

)

  (23,719

)

Accumulated deficit

  (252,343

)

  (219,354

)

Total stockholders’ equity (deficit)

  (18,490

)

  5,319 

Total liabilities and stockholders’ equity (deficit)

 $105,643  $96,229 

  December 31,
  2016 2015
Assets    
Cash and cash equivalents $22,402
 $32,599
Short-term investments 16,541
 23,976
Accounts receivable, net of allowance for doubtful accounts of $3,296 and $1,658 at December 31, 2016 and 2015, respectively 16,371
 17,019
Prepaid expenses and other current assets 17,002
 19,026
Total current assets 72,316
 92,620
Property, equipment and software, net 82,714
 77,635
Goodwill 1,145
 1,145
Amortizable intangible assets, net 1,219
 2,011
Total assets $157,394
 $173,411
     
Liabilities and stockholders’ equity (deficit)    
Accounts payable $2,886
 $10,525
Accrued liabilities 23,128
 20,287
Deferred membership revenue 23,208
 32,702
Deferred advertising revenue 42,297
 48,930
Current maturities of long-term debt 1,500
 1,500
Total current liabilities 93,019
 113,944
Long-term debt, net 56,142
 56,134
Deferred membership revenue, noncurrent 2,032
 3,742
Deferred advertising revenue, noncurrent 456
 640
Other liabilities, noncurrent 1,245
 1,332
Total liabilities 152,894
 175,792
Commitments and contingencies (Note 9) 
 
Stockholders’ equity (deficit):    
Preferred stock, $0.001 par value: 10,000,000 shares authorized, no shares issued or outstanding at December 31, 2016 and 2015 
 
Common stock, $0.001 par value: 300,000,000 shares authorized, 67,979,486 and 67,162,990 shares issued and 59,420,774 and 58,604,278 shares outstanding at December 31, 2016 and 2015, respectively 68
 67
Additional paid-in-capital 290,182
 275,445
Treasury stock, at cost: 8,558,712 shares of common stock at December 31, 2016 and 2015 (23,719) (23,719)
Accumulated deficit (262,031) (254,174)
Total stockholders’ equity (deficit) 4,500
 (2,381)
Total liabilities and stockholders’ equity (deficit) $157,394
 $173,411
See accompanying notes.

Angie’s List, Inc.

(in thousands, except share and per share data)

  

Year Ended December 31,

 
  

2013

  

2012

  

2011

 

Revenue

            

Membership

 $65,307  $47,717  $33,815 

Service provider

  180,335   108,082   56,228 

Total revenue

  245,642   155,799   90,043 

Operating expenses

            

Operations and support

  40,072   27,081   16,417 

Selling

  90,143   58,596   33,815 

Marketing

  87,483   80,230   56,122 

Technology

  26,197   16,870   9,109 

General and administrative

  32,828   24,055   18,740 

Operating loss

  (31,081

)

  (51,033

)

  (44,160

)

Interest expense, net

  1,868   1,856   3,004 

Loss on debt extinguishment

        1,830 

Loss before income taxes

  (32,949

)

  (52,889

)

  (48,994

)

Income tax expense

  40   5   43 

Net loss

 $(32,989

)

 $(52,894

)

 $(49,037

)

Net loss per common share—basic and diluted

 $(0.57

)

 $(0.92

)

 $(1.60

)

Weighted average number of common shares outstanding—basic and diluted

  58,230,927   57,485,589   30,655,532 

  Year Ended December 31,
  2016 2015 2014
Revenue      
Membership $58,090
 $67,992
 $73,113
Service provider 265,239
 276,133
 241,898
Total revenue 323,329
 344,125
 315,011
Operating expenses      
Operations and support 40,293
 56,074
 52,760
Selling 111,046
 116,027
 115,210
Marketing 65,140
 83,789
 96,953
Product and technology 55,990
 36,661
 34,039
General and administrative 53,954
 38,316
 26,411
Operating income (loss) (3,094) 13,258
 (10,362)
Interest expense, net 4,720
 2,971
 1,203
Loss on debt extinguishment 
 
 458
Income (loss) before income taxes (7,814) 10,287
 (12,023)
Income tax expense 43
 44
 51
Net income (loss) $(7,857) $10,243
 $(12,074)
       
Net income (loss) per common share — basic $(0.13) $0.18
 $(0.21)
Net income (loss) per common share — diluted $(0.13) $0.17
 $(0.21)
       
Weighted-average number of common shares outstanding — basic 58,860,152
 58,520,546
 58,510,106
Weighted-average number of common shares outstanding — diluted 58,860,152
 58,782,889
 58,510,106
See accompanying notes.

Angie’s List, Inc.

(in thousands)

  

Convertible
Preferred Stock

  

Common
Stock

  

Additional
Paid-
In Capital

  

Treasury
Stock

  

Accumulated
Deficit

  

Total
Equity
(Deficit)

 

Balance at December 31, 2010

 $2  $33  $85,453  $(1,822

)

 $(117,423

)

 $(33,757

)

Net loss

              (49,037

)

  (49,037

)

Sale of preferred stock, net of costs

  1      57,922         57,923 

Preferred stock conversion

  (3

)

  3             

Issuance of common stock, net of costs

     29   88,536         88,565 

Repurchase of stock

           (21,897

)

     (21,897

)

Stock-based compensation

        3,842         3,842 

Issuance of warrants

        197         197 

Balance at December 31, 2011

 $  $65  $235,950  $(23,719

)

 $(166,460

)

 $45,836 

Net loss

              (52,894

)

  (52,894

)

Issuance of common stock, net of costs

     1   8,626         8,627 

Stock-based compensation

        2,943         2,943 

Exercise of stock options and warrants

        807         807 

Balance at December 31, 2012

 $  $66  $248,326  $(23,719

)

 $(219,354

)

 $5,319 

Net loss

              (32,989

)

  (32,989

)

Stock-based compensation

        4,064         4,064 

Exercise of stock options

     1   5,115         5,116 

Balance at December 31, 2013

 $  $67  $257,505  $(23,719

)

 $(252,343

)

 $(18,490

)

  Preferred Stock 
Common
Stock
 
Additional
Paid-
In-Capital
 
Treasury
Stock
 
Accumulated
Deficit
 
Total
Equity
(Deficit)
Balance at December 31, 2013 $
 $67
 $257,505
 $(23,719) $(252,343) $(18,490)
Net loss 
 
 
 
 (12,074) (12,074)
Non-cash stock-based compensation expense 
 
 7,889
 
 
 7,889
Exercise of stock options 
 
 501
 
 
 501
Balance at December 31, 2014 $
 $67
 $265,895
 $(23,719) $(264,417) $(22,174)
Net income 
 
 
 
 10,243
 10,243
Non-cash stock-based compensation expense 
 
 8,875
 
 
 8,875
Exercise of stock options 
 
 675
 
 
 675
Balance at December 31, 2015 $
 $67
 $275,445
 $(23,719) $(254,174) $(2,381)
Net loss 
 
 
 
 (7,857) (7,857)
Non-cash stock-based compensation expense 
 
 14,744
 
 
 14,744
Issuance of common stock for settlement of share-based awards 
 1
 
 
 
 1
Issuance of common stock for employee stock purchase plan 
 
 476
 
 
 476
Exercise of stock options 
 
 2,047
 
 
 2,047
Shares withheld for taxes on settlement of share-based awards 
 
 (2,530) 
 
 (2,530)
Balance at December 31, 2016 $
 $68
 $290,182
 $(23,719) $(262,031) $4,500
See accompanying notes.

Angie’s List, Inc.

(in thousands)

  

Year Ended December 31,

 
  

2013

  

2012

  

2011

 

Operating activities

            

Net loss

 $(32,989

)

 $(52,894

)

 $(49,037

)

Adjustments to reconcile net loss to net cash used in operating activities:

            

Depreciation and amortization

  4,069   2,753   1,660 

Deferred income taxes

  6   5   4 

Accrued interest due on debt maturity date

        625 

Amortization of debt discount and deferred financing fees

  527   312   596 

Bad debt expense

  2,658   1,955   806 

Noncash compensation expense

  4,064   2,943   3,842 

Noncash loss on debt extinguishment

        1,075 

Changes in certain assets:

            

Accounts receivable

  (7,256

)

  (5,805

)

  (2,081

)

Prepaid expenses and other current assets

  6,159   (7,975

)

  (6,068

)

Changes in certain liabilities:

            

Accounts payable

  (1,151

)

  1,223   2,089 

Accrued liabilities

  7,712   3,541   4,497 

Accrued interest on long-term debt

        (2,668

)

Deferred advertising revenue

  16,595   9,492   5,433 

Deferred membership revenue

  8,512   11,053   6,092 

Net cash provided by (used in) operating activities

  8,906   (33,397

)

  (33,135

)

             

Investing activities

            

Restricted cash

     250    

Purchases of short-term investments

  (32,814

)

  (10,491

)

   

Sales of short-term investments

  21,978       

Acquisition of business

  (2,150

)

      

Property and equipment

  (8,102

)

  (9,730

)

  (3,085

)

Data acquisition costs

  (769

)

  (2,035

)

  (1,191

)

Net cash used in investing activities

  (21,857

)

  (22,006

)

  (4,276

)

             

Financing activities

            

Borrowings under lines of credit

        10,000 

Payments under lines of credit

        (10,000

)

Principal payments on long-term debt

        (21,797

)

Proceeds from long-term debt

        15,000 

Payments on capital lease obligations

        (41

)

Purchases of treasury stock

        (21,897

)

Cash paid for financing costs

        (944

)

Proceeds from public stock offerings and other, net of fees

     8,627   88,565 

Proceeds from exercise of stock options

  5,116   807    

Sale of preferred stock, net of fees

        57,923 

Net cash provided by financing activities

  5,116   9,434   116,809 

Net increase (decrease) in cash

  (7,835

)

  (45,969

)

  79,398 

Cash and cash equivalents, beginning of period

  42,638   88,607   9,209 

Cash and cash equivalents, end of period

 $34,803  $42,638  $88,607 
             

Supplemental cash flow disclosures

            

Cash paid for interest

 $1,602  $1,680  $4,899 

Cash paid for income taxes

     15    

Capital expenditures incurred but not yet paid

  1,000       

  Year Ended December 31,
  2016 2015 2014
Operating activities      
Net income (loss) $(7,857) $10,243
 $(12,074)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:      
Depreciation and amortization 13,148
 6,402
 5,576
Amortization of debt discount, deferred financing fees and bond premium 663
 697
 478
Non-cash stock-based compensation expense 14,744
 8,875
 7,889
Non-cash loss on debt extinguishment 
 
 266
Non-cash long-lived asset impairment charge 
 1,578
 1,778
Non-cash loss on disposal of long-lived assets 173
 300
 
Deferred income taxes 22
 17
 11
Bad debt expense 7,404
 5,746
 5,028
Changes in certain assets:      
Accounts receivable (6,756) (7,624) (7,784)
Prepaid expenses and other current assets 2,024
 (906) (4,419)
Changes in certain liabilities:      
Accounts payable (6,717) 5,467
 (2,952)
Accrued liabilities 2,808
 (2,539) 3,691
Deferred advertising revenue (6,817) 502
 9,099
Deferred membership revenue (11,204) (2,067) (1,958)
Net cash provided by operating activities 1,635
 26,691
 4,629
       
Investing activities      
Purchases of investments (17,474) (24,537) (26,671)
Sales of investments 24,891
 24,766
 23,360
Property, equipment and software (4,932) (9,075) (16,735)
Capitalized website and software development costs (13,693) (25,193) (20,122)
Intangible assets (171) (498) (984)
Net cash (used in) investing activities (11,379) (34,537) (41,152)
       
Financing activities      
Proceeds from exercise of stock options 2,047
 675
 501
Proceeds from employee stock purchase plan 476
 
 
Taxes paid on behalf of employees related to net share settlement (2,529) 
 
Principal payments on long-term debt 
 
 (15,000)
Proceeds from long-term debt issuance 
 
 60,000
Fees paid to lender (212) 
 (1,210)
Cash paid for financing fees 
 
 (1,957)
Payment of contingent consideration from acquisition of business assets 
 
 (500)
Payments on capital lease obligation (235) (221) (123)
Net cash provided by (used in) financing activities (453) 454
 41,711
Net increase (decrease) in cash and cash equivalents $(10,197) $(7,392) $5,188
Cash and cash equivalents, beginning of period 32,599
 39,991
 34,803
Cash and cash equivalents, end of period $22,402
 $32,599
 $39,991
       

Supplemental cash flow disclosures      
Cash paid for interest $4,699
 $4,203
 $2,356
Cash paid for income taxes 27
 37
 34
Capital expenditures incurred but not yet paid 328
 1,455
 2,080
Financing costs incurred but not yet paid 425
 
 

See accompanying notes.

Angie’s List, Inc.

Years Ended December 31, 2013, 2012,2016, 2015 and 20112014

(Dollars in Thousands,thousands, except share and per share data)

1. Description of Business, Basis of Presentation and Summary of Significant Accounting Policies

Nature of Operations and Reorganization

Angie’s List, Inc. (collectively with its wholly owned subsidiaries, the Company)“Company”) operates a consumer-drivennational local services consumer review service and marketplace where members can research, shop for its members to research, hire,and purchase local services for critical needs, as well as rate and review local professionals for critical needs, such as home, health care and automotivethe providers of these services. Ratings and reviews, which are now available only to the Company’s members help itsfree-of-charge, assist members to find the bestin identifying and hiring a provider for their local service needs. Membership subscriptions are sold on a monthly, annual and multi-year basis. The consumer rating network “Angie’s List” is maintained and updated based on member feedback. The Company also sells advertising in its monthly publication, on its website and through its call center to service providers that meet certain rating criteria. In addition, the Company’s e-commerce offerings provide its members the opportunity to purchase services directly from the Company from service providers that are rated on its website. The Company’s services are provided in markets located across the continental United States.

Basis of Presentation

The consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) and reflect all adjustments of a normal recurring nature considered, in the opinion of management, necessary to fairly report the results for the periods presented.

Operating Segments

Operating segments are defined as components of an enterprise engaging in business activities for which discrete financial information is available and regularly reviewed by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company manages its business on the basis of one operating segment.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have beenare eliminated in consolidation.

Estimates
The Company has evaluated subsequent events throughpreparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect amounts reported in the date these consolidated financial statements were issued.

Estimates

Management uses estimates and assumptions in preparing consolidated financial statements in accordance with accounting principles generally accepted in the United States. Those estimates and assumptions affect the reported amounts of assets and liabilities,accompanying notes as well as the disclosure of contingent assets and liabilities and the reported revenue and expenses. Actual results could varydiffer from those estimates.

Reclassification of Prior Year Presentation

Certain prior year amounts were reclassified for consistency with the estimatescurrent period presentation, including the marketing compensation and personnel-related costs and general marketing operating expenditures that were used.

Common Stock

On October 31, 2011, the Company effected an eight-for-one split of its common stock by way of a stock dividend. As a result of the stock split, holders of the Company’s common stock received seven additional shares of common stock for every share held on such date, and a proportionate adjustment was made to the applicable conversion prices for each share of the Company’s outstanding convertible preferred stock (see Note 12). All share and per share amounts for all periods presented in these consolidated financial statements and notes thereto were adjusted retroactively, where applicable, to reflect this stock split and the adjustment of the convertible preferred stock conversion prices.

In May 2012, the Company completed a follow-on public offering of 8,629,797 shares of its common stock, which included 703,235 shares of common stock sold by the Company and 7,926,562 shares of common stock sold by the selling stockholders (inclusive of 189,374 shares of common stockmoved from the partial exercise of the over-allotment option granted to the underwriters). The Company incurred fees resulting from the transaction of approximately $770, of which $81 is included in additional paid-in-capital and $689 is included in general and administrative expenses.

expense and selling expense to marketing expense within the consolidated statements of operations. These reclassifications did not impact net income (loss) previously reported.

Significant Accounting Policies

Revenue Recognition
 
54

Table Of Contents

Revenue Recognition and Deferred Revenue

The Company recognizes revenue when all of the following conditions are met: there is persuasive evidence of an arrangement, the service has been provided to the customer, the collection of the fees is reasonably assured and the amount of fees to be paid by the customeriscustomer is fixed or determinable.

Membership RevenueRevenue.

Revenue from the sale of membership subscriptions is generally recognized ratably over the term of the associated subscription.

At the time a member joins, the Company may receive a one-time nonrefundable enrollment fee. Enrollment fees are deferred and recognized on a straight-line basis over an estimated average membership life of 76 months for annual or multi-year members and 15 months for monthly members, which is based on historical membership experience. The Company reviews the estimated average membership life on an annual basis, or more frequently if circumstances change. Changes in member behavior, performance, competition and economic conditions may cause attrition levels to change, which could impact the estimated average membership life.


Service Provider RevenueRevenue.

Revenue from the sale of advertising in the Company’s publication is recognized in the month in which the Company’s monthly publication is published and distributed. Revenue from the sale of website, mobile and call center advertising is recognized ratably over the time period the advertisements run. Revenue from the sale of advertising in the Company’s Angie’s ListMagazine publication is recognized in the period in which the publication is published and distributed. Revenue from e-commerce vouchers is recognized on a net basis when the voucher has beenis delivered to the purchaser. While the Company is not the merchant of record with respect to its customers for these transactions, it does offer customers refunds in certain circumstances. RevenueAccordingly, revenue from e-commerce transactions is recorded net of a reserve for estimated refunds. The Company’s e-commerce revenue was $22,062, $14,475, and $6,651 for 2013, 2012, and 2011,respectively.

Deferred RevenueRevenue.

Deferred revenue includes the unamortized portion of revenue associated with membership and advertisingservice provider fees for which the Company has received payment in advance of services or advertising to be provided.

Deferred revenue is recognized as revenue when the related services or advertising are actually provided.

Cash and Cash Equivalents

The Company maintains its cash in bank deposit accounts and money market funds with contractual maturities of three months or less, which, at times, may exceed federally insured limits. The Company has not experiencedalso classifies as cash and cash equivalents any investments in certificates of deposit, U.S. Treasury securities or corporate bonds with contractual maturities of three months or less, which also, at times, may exceed federally insured limits. To date, the carrying values of the Company’s cash and cash equivalents approximate their fair values, and there have been no material losses in suchthese accounts.

Restricted Cash

Restricted cash relates to monies held in reserve at institutions pursuant to credit card processing agreements. The restricted cash is not available for operating activities.

 
55Short-Term Investments

Table Of Contents
 

Short-term Investments

Investments with maturities less than one yearinvestments consist of certificates of deposit, (short-term only) andU.S. Treasury securities or corporate bonds with maturities of more than 90 days but less than one year, all of which are designated as held-to-maturity investments and are recorded at amortized cost, adjusted, as applicable, for amortization of premiums to maturity computed under the effective interest method, in the consolidated balance sheets. Such amortizationAmortization and interest income from held-to-maturity investments isare included in interest expense, net, in the consolidated statementstatements of operations. ForThe Company’s objective with respect to these investments the Company’s objective is to earn a higher rate of return on funds that are otherwise not anticipated to be required to meet liquidity needs in the near term while maintaining a low level of investment risk with the positive intent and ability to hold these investments to maturity. Short-term investments are reviewedThe Company reviews its investment portfolio for other-than-temporary impairment whenever events or changes in circumstances indicate that the carrying amount of the investment may be impaired.impaired, considering such factors as the duration, severity and reason for the decline in value as well as the potential recovery period. As of December 31, 2013, Angie’s List, Inc. had $21,0552016 and 2015, the Company held $16,541 and $23,976, respectively, in short-term investments with no material unrealized gains or losses.

losses in these accounts in either year then ended.

Accounts Receivable

Accounts receivable areis stated at the amount billed to service providers, less an estimated allowance for doubtful accounts. The Company performs ongoing credit evaluations and generally requires no collateral from service providers. Management reviews individual accounts as they become past due to determine collectability. The Company’s allowance for doubtful accounts balance is adjusted periodically based on management’s consideration of past due accounts. Individual accounts are charged against the allowance when all reasonable collection efforts have beenare exhausted.

The changes in the Company’s allowance for doubtful accounts balances during the years ended December 31, 2013, 20122016, 2015 and 20112014 were as follows:

  

Year Ended December 31,

 
  

2013

  

2012

  

2011

 

Beginning balance

 $922  $535  $241 

Additions, net of recoveries

  3,773   1,955   806 

Deductions

  (3,588

)

  (1,568

)

  (512

)

Ending Balance

 $1,107  $922  $535 

  Year Ended December 31,
  2016 2015 2014
Beginning balance $1,658
 $1,651
 $1,107
Additions, net of recoveries 7,404
 5,746
 5,028
Deductions (5,766) (5,739) (4,484)
Ending balance $3,296
 $1,658
 $1,651

Property, Equipment and Equipment

PropertySoftware

Assets recorded as property, equipment and equipmentsoftware are stated at cost and are depreciated over thetheir respective estimated useful life of each asset.lives. The Company also capitalizes the cost of computercertain costs related to website and software developed or obtainedacquisition and development for internal use.use, including internal labor costs incurred during development. Construction in progress is comprised of costs incurred related to the construction or development of property, equipment and software that is not ready for its intended use and therefore not yet placed in service. The Company’s estimated useful lives for property, equipment and equipmentsoftware generally range from 3 to 25 years. DepreciationDepreciation/amortization is computed using the straight-line method. Repairs and routine maintenance are charged to expense as incurred.


In accordance with authoritative guidance, the Company begins to capitalize website and software development costs for internal use when planning and design efforts are successfully completed and development is ready to commence. Costs incurred during planning and design, together with costs incurred for training and maintenance, are expensed as incurred and recorded in product and technology expense within the consolidated statements of operations. The Company places capitalized website and software development assets into service and commences depreciation/amortization when the applicable project or asset is substantially complete and ready for its intended use. Once placed into service, the Company capitalizes qualifying costs of specified upgrades or enhancements to capitalized website and software development assets when the upgrade or enhancement will result in new or additional functionality.

The Company capitalizes internal labor costs, including compensation, benefits and payroll taxes, incurred for certain capitalized website and software development projects related to the Company’s technology platform. The Company’s policy with respect to capitalized internal labor stipulates that labor costs for employees working on eligible internal use capital projects are capitalized as part of the historical cost of the project when the impact, as compared to expensing such labor costs, is material.

The Company also capitalized a portion of the interest on funds borrowed in relation to the development of the Company’s technology platform. The Company’s policy with respect to capitalized interest specifies that interest costs on eligible long-term internal use capital projects are capitalized as part of the historical cost of the project when the impact, as compared to expensing such interest costs, is material.

Goodwill
Goodwill is not amortized and is instead reviewed for impairment, at a minimum, on an annual basis as of December 31, or more frequently should an event or circumstance occur that indicates the carrying amount of goodwill may be impaired. If goodwill is considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the goodwill exceeds its fair market value. To date, no impairment of goodwill has been identified or recognized.

Data Acquisition Costs

Data acquisition costs consist of external costs related to acquiring consumer reports on service providers. These reports are used by the Company to provide its members with feedback on service providers. Amortization is computed using the straight-line method over the period during which the information is expected to benefit the Company’s members, which is estimated to be three years. The capitalized costs are included in intangible assets onin the consolidated balance sheet,sheets, and the amortized expense is reflected within operations and support expensesexpense in the consolidated statements of operations.


Long-Lived Assets

Long-lived assets, including property, equipment and equipmentsoftware and amortizable intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparison of the carrying amount to future net undiscounted cash flows expected to be generated by the related asset. If such assets are considered to be impaired, the impairment to be recognized is measured byas the amount by which the carrying amount exceeds the fair market value of the assets. To date, there have been no adjustmentsLong-lived asset impairment charges were recorded during the second and fourth quarters of 2015 as discussed in further detail in Note 5, “Property, Equipment and Software,” of these Notes to Consolidated Financial Statements.


Deferred Financing Fees
As a result of the Company’s entry into a new financing agreement in September 2014, the Company incurred financing costs that were capitalized as a deferred financing fee asset. As further discussed below, upon adoption of the guidance set forth under Accounting Standards Update No. 2015-03, effective January 1, 2016, the Company reclassified the deferred financing fees previously recorded in other noncurrent assets to net long-term debt in the consolidated balance sheets. The deferred financing fees contra liability is offsetting the gross term loan balance and is being amortized to interest expense on a straight-line basis over the term of the financing agreement. The Company’s long-term debt balance is reported net of the remaining unamortized deferred financing fees within the consolidated balance sheets. In connection with the extinguishment of the Company’s previous loan and security agreement during the course of the aforementioned financing transaction, the Company expensed the remaining unamortized portion of the capitalized deferred financing fees associated with the previous loan and security agreement in 2014, and the related amount was included in the loss on debt extinguishment within the consolidated statement of operations for the year ended December 31, 2014.

Fees Paid to Lender

The Company incurred financing costs in the form of fees paid directly to the respective carrying values.

lender during the completion of its September 2014 debt financing transaction and in connection with the execution of the second amendment to the financing agreement in November 2016. In accordance with the applicable authoritative guidance, these fees were recorded as a contra liability, offsetting the gross term loan balance. The fees paid to lender contra liability is being amortized to interest expense on a straight-line basis over the term of the financing agreement. The Company’s long-term debt balance is reported net of the remaining unamortized fees paid to the lender within the consolidated balance sheets.

Leases

The Company leases office space pursuant to long-term non-cancellable operating leases expiring through 2021. Rent expense is recognized on a straight-line basis over the expected lease term. Certain of the Company’s leases contain provisions for tenant improvement allowances, which are recorded as a deferred rent liability and amortized over the term of the associated lease as an offset to rent expense each period. Leasehold improvements are capitalized to property, equipment and software and depreciated on a straight-line basis over the corresponding estimated useful lives.

Sales Commissions
 
56

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Goodwill

Goodwill is not amortized but is tested for impairment annually on December 31 and more frequently whenever an event occurs or circumstances indicate the carrying amount may be impaired. If the estimated fair value of goodwill is lower than its carrying amount, a goodwill impairment is indicated,and goodwill is written down to its estimated fair value. To date, there has been no impairment of goodwill.

Sales Commissions

Commissions expense from the sale of service provider advertisements is recognized ratably over the term of the associated advertisement. The Company defers the recognition of commission expense until such time as the revenue related to the customer contract for which the commission was paid is recognized. Deferred commissions for each contract are amortized to expense in a manner consistent with how revenue is recognized for sucheach contract, resulting in straight-line recognition of expense over the contractual term. Unamortized commission expense of $9,395$8,869 and $17,215$8,573 as of December 31, 20132016 and 2012,2015, respectively, is included in prepaid expenses and other current assets in the accompanying consolidated balance sheets.


Marketing Expense
Marketing expense consists of national television, radio and print advertising as well as online digital advertising. The decrease in unamortized commissions expense in 2013 is a reflectionCompany generally expenses advertising costs as incurred. The Company recorded advertising spend of the change in the Company’s payment practice for commissions whereby the Company now times the actual commission payment to more closely align with the timing of expense recognition.

Deferred Financing Fees

In August 2011, in connection with its entry into a loan$46,056, $71,534 and security agreement, the Company incurred certain costs associated with these financing activities of $944, which are being amortized into interest expense over the term of the credit facility. Deferred financing costs recorded previously in 2009 and 2010 of $328 and $1,074 were recorded$87,386 as a resultcomponent of certain financing agreements and were being amortized over the terms of their respective agreements. In connection with the extinguishment of its senior and subordinated loan agreements in August 2011, the Company expensed the unamortized portion of deferred financing fees associated with these loan agreements, which are included in the loss on debt extinguishment. Deferred financing fees, net of accumulated amortization, totaled $397 and $634 at December 31, 2013 and 2012, respectively. Amortization expense of $237, $232 and $524 is included in interestmarketing expense in the consolidated statements of operations for the fiscal years ended December 31, 2013, 20122016, 2015 and 2011,2014, respectively.


Stock-Based Compensation
The Company accounts for stock-based compensation expense using the fair value measurement and recognition provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 718, Stock Compensation. For awards of stock options, restricted stock units (“RSUs”) and certain performance awards of restricted stock units (“PRSUs”), the Company recognizes stock-based compensation expense over the requisite service period in an amount equal to the fair market value on the grant date of the respective award. For PRSUs granted subject to the Company’s performance in relation to predetermined performance conditions, the Company recognizes stock-based compensation expense over the vesting period based on the projected probability of achievement of the performance conditions as of the end of each reporting period during the performance period and may periodically adjust the recognition of such expense, as necessary, in response to any changes in the Company’s forecasts with respect to the performance conditions.

The fair value of stock options is estimated at the date of grant using the Black-Scholes option-pricing model utilizing the historical weighted-average assumptions outlined in Note 11, “Stock-Based Compensation,” of these Notes to Consolidated Financial Statements. The fair value of RSUs, as well as PRSUs granted subject to the Company’s performance in relation to predetermined performance conditions, is based on the fair market value of the underlying stock on the date of grant. The fair value of PRSUs contingent upon the performance of the Company’s stock price in relation to certain predetermined thresholds is estimated as of the date of grant using a Monte Carlo option-pricing simulation model.

Effective January 1, 2016, the Company began utilizing its own historical data for the volatility input to the calculation of the estimated fair value of stock option awards as there is now sufficient historical volatility data available to do so. Additionally, in connection with the adoption of ASU 2016-09 during the third quarter of 2016, the Company elected to commence accounting for forfeitures of share-based payment awards as they occur instead of recognizing stock-based compensation expense net of estimated forfeitures.

Loss Contingencies

The Company is involved in various lawsuits, claims, investigations and other legal and regulatory proceedings, both as a plaintiff and as a defendant, related to its business and operations. The Company records a liability when it is both probable a loss has been incurred and the amount can be reasonably estimated. If the Company determines a loss is possible and a range of loss can be reasonably estimated, the Company discloses the range of the possible loss in these Notes to Consolidated Financial Statements. Significant judgment is required to determine the probability or possibility, as well as the estimated amount, as applicable, of a loss contingency. On at least a quarterly basis, as necessary, the Company reviews and evaluates developments with respect to legal matters that could impact the amount of an associated liability previously accrued, as well as the related ranges of possible losses disclosed, and makes adjustments and changes as appropriate.

Loss on Debt Extinguishment

The penalties, additional interest and other fees and expenses incurred in connection with the prepayment of the Company’s previous debt facility in September 2014, together with the amounts related to the write-off of the previous deferred financing fees and recognition of the remaining interest expense under the previous debt facility, were included within the loss on debt extinguishment contained in the consolidated statement of operations for the year ended December 31, 2014.

Sales and Use Tax
Currently, the Company does not separately collect sales and use taxes from its members. Instead, the Company reports and, if applicable, pays sales and use taxes on behalf of its members in certain jurisdictions and records an accrual for sales and use tax based on probable liability within other applicable jurisdictions. Sales and use tax expenses are included within operations and support expense in the consolidated statements of operations.

Income Taxes

The Company is subject to corporate-levelcorporate federal and state income taxes at prevailing corporate rates and accounts for income taxes and the related accounts using the asset and liability method in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC)ASC 740,Income Taxes. Under this method, the Company accrues income taxes payable or refundable and recognizes deferred tax assets and liabilities based on differences between the book and tax basis of assets and liabilities. The Company measures deferred tax assets and liabilities using enacted rates in effect for the years in which the differences are expected to reverse and recognizes the effect of a change in enacted rates in the period of enactment. After determining the total amount of deferred tax assets, the Company determines whether it is more likely than not that some portion of the deferred tax assets will not be realized. If the Company determines that a deferred tax asset is not likely to be realized, a valuation allowance will beis established against that asset to record it at its expected realizable value.

The Company periodically reviews deferred tax assets for recoverability based on historical taxable income, projected future taxable income and the expected timing of reversals of existing temporary differences. Should there be a change in the ability to recover deferred tax assets, the tax provision would be adjusted in the period in which the assessment changed. The Company establishes assets and liabilities for uncertain positions taken or expected to be taken in income tax returns using a more-likely-than-not recognition threshold. The Company includes in income tax expense any interest and penalties related to uncertain tax positions.

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Table Of Contents
Pledged Assets

Marketing Expense

Marketing expense consists

The Company’s obligations under the long-term debt financing agreement are guaranteed by each of national television, radiothe Company’s subsidiaries and print,are secured by first priority interests in all of the Company’s respective assets and a pledge of the equity interests of the Company’s subsidiaries.

Recent Accounting Pronouncements - Adopted

As of January 1, 2016, the Company adopted FASB Accounting Standards Update No. 2015-03: Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which set forth a requirement that debt issuance costs related to a recognized debt liability be presented on the balance sheet as a direct deduction from the carrying amount of that liability, resulting in the Company reclassifying the deferred financing fees previously recorded in other noncurrent assets, amounting to $1,462 as of December 31, 2015, to net long-term debt in the consolidated balance sheets.

As of August 1, 2016, the Company adopted FASB Accounting Standards Update No. 2016-09: Compensation - Stock Compensation (Topic 718):Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which simplified several aspects of the accounting guidance for employee share-based payment transactions, including accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as online, advertising.classification in the statement of cash flows. The Company expenses all advertising costsguidance requires companies to record excess tax benefits and tax deficiencies as incurred.

Stock-Based Compensation

The Company accounts for stock-based compensation usingincome tax benefit or expense in the fair value recognition provisionsstatement of ASC 718,Stock Compensation. For itsoperations when share-based payment awards of restricted stock and stock options,vest or are settled. Upon adoption, the Company’s previously unrecognized excess tax benefits were recorded as a deferred tax asset, which was fully offset by a valuation allowance. Without the valuation allowance, the Company’s deferred tax asset would have increased by $2,406. Additionally, under the new guidance, the Company recognizeselected to begin accounting for forfeitures of share-based payment awards as they occur in lieu of the previous practice of estimating the number of awards expected to be forfeited and adjusting the estimate when it was no longer probable that the corresponding service condition would be fulfilled. As ASU 2016-09 was adopted as of an interim date, the Company recorded a modified retrospective transition adjustment as of the beginning of 2016 during the third quarter to reflect an increase in stock-based compensation expense in an amount equalof $804 related to the fair market value onforfeitures election. No changes in presentation or classification in the grant datestatement of cash flows were required in connection with the adoption of ASU 2016-09, and the Company is now allowing share withholding for taxes upon the vesting of RSUs and PRSUs in excess of the respective award. The Company recognizes this expense, net of estimated forfeitures, on a straight-line basis over the requisite service period.

The fair value of the stock under the plans was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

Year of Grant

 

Risk-free
Interest
Rate

  

Dividend
Yield

  

Expected
Term

  

Volatility
Factor

 
          

(In Years)

     

2011

  1.26

%

  0

%

  4.7   50.0

%

2012

  0.71

%

  0

%

  4.4   60.0

%

2013

  1.02

%

  0

%

  4.9   57.0

%

Expected volatility is based on historical volatilities for publicly traded common stock of comparable companies over the estimated expected life of the stock options. The expected term represents the period of time the stock options are expected to be outstanding. The risk-free interest rate is based on yields of U.S. Treasury securities with a maturity similar to the estimated expected term of the stock options.

Sales and Use Tax

Sales and useminimum statutory tax expenses are included within operations and support in the consolidated statements of operations. The Company does not separately collect sales and use taxes from its members.

withholding requirements, as permitted by ASU 2016-09.


Recent Accounting Pronouncements

- Not Yet Adopted


In July 2013,January 2017, the FASB issued Accounting Standards Update No. 2013-11: Income Taxes2017-04: Intangibles - Goodwill and Other (Topic 740), Presentation350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). The amendments in this update simplify the accounting for goodwill impairments by eliminating step 2 from the goodwill impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a consensusimpairment loss will be recognized in an amount equal to that excess, limited to the total amount of the FASB Emerging Issues Task Force) (“ASU 2013-11”). An entity is requiredgoodwill allocated to present unrecognized tax benefits as a decrease in a net operating loss, similar tax loss or tax credit carryforward if certain criteria are met. The determination of whether a deferred tax asset is available is based on the unrecognized tax benefit and the deferred tax asset that exists at the reporting date and presumes disallowance of the tax position at the reporting date. The guidance will eliminate the diversity in practice in the presentation of unrecognized tax benefits but will not alter the way in which entities assess deferred tax assets for realizability.unit. ASU 2013-112017-04 will be effective for the companyCompany in fiscal 2014.year 2020, but early adoption is permitted. The Company is currently assessingevaluating the impact toof this update on the consolidated financial statements.


In August 2016, the FASB issued Accounting Standards Update No. 2016-15: Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). The amendments in this update add to or clarify existing U.S. GAAP guidance on the classification of certain cash receipts and payments in the statement of cash flows. ASU 2016-15 will be effective for the Company in fiscal year 2018, but early adoption is permitted. The guidance set forth in this update must be applied retrospectively to all periods presented but may be applied prospectively if retrospective application would be impracticable. The Company is currently evaluating the impact of this update on the consolidated financial statements.

In June 2016, the FASB issued Accounting Standards Update No. 2016-13: Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The amendments in this update add to U.S. GAAP a current expected credit loss impairment model that is based on expected losses rather than incurred losses, requiring consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of such losses. ASU 2016-13 is also intended to reduce the complexity of U.S. GAAP by decreasing the number of credit impairment models that entities use to account for debt instruments. ASU 2016-13 will be effective for the Company in fiscal year 2020, but early adoption is permitted beginning in 2019. The Company is currently evaluating the impact of this update on the consolidated financial statements.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02: Leases (Topic 842) (“ASU 2016-02”). The amendments in this update require lessees, among other things, to recognize lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous authoritative guidance. This update also introduces new disclosure requirements for leasing arrangements. ASU 2016-02 will be effective for the Company in fiscal year 2019, but early adoption is permitted. The Company is currently evaluating the impact of this update on the consolidated financial statements.


In January 2016, the FASB issued Accounting Standards Update No. 2016-01: Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). The amendments in this update address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. In particular, the amendments in this update supersede, for public business entities, the requirement to disclose the methods and significant assumptions used in calculating the fair value of financial instruments required to be disclosed for financial instruments measured at amortized cost on the balance sheet. ASU 2016-01 will be effective for the Company in fiscal year 2018, but early adoption is permitted. The Company does not believe that the adoption of the guidance set forth in this update will have a material impact on the consolidated financial statements.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09: Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). This update outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” This update also requires significantly expanded disclosures related to revenue recognition. In March 2016, the FASB issued Accounting Standards Update No. 2016-08: Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (“ASU 2016-08”), amending the principal-versus-agent implementation guidance set forth in ASU 2014-09. Among other things, ASU 2016-08 clarifies that an entity should evaluate whether it is the principal or the agent for each specified good or service promised in a contract with a customer. In April 2016, the FASB issued Accounting Standards Update No. 2016-10: Identifying Performance Obligations and Licensing (“ASU 2016-10”), which amends certain aspects of the guidance set forth in the FASB’s new revenue standard related to identifying performance obligations and licensing implementation. In May 2016, the FASB issued Accounting Standards Update No. 2016-12: Narrow-Scope Improvements and Practical Expedients (“ASU 2016-12”), amending certain aspects of ASU 2014-09 to address implementation issues identified by the FASB’s transition resource group and clarify the new revenue standard’s core revenue recognition principles. In December 2016, the FASB issued Accounting Standards Update No. 2016-20: Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers (“ASU 2016-20”), which clarified or corrected unintended application of certain aspects of the guidance set forth under ASU 2014-09. ASU 2014-09 will be effective for the Company in fiscal year 2018 following the issuance of Accounting Standards Update No. 2015-14: Deferral of the Effective Date in August 2015, which deferred the effective date of ASU 2014-09 by one year. The Company currently anticipates adopting the new revenue recognition standard effective January 1, 2018 utilizing the modified retrospective method of adoption. Accordingly, upon adoption, the Company currently anticipates recognizing the cumulative effect of adopting this guidance as an adjustment to the opening balance of the accumulated deficit within the consolidated balance sheet for the period of adoption, and prior periods will not be retrospectively adjusted. The Company identified the following revenue streams that will be further evaluated in detail based on the criteria established under the new revenue standard: membership revenue, service provider advertising revenue and service provider e-commerce revenue. The Company is still in the process of evaluating the impact of these updates on the consolidated financial statements and related disclosures.


2. Net LossIncome (Loss) Per Common Share

Basic and diluted net lossincome (loss) per common share isare computed by dividing consolidated net lossincome (loss) by the weighted averagebasic and diluted weighted-average number of common shares outstanding, respectively, for the period. Basic and diluted net lossincome (loss) per common share were $(0.57)was $(0.13), $0.18 and $(0.92)$(0.21) for the years ended December 31, 20132016, 2015 and 2014, respectively. Diluted net income (loss) per common share was $(0.13), $0.17 and $(0.21) for the years ended December 31, 2012,2016, 2015 and 2014, respectively.

The following potentialtable shows the calculation of the diluted weighted-average number of common shares outstanding:
  December 31,
  2016 2015 2014
Weighted-average number of common shares outstanding — basic
 58,860,152
 58,520,546
 58,510,106
Total dilutive effect of outstanding share-based payments 
 262,343
 
Weighted-average number of common shares outstanding — diluted
 58,860,152
 58,782,889
 58,510,106

The following potentially dilutive equity securities areoutstanding share-based payments were not included in the diluted net lossincome (loss) per common share calculation because theycalculations as the impact would have anbeen antidilutive effect:

  

December 31, 2013

  

December 31, 2012

 

Stock options

  3,310,764   2,820,619 

for the periods presented: 
58
  December 31,
  2016 2015 2014
Stock options 6,817,996
 6,477,872
 5,438,897
Restricted stock units 1,699,053
 1,128,826
 
Performance awards of restricted stock units 3,087,949
 778,829
 
Shares to be purchased under employee stock purchase plan 2,829
 
 

Table Of Contents

See Note 11, “Stock-Based Compensation,” of these Notes to Consolidated Financial Statements for additional detail and discussion regarding the Company’s share-based payment awards and employee stock purchase plan. The PRSUs granted during 2016 (the “2016 LTIP”) that remained outstanding as of December 31, 2016 were not included in the computation of diluted net income (loss) per common share as the number of shares that will ultimately be issued is contingent upon the Company’s achievement of certain predetermined performance conditions and does not meet the criteria for inclusion per the applicable U.S. GAAP guidance.



3. Fair Value Measurements

Whenever possible, quoted prices in active markets are used to determine the fair value of ourthe Company’s financial instruments. OurThe Company’s financial instruments are not held for trading or other speculative purposes. The estimated fair value of financial instruments was determined by using available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that wethe Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect onmaterially impact the estimated fair value amounts.

Fair Value Hierarchy

Fair value is based on the price that would be received to sellupon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820,Fair Value Measurement Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. Generally Accepted Accounting Principles and International Financial Reporting Standards,defined and established a framework for measuring fair value and expands disclosures about fair value measurements for financial assets and liabilities that are adjusted to fair value on a recurring basis and/or financial assets and liabilities that are measured at fair value on a nonrecurring basis, which were adjusted to fair value during the period. In accordance with ASC 820, weFair Value Measurement (“ASC 820”), the Company categorized ourthe financial assets and liabilities that are adjusted to fair value based on the priority of the inputs to the valuation technique, following the three-level fair value hierarchy prescribed by ASC 820, as follows:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities.

Level 2: Observable prices that are based on inputs not quoted on active markets but corroborated by market data.

Level 3: Unobservable inputs that are used when little or no market data is available.

Valuation Techniques

The Company’s money market fund investments, the maturities for which are less than 90 days, are classified as cash equivalents are classified within Level 1 of the fair value hierarchy on the basis of valuations using quoted market prices. Short-term investments consist of certificates of deposit, corporate bonds and U.S. Treasury securities with maturities of more than 90 days but less than one year. As many fixed income securities do not trade daily, fair values are often derived using recent trades of securities with similar features and characteristics. When recent trades are not available, pricing models are used to determine these prices. These models calculate fair values by discounting future cash flows at estimated market interest rates. Such market rates are derived by calculating the appropriate spreads over comparable U.S. Treasury securities, based on the credit quality, industry and structure of the asset. Typical inputs and assumptions to pricing models include, but are not limited to, a combination of benchmark yields, reported trades, issuer spreads, liquidity, benchmark securities, bids, offers, reference data and industry and economic events. The Company’s fixed income certificates of deposit, U.S. Treasury securities and corporate bond investments and certificates of deposit with fixed maturities are valued using recent trades or pricing models and are therefore classified inwithin Level 2.

2 of the fair value hierarchy.


Recurring Fair Value Measurements

There were no movements between fair value measurement levels offor the Company’s cash equivalents and short-term investments during 20132016 or 2015, and 2012. there were no material unrealized gains or losses in these accounts as of December 31, 2016 or 2015.

The following tables summarize the Company’s financial instruments of the Company at fair value based on the fair value hierarchy for each class of instrument as of December 31, 20132016 and 2012:

      

Fair Value Measurement at December 31, 2013 Using

 
  

Carrying
Value at
December 31,
2013

  

Quoted Prices in
Active Markets
for Identical
Assets (Level 1)

  

Significant
Other
Observable
Inputs
(Level 2)

  

Significant
Unobservable
Inputs
(Level 3)

 

Cash equivalents:

                

Money market funds

 $655  $655  $  $ 

Investments:

                

Certificates of deposit

  13,750       13,734     

Corporate bonds

  7,305       7,303     

Total assets

 $21,710  $655  $21,037  $ 

2015:
 
    Fair Value Measurement at December 31, 2016 Using
  Carrying Value at December 31, 2016 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable
Inputs
(Level 2)
 
Significant Unobservable
Inputs
(Level 3)
Cash equivalents:        
Money market funds $2,419
 $2,419
 $
 $
Investments:        
Certificates of deposit 13,840
 
 13,837
 
U.S. Treasury securities 2,701
 
 2,702
 
Total assets $18,960
 $2,419
 $16,539
 $
    Fair Value Measurement at December 31, 2015 Using
  Carrying Value at December 31, 2015 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable
Inputs
(Level 2)
 
Significant Unobservable
Inputs
(Level 3)
Cash equivalents:        
Money market funds $970
 $970
 $
 $
Investments:        
Certificates of deposit 19,310
 
 19,292
 
U.S. Treasury securities 3,652
 
 3,649
 
Corporate bonds 1,014
 
 1,013
 
Total assets $24,946
 $970
 $23,954
 $
 
The Company did not recognize any other-than-temporary impairment losses for the years ended December 31, 2016, 2015, or 2014.

      

Fair Value Measurement at December 31, 2012 Using

 
  

Carrying
Value at
December 31,
2012

  

Quoted Prices in
Active Markets
for Identical
Assets (Level 1)

  

Significant
Other
Observable
Inputs
(Level 2)

  

Significant
Unobservable
Inputs
(Level 3)

 

Cash equivalents:

                

Money market funds

 $1,183  $1,183  $  $ 

Investments:

                

Certificates of deposit

  2,640       2,639     

Corporate bonds

  7,820       7,816     

Total assets

 $11,643  $1,183  $10,455  $ 


The carrying amount of the term loan approximates its fair value, using levelLevel 2 inputs, becauseas this borrowing bears interest at a variable (market) rate at December 31, 20132016 and 2012.

2015.

Non-Recurring Fair Value Measurements

The Company has certain assets that are measured at fair value on a non-recurring basis under circumstances and events, that includeincluding those described in Note 5, “Property, Equipment and Software,” and Note 6, Goodwill“Goodwill and Amortizable Intangible Assets, and” of these Notes to Consolidated Financial Statements that are adjusted to fair value onlyin certain circumstances when the carrying values are more than the fair values. The categorization of the framework used to price the assets in the event of an impairment is considered a Level 3 measurement due to the subjective nature of the unobservable inputs used to determine the fair value.

Assets and liabilities acquired in business combinations are recorded at their fair value as of the date of acquisition. Refer to Note 6 for the fair values of assets acquiredacquisition using Level 2 and liabilities assumed in connection with the acquisition of substantially all the assets of SmartHabitat (“BrightNest”).

Level 3 inputs.

The carrying amounts of accounts receivable and accounts payable reported in the consolidated balance sheets approximate fair value.


4. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets were comprised of the following:

  

December 31,

 
  

2013

  

2012

 

Prepaid and deferred commissions

 $9,395  $17,215 

Other

  4,256   2,595 

Total prepaid expenses and other current assets

 $13,651  $19,810 

5. Property and Equipment

Property and equipment was comprised of the following:

  

December 31,

 
  

2013

  

2012

 

Furniture and equipment

 $7,965  $5,929 

Land

  1,464   1,401 

Buildings and improvements

  8,711   6,417 

Software

  5,949   1,949 
   24,089   15,696 

Less accumulated depreciation

  (5,432

)

  (3,617

)

  $18,657  $12,079 

In November 2012,following as of December 31, 2016 and 2015: 

  December 31,
  2016 2015
Prepaid and deferred commissions $8,869
 $8,573
Other prepaid expenses and current assets 8,133
 10,453
Total prepaid expenses and other current assets $17,002
 $19,026

5. Property, Equipment and Software
Property, equipment and software was comprised of the Company acquired its headquarters facilities from its lessor, a related party,following as of December 31, 2016 and 2015: 
  December 31,
  2016 2015
Furniture and equipment $16,439
 $14,179
Land 3,466
 3,392
Buildings and improvements 20,768
 19,035
Software 5,853
 5,814
Capitalized website and software development costs 60,811
 47,877
Total property, equipment and software 107,337
 90,297
Less accumulated depreciation (24,623) (12,662)
Total property, equipment and software, net $82,714
 $77,635
Included in the Company’s net property, equipment and software balance at a costDecember 31, 2016 was $3,262 in construction in progress, comprised of $6,785,including$181 for furniture and equipment, $870 for buildings and improvements and $2,211 for capitalized website and software development costs.

At December 31, 2015, the Company’s construction in progress balance was $47,798, consisting of $1,017 for furniture and equipment, $802 for buildings and improvements, $883 for software and $45,096 for capitalized website and software development costs, and fees to acquire the properties. Buildings are being depreciated on a straight-line basis over 25 years.

which included $3,570 of capitalized interest.


Depreciation expense for the years ended December 31, 2013, 2012,2016, 2015 and 2011,2014 was $1,565, $994$4,138, $3,257 and $661,$2,491, respectively. Computer software amortization expense for 2013, 20122016, 2015 and 20112014 was $961, $524$8,048, $1,903 and $218,$1,356, respectively.

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During the fourth quarter of 2015, the Company recorded an $892 non-cash long-lived asset impairment charge for certain software assets as a result of a recalibration of the Company’s plans with respect to the implementation of a new e-commerce platform. The long-lived asset impairment charge was recorded in the product and technology expense line within the consolidated statement of operations for the year ended December 31, 2015.

During the second quarter of 2015, the Company recorded a $686 non-cash long-lived asset impairment charge for certain assets categorized as buildings and improvements related to the Company’s decision not to pursue its Indianapolis campus expansion plan. The long-lived asset impairment charge was recorded in the general and administrative expense line within the consolidated statement of operations for the year ended December 31, 2015.

6. Goodwill and Amortizable Intangible Assets

The Company has goodwill as well as certain amortizable intangible assets consisting of data acquisition costs, a member list, content, and core technology. The goodwill and amortizable intangible asset balances reflect the goodwill, member list, content and core technology acquired during the August 2, 2013 acquisition of substantially all the assets of BrightNest for a purchase price of $2,650, inclusive of $1,920 in acquiredand other intangible assets and goodwill of $730.The purchase price consisted of $2,150 in cash paid at closing and an additional $500 that is payable on the one-year anniversary of the closing, subject to certain performance criteria of BrightNest employees hired by the Company on the acquisition date. The acquisition of the BrightNest assets adds a user-friendly front end and personalized member experience with expanded content offerings and enhanced technologies. Revenues and expenses related to BrightNest, which are not material, are included in the consolidated resultspurchase of operations from the datea website domain name. Amortization of acquisition.

Amortization on the intangible assets is computed using the straight-line method over the estimated lives of the assets, which are six years for the member list and three years for the content, core technology, data acquisition costs and other intangible assets.


Amortizable intangible assets atas of December 31, 2013 are2016 and 2015 were as follows:

  

Cost

  

Accumulated Amortization

  

Net

  

Amortization

Period (in

years)

 

2013

                

Member List

 $1,670  $122  $1,548   6.0 

Content

  140   12  $128   3.0 

Core technology

  110   16  $94   3.0 

Data acquisition costs

  3,296   1,566  $1,730   3.0 
  $5,216  $1,716  $3,500     
                 

2012

                

Data acquisition costs

 $4,017  $1,661  $2,356   3.0 
  $4,017  $1,661  $2,356     

 Cost Accumulated Amortization Net Carrying Amount Weighted-Average Remaining Amortization Period (in years)
2016       
Member list$1,670
 $951
 $719
 2.6
Content140
 140
 
 0.0
Core technology110
 110
 
 0.0
Data acquisition costs1,333
 850
 483
 1.1
Other intangible assets300
 283
 17
 0.2
Total amortizable intangible assets$3,553
 $2,334
 $1,219
  
 Cost Accumulated Amortization Net Carrying Amount Weighted-Average Remaining Amortization Period (in years)
2015       
Member list$1,670
 $673
 $997
 3.6
Content140
 113
 27
 0.6
Core technology110
 88
 22
 0.6
Data acquisition costs1,920
 1,072
 848
 1.5
Other intangible assets300
 183
 117
 1.2
Total amortizable intangible assets$4,140
 $2,129
 $2,011
  

Amortization expense on amortizable intangible assets for the years ended December 31, 2013, 20122016, 2015 and 2011,2014 was $1,546, $1,234$962, $1,242 and $781,$1,729, respectively. The estimated amortization expense related to amortizable intangible assets at December 31, 20132016 for each of the next five years is as follows: $1,520 in 2014, $831 in 2015, $430 in 2016, $278$621 in 2017, $418 in 2018, $180 in 2019, $0 in 2020 and 2018 and $162 thereafter.

$0 in 2021.


The Company’s recorded goodwill balance atas of both December 31, 20132016 and 20122015 was $1,145 and $415, respectively. The Company expects the amount recorded as goodwill for the BrightNest acquisition to be fully deductible for tax purposes.

$1,145.

7. Accrued Liabilities 

Accrued liabilities were comprised of the following:

  

December 31,

 
  

2013

  

2012

 

Accrued sales commissions

 $2,570  $4,342 

Sales and use tax

  3,158   2,130 

Accrued compensation

  5,229   2,246 

Uninvoiced accounts payable

  2,977   2,372 

Legal accrual

  4,000    

Other

  3,836   2,968 

Total accrued liabilities

 $21,770  $14,058 

 
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8. Long-term Debt

DebtAccrued liabilities was comprised of the following:

  

December 31,

 
  

2013

  

2012

 

Term loan

 $15,000  $15,000 

Debt discount on term loan

  (82

)

  (131

)

   14,918   14,869 

Less current maturities

      

Total long-term debt, including accrued interest

 $14,918  $14,869 

following as of December 31, 2016 and 2015: 

  December 31,
  2016 2015
Accrued sales commissions $1,469
 $1,461
Sales and use tax 3,792
 4,307
Accrued compensation 7,369
 6,826
Uninvoiced accounts payable 4,333
 2,384
Legal settlement accrual 2,601
 
Other accrued liabilities 3,564
 5,309
Total accrued liabilities $23,128
 $20,287


8. Debt and Credit Arrangements
Long-term debt, net, was comprised of the following as of December 31, 2016 and 2015: 
  December 31,
  2016 2015
Term loan $60,000
 $60,000
Unamortized deferred financing fees (1,071) (1,462)
Unamortized fees paid to lender (1,287) (904)
Total debt, net 57,642
 57,634
Less current maturities (1,500) (1,500)
Total long-term debt, net $56,142
 $56,134
On August 31, 2011,September 26, 2014, the Company entered into a loan and securityfinancing agreement that provides for a $15,000$60,000 term loan and a $15,000 revolving credit facility. A portion$25,000 delayed draw term loan.

On June 10, 2016, the Company entered into a first amendment to the financing agreement which, among other things, (i) extended the commencement of the revolving credit facility is available for letters of credit and corporate credit cards. TheCompany’s quarterly repayment obligations under the term loan bearsfrom September 30, 2016 to September 30, 2017; (ii) revised the financial covenants for minimum consolidated EBITDA, as defined in the financing agreement, for periods ending after June 30, 2016; (iii) revised the financial covenant related to minimum required liquidity from $10,000 to $30,000; (iv) removed the financial covenant related to minimum membership revenue for periods ending after March 31, 2016; and (v) modified the basis for the calculation of the applicable interest atrate.

On November 1, 2016, the Company entered into a per annum rate equalsecond amendment to the greaterfinancing agreement which, among other things, (i) added a new financial covenant related to consolidated active service provider contract value beginning with the period ending December 31, 2016; (ii) revised the financial covenants for minimum consolidated EBITDA, as defined in the financing agreement and subsequently modified under the second amendment, for periods ending after September 30, 2016; (iii) revised the financial covenant related to minimum required liquidity; (iv) modified the basis for the calculation of (i) the current cashapplicable interest raterate; (v) modified the dates under which the prepayment premium is applicable; and (vi) modified certain terms related to the delayed draw term loan. Additionally, the second amendment set forth a fee to be paid by the Company to the lender, in three equal annual installments, in connection with the execution of LIBOR plus 10% or (ii) 10.5%,the amendment, and this fee was capitalized along with the existing unamortized fees paid to lender contra liability and is being amortized to interest expense over the remaining term of the financing agreement.

The financing agreement requires monthly interest-onlyinterest payments on the first business day of each month until maturity on any principal amounts outstanding under either debt facility. In accordance with the second amendment to the financing agreement, if the Company’s consolidated EBITDA for the trailing four consecutive fiscal quarters is less than $20,000 or the Company’s qualified cash, as defined in August 2015. The revolving credit facility requires monthly interest-only payments on advances, whichthe financing agreement, is less than $20,000 as of the applicable period end, amounts outstanding under the financing agreement bear interest at a per annum rate, at the option of the Company, equal to (i) the LIBOR rate for the interest period in effect, subject to a floor of 0.5%, plus 5%9.50% or (ii) the reference rate, which is based on the prime rate as published by the Wall Street Journal, subject to a floor of 3.25%, plus 8.50%. In addition, whenIf the Company’s qualified cash is greater than $20,000, and the Company’s consolidated EBITDA for the trailing four consecutive fiscal quarters is:

greater than $20,000 but less than 50%$25,000, the applicable LIBOR interest rate is 8.5%, and the applicable reference interest rate is 7.5%;
greater than $25,000 but less than $30,000, the applicable LIBOR interest rate is 7.5%, and the applicable reference interest rate is 6.5%; or
greater than $30,000, the applicable LIBOR interest rate is 6.5%, and the applicable reference interest rate is 5.5%.


The financing agreement obligates the Company to make quarterly principal payments on the term loan of $750 on the last day of each calendar quarter, commencing with the quarter ending September 30, 2017, and to repay the remaining balance of the revolving credit facility is drawn, theterm loan at maturity. The Company is required to make principal payments on the outstanding balance of the delayed draw term loan equal to 1.25% of the amount of such loan funded at or prior to the last day of each calendar quarter and to repay the remaining outstanding balance of the delayed draw term loan at maturity. From the effective date of the financing agreement through September 26, 2017, the Company is also required to pay a non-usage charge of 0.50%commitment fee equal to 0.75% per annum of the average unused portionunborrowed amounts of the credit facility. delayed draw term loan.

The Company may prepay the amounts outstanding under the financing agreement at any time and is required to prepay the loans with (i) the net proceeds of certain asset sales, issuances of debt or equity, and certain casualty events, and (ii) up to 50% of consolidated excess cash flow, as defined in the financing agreement, for each fiscal year during the term loan provides for penalties for early prepayment.of the financing agreement, commencing with the year ended December 31, 2015. The Company did not have excess cash flow as of December 31, 2016. As specified by the second amendment to the financing agreement, the Company must pay a 1% premium on prepayments made on or before November 1, 2017, subject to certain exceptions set forth in the financing agreement. The Company’s obligations under the financing agreement are guaranteed by each of its subsidiaries and are secured by first priority security interests in all of their respective assets and a pledge of the equity interests of the Company’s subsidiaries. The term loan and revolving credit facility provide for additional interest upon an event of default and are secured by substantially all of the Company’s assets. In connection with entering into the loan and security agreement, the Company issued a convertible warrant to purchase 88,240 shares of common stock to one of the lenders. The fair value of this warrant was recorded as a discount to thedelayed draw term loan with the amount of the discount being amortized as interest expense through the loan’s maturity.mature on September 26, 2019. As of December 31, 2013,2016, the Company had $14,900$57,642 in outstanding borrowings under the term loan, net of unamortized deferred financing fees of $1,071 and available creditunamortized fees paid to the lender of $15,000$1,287, both of which are being amortized into interest expense over the term of the financing agreement, and availability of $25,000 under the revolving credit facility.

delayed draw term loan. Principal amounts due over the remaining term of the financing agreement as of December 31, 2016 are as follows: $1,500 in 2017, $3,000 in 2018 and $55,500 in 2019.


The loan and securityfinancing agreement contains various restrictive covenants, including restrictions on the Company’s ability to dispose of assets, make acquisitions or investments, incur debt or liens, make distributions to stockholders or repurchase outstanding stock, enter into certain typesrelated-party transactions and make capital expenditures, other than upon satisfaction of related party transactions.the conditions set forth in the financing agreement. The Company is also required to comply with certain financial covenants, including a minimum asset coverage ratio,consolidated EBITDA, as defined in the financing agreement and non-financial covenants.subsequently modified under the second amendment, minimum liquidity, minimum consolidated active service provider contract value and maximum consolidated capital expenditures. Upon an event of default, which includes certain customary events such as, among other things, a failure to make required payments when due, a failure to comply with covenants, certain bankruptcy and insolvency events, defaults under other material adverseindebtedness, or a change in control, the lenders may accelerate amounts outstanding, terminate the agreement and foreclose on all collateral. The Company was in compliance with all financial and non-financial covenants at December 31, 2013,and management believes the Company will be in compliance through the end of fiscal 2014.

On August 31, 2011, the Company repaid in full the outstanding balance of $14,178 on a note payable, including additional interest of $3,200 ($2,668 of which had been accrued as of August 31, 2011), and prepayment penalties in the amount of $220 under the prior note payable,and terminated the related amended and restated loan and security agreement. On the same date, the Company also paid $6,087 to the holders of the senior subordinated note in satisfaction of the principal, interest and other fees due thereunder. The prepayment penalties, unaccrued additional interest and other fees are included in the loss on debt extinguishment within the consolidated statement of operations for 2011.

2016.


9. Commitments and Contingencies

Contractual Obligations

The Company’s contractual obligations primarily consist of long-term non-cancellable operating leases expiring through 2021 and long-term debt comprised of a term loan and a delayed draw term loan, both of which are scheduled to mature on September 26, 2019. There were no significant changes in the Company’s contractual obligations during the year ended December 31, 2016. See Note 8, “Debt and Credit Arrangements,” of these Notes to Consolidated Financial Statements for additional information regarding the Company’s long-term debt.

Operating Leases

The Company hasleases office space pursuant to long-term noncancellablenon-cancellable operating leases expiring through 2021. The Company is responsible for paying its proportionate share of the actual operating expenses and real estate taxes under certain of these lease arrangements. As of December 31, 2016, the estimated future minimum lease payments under long-term non-cancellable operating leases for officeseach of the next five years and equipment that expire in various years through 2015. These leases requirethereafter are as follows: 
2017$2,134
20182,093
20192,141
2020736
20218
Thereafter
Total future minimum lease payments$7,112
Rent expense under the Company to pay all executory costs (property taxes, maintenance and insurance). Rental payments include minimum rentals.

Future minimum lease payments required under long-term noncancellable operating leases at December 31, 2013 were:

  

Total

 

Payable in

    

2014

 $663 

2015

  124 

2016

  0 
  $787 

Rental expense for allCompany’s operating leases totaled $910, $1,381$1,892, $1,997 and $915$1,643 in 2013, 20122016, 2015 and 2011,2014, respectively.


Legal Matters
 
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Legal Matters

From timeThe Company is regularly involved in litigation, both as a plaintiff and as a defendant, relating to time, the Company has or may become party to litigation incident to the ordinary course of business.its business and operations. The Company assesses the likelihood of any adverse judgments or outcomes with respect to these matters and determines loss contingency assessments on a gross basis after assessing the probability of incurrence of a loss and whether a loss is reasonably estimable. In addition, the Company considers other relevant factors that could impact its ability to reasonably estimate a loss. A determination of the amount of reserves required, if any, for these contingencies is made after analyzing each matter. The Company’s reserves may change in the future due to new developments or changes in strategy in handling these matters. Although the results of litigation and claims cannot be predicted with certainty, the Company currently believes that the final outcome of thesethe matters listed below will not have a material adverse effect on its business, consolidated financial position, results of operations or cash flows. Regardless of the outcome, litigation can have an adverseadversely impact on the Company becauseas a result of defense and settlement costs, diversion of management resources and other factors.


FritzingerMoore, et al. v. Angie’s List,. Inc., 2:15cv-01243-SD. On August 14, 2012March 11, 2015, a lawsuit seeking class action status was filed against the Company in the U.S. District Court for the Eastern District of Pennsylvania. The lawsuit alleged claims for breaches of contract and the covenant of good faith and fair dealing, fraud and fraudulent inducement, unjust enrichment and violation of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law premised on the allegations that the Company does not disclose that it accepts advertising payments from service providers or that the payments allegedly impact the service provider letter-grade ratings, the content and availability of reviews about the provider and the provider’s place in search-result rankings. The Company filed a motion to dismiss on May 13, 2015, which was granted in part on August 7, 2015. In particular, the plaintiff’s claims for breach of the covenant of good faith and fair dealing and unjust enrichment were dismissed from the action. On April 19, 2016, the parties agreed to settle the claims on a class-wide basis. Among other relief, the settlement provided for a cash payment of up to $2,350 to create a fund for the payment of cash to settlement class members and for the payment of plaintiffs’ attorneys’ fees and costs as approved by the Court. Settlement class members were given the option of sharing in the cash fund or selecting a free period of membership of up to four months depending on the date and length of their membership with Angie’s List. The settlement also provided certain prospective relief in the form of enhanced explanations in the Company’s membership agreement and in responses to frequently asked questions concerning, among other things, the advertising revenue earned from service providers. The Company recorded a $3,500 contingent liability related to this matter in the first quarter of 2016, and this amount included the estimated cost of the cash fund described above as well as the payment of reasonable notice and administration costs, attorneys’ fees and an assumption of revenue the Company would forego as a result of certain class members selecting the optio

n for a free period of membership. On December 12, 2016, the Court entered an order granting final approval of the settlement. One class member appealed the order, but the plaintiff settled with the class member, and the class member stipulated to dismiss the appeal. On January 13, 2017, the Third Circuit Court of Appeals entered an order dismissing the appeal, and the settlement became final and effective as of that date. The Company, with the assistance of its third-party settlement administrator, is now in the process of administering the settlement by making the above-referenced enhanced explanations regarding advertising revenue earned from service providers, by making the above-referenced cash payment into an escrow account that will be appropriately paid to the class members who selected the cash class benefit and to plaintiffs’ counsel and by providing instructions on how to redeem membership extensions to the class members who selected the membership extension class benefit. The aforementioned contingent legal liability was subsequently reduced by $671 following completion of the election period for settlement class members during the fourth quarter. The Company’s accrual for this matter was $2,601 as of December 31, 2016.
Williams, et al. v. Angie’s List, Inc., 1:16-cv-878.On April 20, 2016, a group of former employees filed a lawsuit in the United States District Court for the Southern District of Indiana (the “Court”).Indiana. The lawsuit alleges claims of breach of contract and unjust enrichment, alleging that the Company automatically renews membership fees atfailed to pay (i) wages earned in a higher rate than customers are led to believe, breaching their membership agreements. The plaintiff seeks compensatorytimely manner as required under Indiana Wage Statutes and (ii) overtime wages in violation of the Fair Labor Standards Act (29 U.S.C. §§ 206-07) and is requesting payment of all damages, and an award of treble damages,including unpaid wages, interest, attorneys’ fees and costs.other charges. First and second amended complaints were filed, adding additional named plaintiffs, and the Company’s answer to the second amended complaint was filed on July 26, 2016. The plaintiffs filed a motion for conditional certification on June 10, 2016, and the Company filed its response brief in opposition on July 15, 2016. The Court denied the plaintiffs’ motion for conditional certification on November 30, 2016 but allowed the plaintiffs to refile with a more narrow class definition. On December 9, 2016, the plaintiffs filed a renewed motion for conditional certification. The Company filed its response to the renewed motion on January 6, 2017, and the plaintiff have agreedplaintiffs filed their reply on January 17, 2017. The Company is currently unable to determine the likely outcome or reasonably estimate the amount or range of potential liability, if any, related to this matter, and accordingly, has not established any reserve for this matter.

Crabtree, et al. v. Angie’s List, Inc., 1:16-cv-877. On April 20, 2016, three former employees filed a lawsuit in principle to settlement terms, which remains subject tothe United States District Court approval.  Asfor the Southern District of December 31, 2013,Indiana. The lawsuit alleges the Company has recordedfailed to pay (i) wages earned in a $4,000 legal accrual related totimely manner as required under Indiana Wage Statutes and (ii) overtime wages in violation of the settlement.Fair Labor Standards Act (29 U.S.C. §§ 206-07) and is requesting payment of all damages, including unpaid wages, interest, attorneys’ fees and other charges. The plaintiffs filed a first amended complaint in May 2016, adding one additional Indiana wage statute claim. The Company believes this amount represents the best estimate of the Company’s ultimate liabilityfiled its answer and defenses on June 9, 2016. Discovery with respect to this litigation, and any difference betweenmatter is ongoing. The Company is currently unable to determine the likely outcome or reasonably estimate the amount recordedor range of potential liability, if any, related to this matter, and the actual final court-approved settlement isaccordingly, has not expected to have a material impact on our financial condition or results of operations.   

Baron v. Angie’s List, Inc., et al.On December 23, 2013, a class action complaint was filed in the Court, naming the Company and various current and former directors and officers as defendants and alleging that the defendants violated Section 10(b) of the Securities Act of 1934 (the “Exchange Act”) by making material misstatements in and omitting material information from the Company’s public disclosures concerning the Company’s business prospects. The complaint further alleges that the defendants violated Section 20(a) of the Exchange Act by virtue of their positions as control persons. The plaintiff has requested unspecified damages, interest, and costs, as well as ancillary relief. On January 23, 2014, the Court entered a scheduling order pursuant to which, upon appointment as lead plaintiff, the plaintiff has sixty days with which to file a consolidated complaint or stand on the current complaint. Pursuant to that order, the Company’s response to that complaint is due sixty days thereafter.

Bartolone v. Angie’s List, Inc., et al.On January 9, 2014, a class action complaint was filed in the Court, naming the same defendants, asserting the same claims, and askingestablished any reserve for the same relief as sought inBaron, described above. On January 29, 2014, the Court entered a scheduling order identical to the order entered inBaron.this matter.

BaronandBartoloneare collectively referred to as the “Stockholder Class Action.” The Company believes that the Stockholder Class Action is without merit and intends to vigorously defend against it.

Korda v. William S. Oesterle, et al.On January 3, 2014, a derivative complaint was filed in the Court on behalf of the Company, naming the Company’s Board of Directors and various current or former officers as individual defendants and the Company as a nominal defendant. The plaintiff asserts a breach of fiduciary duty claim against the individual defendants based on their alleged knowledge that the Company’s public statements during 2013 concerning the Company’s business prospects were misleading. The plaintiff asserts a breach of fiduciary duty claim against certain individual defendants based on their sales of Angie’s List common stock between December 2012 and December 2013. The plaintiff asks for unspecified amounts in damages, interest, and cost, as well as ancillary relief. The parties are currently seeking to negotiate a stay of the action pending a ruling on the complaint in the StockholderClass Action, described above.


10. Profit-Sharing Plan

The Company sponsors a 401(k) profit-sharing plan (the Plan)“Plan”) covering substantially all of its personnel. The Company’s contributions to the Plan are discretionary. The Company contributed 3% of gross pay for all eligible personnel to the Plan in 2016, 2015 and 2014, which totaled $1,500, $1,032amounted to $3,159, $2,881 and $745 in 2013, 2012 and 2011,$2,211, respectively.

11. Stock-Based Compensation

In April 2010, the Company adopted an Omnibus Incentive Plan (the (“Incentive Plan)Plan”) in order to provide an incentivestock-based compensation to certain executive officers, personneldirectors and directors.certain other employees. The Incentive Plan was amended and restated effective August 2011,increasing the number of shares issuable to 5,090,496. In March 2012 and October 2013,each year since, additional shares of stock were reserved for issuance,bringing the total available shares issuable to 10,830,475.19,609,325. As of December 31, 2013,2016, there were 8,992,89016,621,491 shares of common stock reserved under the Incentive Plan, of which 5,682,1261,213,290 shares remained available for future grants.

To date, the Company has granted stock options, restricted stock units (“RSUs”) and performance awards of restricted stock units (“PRSUs”) under the Incentive Plan, the latter two of which were issued for the first time during 2015.


In connection with the adoption of ASU 2016-09 in August 2016, the Company elected to begin accounting for forfeitures of share-based payment awards as they occur in lieu of the Company’s previous practice of estimating the number of awards expected to be forfeited and adjusting the estimate when it was no longer probable that the corresponding service condition would be fulfilled.
Stock Options

A summary of stock option activity under the Incentive Plan as of December 31, 2016 and 2015 and changes during the years then ended is as follows: 
  Number of Shares Weighted-Average
Exercise Price
 Weighted-Average
Remaining Contractual Term
 Aggregate
Intrinsic Value
      (in years) (in thousands)
Outstanding at December 31, 2014 5,438,897
 $13.09
 8.59 $21
Granted 3,026,780
 6.30
    
Exercised (87,601) 7.70
    
Forfeited/Cancelled (1,900,204) 12.18
    
Outstanding at December 31, 2015 6,477,872
 $10.26
 8.24 $9,383
Granted 1,463,051
 8.74
    
Exercised (268,931) 7.62
    
Forfeited/Cancelled (675,707) 9.26
    
Outstanding at December 31, 2016 6,996,285
 $10.14
 7.29 $4,469
  Number of Shares Weighted-Average
Exercise Price
 Weighted-Average
Remaining Contractual Term
 Aggregate
Intrinsic Value
      (in years) (in thousands)
Vested and Exercisable at December 31, 2015 2,211,094
 $12.09
 7.18 $1,345
Unvested at December 31, 2015 4,266,778
 9.32
 8.34  
Vested and Exercisable at December 31, 2016 3,269,095
 $11.57
 6.12 $1,399
Unvested at December 31, 2016 3,727,190
 8.89
 7.61  

Stock options are awarded with an exercise price equal to the market close price on the date of grant. The contractual terms forof stock options expire ten years from the grant date and generally vest over a three or four-year period.period of four years. The fair value of stock options on the date of grant as determined using the Black-Scholes option-pricing model is amortized on a straight-line basis over the requisite service period.

A summary The aggregate intrinsic value shown in the tables above is calculated using the difference between the exercise price of the underlying stock option activity underoptions and the plans asclosing price of December 31, 2013 and 2012 and changes during the periods then ended are as follows:

  

Number of
Shares

  

Weighted-
Average
Price/
Share

  

Weighted
Average
Remaining
Contractual
Term

  

Aggregate
Intrinsic
Value

 
          

(In Years)

     

Outstanding at December 31, 2011

  2,814,888  $8.60   9.52  $21,122 

Granted

  352,785   12.90         

Exercised

  (96,488

)

  8.36         

Cancelled

  (250,566

)

  (9.00

)

        

Outstanding at December 31, 2012

  2,820,619  $9.11   8.62  $8,687 

Granted

  1,923,206   19.46         

Exercised

  (588,769

)

  8.69         

Cancelled

  (844,292

)

  (11.16

)

        

Outstanding at December 31, 2013

  3,310,764  $14.67   8.63  $9,717 

  

Number of
Shares

  

Weighted-
Average
Price/
Share

  

Weighted
Average
Remaining
Contractual
Term

  

Aggregate
Intrinsic
Value

 
          

(In Years)

     

Vested and Exercisable at December 31, 2012

  863,736  $8.78   8.50  $2,847 

Unvested at December 31, 2012

  1,956,883   9.25   8.61     

Vested and Exercisable at December 31, 2013

  894,813  $9.38   7.61  $5,358 

Unvested at December 31, 2013

  2,415,951   16.63   7.91     

Company’s stock on each respective date presented.



The fair value of the stock under the plans wasoptions granted is estimated at the date of grant using the Black-Scholes option-pricing model, withutilizing the following weighted-average assumptions:

Year of Grant

 

Risk-free
Interest
Rate

  

Dividend
Yield

  

Expected
Term

  

Volatility
Factor

 
          

(In Years)

     

2011

  1.26

%

  0

%

  4.7   50.0

%

2012

  0.71

%

  0

%

  4.4   60.0

%

2013

  1.02

%

  0

%

  4.9   57.0

%

Expected volatility is based on historical volatilitiesassumptions for publicly traded common stock of comparable companies over the estimated expected life of the stock options. The expected term represents the period of time the stock options are expected to be outstanding. years ended December 31, 2016, 2015 and 2014:  

Year of Grant Risk-Free
Interest
Rate
 Dividend
Yield
 Expected
Term
 Volatility
      (in years)  
2014 1.67% 0% 5.00 53.0%
2015 1.48% 0% 5.00 53.1%
2016 1.26% 0% 5.00 64.6%

The risk-free interest rate is based on yields of U.S. Treasury securities with a maturity similar to the estimated expected term of the stock options.

The dividend yield assumption is based on the fact that the Company does not have a history of issuing dividends and does not anticipate issuing dividends in the near term. The expected term represents the period of time the stock options are expected to be outstanding based on historical experience. Prior to 2016, the expected volatility assumption was estimated based on historical volatilities for publicly traded common stock of comparable peer companies with similarities in size, lines of business, market capitalization, revenue or financial leverage over the estimated expected life of the stock options. As the Company believes there is now sufficient historical data available with respect to the volatility of its common stock, effective January 1, 2016, the expected volatility assumption was based on the Company’s own historical volatility.
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Table Of Contents

The weighted-average grant date fair value of stock options granted during 20132016, 2015 and 20122014 was $9.38$4.76, $2.95 and $6.04$5.12 per share, respectively. The total intrinsic value of stock options exercised during 2013, 20122016, 2015 and 20112014 was $7,376, $297$428, $133 and $0,$456, respectively. The Company recognized stock-based compensation expense of $4,064, $2,943$8,114, $7,321 and $1,673$7,889 in the consolidated statements of operations related to stock options in 2013, 20122016, 2015 and 2011,2014, respectively. As of December 31, 2013,2016, total unrecognized stock-based compensation expense related to non-vestedunvested stock options not yet recognized was $14,799,$11,559, which will be recognized over the remaining weighted-average life of the awards, 3.222.30 years.


Restricted Stock

Restricted stock vests over various periods in accordance with Units


A summary of RSU activity under the respective grant agreement. TheIncentive Plan for the years ended December 31, 2016 and 2015 and changes during the years then ended is as follows:
  RSUs
  Number of Shares 
Weighted-Average Grant
Date Fair Value
Unvested at December 31, 2014 
 $
Granted 1,440,645
 6.06
Vested 
 
Forfeited/Cancelled (225,731) 6.54
Unvested at December 31, 2015 1,214,914
 $5.97
Granted 1,823,767
 8.50
Vested (434,619) 6.35
Forfeited/Cancelled (400,003) 7.74
Unvested at December 31, 2016 2,204,059
 $7.66

RSUs are measured based on the fair market value of restrictedthe underlying stock on the date of grant. RSUs generally vest over a period of four years from the grant isdate and are amortized on a straight-line basis over the requisite service period. Once vested, shares will generally either be issued net of the applicable tax withholding requirements to be paid by the Company on behalf of employees, or a portion of the shares issued will subsequently be sold by employees to satisfy the tax obligations created by the vesting period, with the amount of RSUs.

The Company recognized stock-based compensation expense of $4,756, $973 and $0 in the consolidated statements of operations related to RSUs in 2016, 2015 and 2014, respectively. As of December 31, 2016, total unrecognized stock-based compensation expense related to unvested RSUs was $13,922, which will be recognized at anyover the remaining weighted-average life of the awards, 3.05 years.


Performance Awards of Restricted Stock Units

A summary of PRSU activity under the Incentive Plan for the years ended December 31, 2016 and 2015 and changes during the years then ended is as follows:
  PRSUs
  Number of Shares 
Weighted-Average Grant
Date Fair Value
Unvested at December 31, 2014 
 $
Granted 955,084
 2.95
Vested 
 
Forfeited/Cancelled 
 
Unvested at December 31, 2015 955,084
 $
Granted 3,034,329
 6.55
Vested (298,466) 3.68
Forfeited/Cancelled (286,256) 6.55
Unvested at December 31, 2016 3,404,691
 $5.79

The Company’s President and Chief Executive Officer, Scott A. Durchslag, was granted 955,084 PRSUs on September 8, 2015 under the Incentive Plan. The PRSUs, which are market condition performance share-based payment awards, consist of four tranches, each with separate performance criteria based upon the Company’s achievement of certain predetermined stock price thresholds. The PRSUs were measured on the date at least equalof grant using a Monte Carlo option-pricing simulation model. The first and second PRSU tranches were earned during 2015, prior to the portionfirst anniversary of the grant date, valueand commenced vesting during 2016, one-half upon the first anniversary of the awardgrant date and the remaining one-half ratably on a quarterly basis over a one-year period thereafter. PRSUs earned subsequent to the first anniversary of the grant date will vest one-half upon achievement of the corresponding stock price target, and the remaining one-half will vest ratably on a quarterly basis over a one-year period thereafter. No PRSUs have been earned subsequent to the first anniversary of the grant date as of December 31, 2016.

On June 29, 2016, the Company granted 3,034,329 PRSUs under the Incentive Plan to its executive officers and other members of the Company’s senior leadership team as of that is vesteddate (i.e., the “2016 LTIP”). The PRSUs granted are contingent upon the Company’s performance with respect to certain predetermined Total Cumulative Revenue targets over the 33-month period commencing April 1, 2016 and concluding December 31, 2018, subject to the Company’s achievement of a predetermined cumulative Adjusted EBITDA threshold over the same time period. Of the 3,034,329 PRSUs granted, 2,748,073 PRSUs remained outstanding as of December 31, 2016 due to forfeitures during the year, representing the number of shares to be issued at the 100% target achievement level for this award. The number of shares ultimately issued could be 0% or range from 75% (threshold achievement level) to 200% (maximum achievement level) of the number of PRSUs outstanding, based on the Company’s performance in relation to the performance conditions, and linear interpolation will be applied should Total Cumulative Revenue fall between the threshold and maximum achievement levels. Any PRSUs earned under the 2016 LTIP will vest in full on May 31, 2019, subject to continued employment as of that date.

The Company is recognizing stock-based compensation expense for these awards over the vesting period based on the projected probability of achievement of the aforementioned performance conditions as of the end of each reporting period during the performance period and may periodically adjust the recognition of such expense, as necessary, in response to any changes in the Company’s forecasts with respect to the performance conditions. For the year ended December 31, 2016, the Company did not recognize any stock-based compensation expense related to the 2016 LTIP based on the Company’s determination that achievement of the performance conditions was not probable as of that date.


Once vested, shares will generally either be issued net of the applicable tax withholding requirements to be paid by the Company on behalf of employees, or a portion of the shares issued will subsequently be sold by employees to satisfy the tax obligations created by the vesting of PRSUs. The Company recognized stock-based compensation expense of $2,169$1,685, $581 and $0 in the consolidated statements of operations related to PRSUs in 2016, 2015 and 2014, respectively. As of December 31, 2016, total unrecognized stock-based compensation expense related to PRSUs was $552, which will be recognized over a remaining weighted-average life of 0.93 years.


Employee Stock Purchase Plan

The Company implemented an Employee Stock Purchase Plan (“ESPP”) during 2016. The ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions of up to 15% of their eligible compensation, subject to any plan limitations, and provides for six-month offering periods, commencing in May and November of each year. At the end of each offering period, participating employees are able to purchase shares of common stock at 90% of the Company’s stock price at market close on the first trading day of the offering period or the last trading day of the offering period, whichever is lower. In April 2016, the Company registered 1,755,500 shares of common stock under the ESPP.

During 2016, there were 68,723 shares purchased by employees under the ESPP at a purchase price of $6.93 per share. The Company recognized stock-based compensation expense of $189 in the consolidated statement of operations related to restricted stockthe ESPP in 2011. There was no restricted stock issued or outstanding during 2012 or 2013.

12. Convertible Preferred Stock

On March 15, 2011 and May 17, 2011, the Company issued 757,724 and 90,486 shares2016. As of Series D preferred stock for $53,600 and $6,400, respectively.

Each share of preferred stock was convertible, at the option of the holder, to common stock on a one-to-one basis, unless additional common shares had been issued by the Company (exclusive of shares issued to satisfy outstanding options, declared dividends or splits, or certain approved issuances to financial institutions or investors pursuant to a debt financing), at which point a defined conversion formula should be utilized to identify the appropriate conversion ratio. During August 2011, the preferred stockholders agreed via written consent of (1) the holders of at least 70% of the outstanding shares of Series D preferred stock, (2) the holders of at least 80% of the outstanding shares of Series C preferred stock, (3) the holders of at least a supermajority, as defined in the Amended and Restated Certificate of Incorporation, of the holders of the outstanding shares of Series B preferred stock, and (4) the holders of at least a supermajority of the outstanding shares of Series A preferred stock that each share of preferred stock shall be mandatorily converted to common stock immediately prior to the completion of a firm-commitment underwritten initial public offering if the share price is at least $70.74, as adjusted for stock splits and other adjustments. The Series A, B, C, and D convertible preferred stock are not subject to mandatory redemption outside the control of the Company.

On OctoberDecember 31, 2011, the Company effected an eight-for-one split of its common stock by way of a stock dividend declared. As a result of the stock split, holders of the Company’s common stock received seven additional2016, 1,686,777 shares of common stock remained available for every share held on such date, and a proportionate adjustment was made topurchase under the applicable conversion prices for each share of the Company’s outstanding convertible preferred stock, resulting in a conversion ratio of one-to-eight. As a result of the initial public offering of stock at a price greater than the pre-split adjusted price of $70.74, all preferred shares were converted to common shares on November 17, 2011.

ESPP.

12. Treasury Stock
 
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Table Of Contents

13. Treasury Stock

In April 2011, the Company repurchased 1,940,744 shares of common stock for $16,496. Prior to the repurchase, a certain stockholder converted 14,096 shares of Series B and 29,663 shares of Series C preferred shares into common stock. Additionally, in June 2011, the Company repurchased 635,288 shares of common stock for $5,400.

The Company hashad 8,558,712 shares of its common stock in treasury stock as of December 31, 20132016 and 2012.2015. Of these, the Company’s wholly-ownedwholly owned subsidiary holds 5,743,744 shares of common stock.

14. There was no activity or change with respect to the Company’s treasury stock balance during the years ended December 31, 2016 and 2015.

13. Income Taxes

The Company accounts for income taxes in accordance with authoritative guidance, which requires the use of the asset and liability method. Under this method, deferred income tax assets and liabilities are determined based upon the difference between the consolidated financial statement amounts and the tax basis of assets and liabilities and are measured using the enacted tax rate expected to apply to taxable income in the years in which the differences are expected to be reversed. As management believes that it is more likely than not that the Company will not realize the full amount of theits net deferred tax assets, the Company has recorded a valuation allowance for the deferred tax assets as of December 31, 2013, 20122016, 2015 and 2011, respectively.

2014.

The componentsprovision for income taxes for the years ended December 31, 2016, 2015 and 2014 consisted of income tax expense are summarized as follows:

  

2013

  

2012

  

2011

 

Current:

            

U.S. federal

 $  $  $ 

State

  34      39 
   34      39 

Deferred:

            

U.S. federal

  4   2   7 

State

  2   3   (3

)

   6   5   4 

Income tax expense

 $40  $5  $43 

the following components: 

  2016 2015 2014
Current:      
U.S. federal $
 $
 $
State 21
 27
 40
 Total current 21
 27
 40
Deferred:      
U.S. federal $17
 $17
 $10
State 5
 
 1
 Total deferred 22
 17
 11
Provision for income taxes $43
 $44
 $51
The reconciliation of income tax expense computed at the U.S. federal statutory rate to the Company’s effective tax rate for the years ended December 31, 2013, 20122016, 2015 and 20112014 is as follows:

  

2013

  

2012

  

2011

 

U.S. federal income tax rate

  34.0

%

  34.0

%

  34.0

%

State income taxes, net of federal benefit

  6.4   5.7   5.6 

Valuation allowance

  (39.7

)

  (39.1

)

  (36.7

)

Other

  (0.8

)

  (0.6

)

  (2.8

)

Effective income tax rate

  (0.1

)%

  0.0

%

  0.1

%

66
  2016 2015 2014
U.S. federal income tax rate 34.0 % 34.0 % 34.0 %
State income taxes, net of federal benefit 9.1 % (1.3)% (0.5)%
Valuation allowance (41.0)% (29.7)% (20.1)%
Stock-based compensation 6.3 % 15.6 % (9.4)%
Research and development credits 1.0 % (16.4)%  %
Internal Revenue Code Section 162(m) (8.3)%  %  %
Other (1.7)% (1.8)% (4.4)%
Effective income tax rate (0.6)% 0.4 % (0.4)%

Table Of Contents


Significant components of the Company’s deferred tax assets and liabilities as of December 31, 20132016 and 20122015 are as follows:

  

2013

  

2012

 

Deferred tax assets:

        

Current:

        

Deferred revenue

 $32,643  $22,299 

Non-current:

        

Intangibles — other

  12,138   12,962 

Net operating loss carryforwards

  39,757   41,464 

Equity compensation

  1,999   1,388 

Other

  4,337   2,095 

Total deferred tax assets

  90,874   80,208 

Valuation allowance

  (87,006

)

  (73,434

)

Total net deferred tax assets

  3,868   6,774 

Deferred tax liabilities:

        

Current:

        

Prepaids

  (3,923

)

  (7,010

)

Non-current:

        

Property and equipment

  55   236 

Goodwill

  (169

)

  (163

)

Total net deferred tax liabilities

  (4,037

)

  (6,937

)

Total net deferred tax liability

 $(169

)

 $(163

)

  2016 2015
Deferred tax assets:    
Deferred revenue $27,239
 $34,177
Intangibles - other 9,210
 10,088
Net operating loss carryforwards 62,033
 50,885
Stock-based compensation 8,529
 5,301
Research and development credits 2,864
 2,556
Other 5,341
 3,756
Total deferred tax assets 115,216
 106,763
Valuation allowance (89,854) (84,035)
Total net deferred tax assets 25,362
 22,728
     
Deferred tax liabilities:    
Prepaid expenses $(4,022) $(3,853)
Property, equipment and software (21,340) (18,875)
Goodwill (220) (198)
Total net deferred tax liabilities (25,582) (22,926)
Total net deferred tax liability $(220) $(198)
As of December 31, 2013,2016, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $105,290$159,329 and $130,853,$210,891, respectively. These net operating losses include an unrealized benefit of approximately $5,800 related to share-based compensation that will be recorded in equity when realized. The net operating loss carryforwards will expire in future years,primarily beginning in 2027. The net operating losses may be subject to annual limitations of use under Internal Revenue Code Section 382. The Company files income tax returns in the U.S. federal jurisdiction and in various state jurisdictions. Income tax returns for calendarthe short year ended December 31, 2010 to present are open for examination in the federal jurisdiction and in significant state jurisdictions.

A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized. The Company does not benefit from its deferred tax assets based on the deferred tax liabilities related to goodwill that are not expected to reverse during the carryforward period. As this deferred tax liability would not reverse until some future indefinite period when the intangibles are either sold or impaired, any resulting temporary differences cannot be considered a source of future taxable income to support realization of the deferred tax assets.

At December 31, 20132016 and 2012,2015, the Company did not have any material unrecognized income tax benefits recorded in its consolidated balance sheets.

15. Warrants

During 2011, the Company issued warrants to purchase 88,240 shares of common stock in connection with its loan and security agreement. These warrants are exercisable at the fair market value as of the grant date for a period of seven years from the grant date. The grant date fair value of the warrants was $2.23 per share, using the Black-Scholes option-pricing model. On October 17, 2012, the holder of these warrants completed a net issuance exercise in accordance with the terms of their agreement, resulting in the issuance of 14,272 shares of common stock.

 
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Table Of Contents

During 2010, the Company issued warrants to purchase 272,304 shares of common stock in connection with an amendment to its note payable. On March 7, 2012, the holder of these warrants completed a net issuance exercise in accordance with the terms of their agreement, resulting in the issuance of 120,096 shares of common stock.

A summary of warrant activity is as follows:

  

Warrants

  

Weighted-
Average
Exercise
Price

 

Outstanding at December 31, 2011

  360,544  $8.45 

Issued

  (360,544

)

  8.45 

Outstanding at December 31, 2012

    $ 

Exercised

        

Outstanding at December 31, 2013

    $ 

Outstanding warrants at December 31, 2011 had a weighted-average remaining contractual life of 5.7 years. There were no outstanding warrants as of December 31, 2012 or 2013.

16. Related-Party Transactions

In November 2012, the Company completed the purchase of its headquarters facilities (the “properties”),which were owned by Henry Amalgamated, LLC, and Henry Amalgamated II, LLC, Indiana limited liability companies (together, “Henry Amalgamated”) for an aggregate purchase price of $6,250, excluding fees and other charges. In connection with its acquisition of the properties, the Company’s leases for its headquarters facilities were terminated.

William S. Oesterle, the Company’s Chief Executive Officer and member of the Company’s board of directors, owns a 70% interest in Henry Amalgamated. As the transaction described above constitutes a related party transaction at the direction of the board of directors (the “board”), the audit committee of the Company’s board reviewed and negotiated the Company’s acquisition of the property. With the audit committee’s recommendation and after afull board review, the board approved this transaction. Prior to the acquisition, the Company leased these properties from Henry Amalgamated. In addition to the primary acquisition costs of $6,250, the Company paid $178 to Henry Amalgamated for other charges incurred to prepare the properties for use,of which $150 was capitalized with the purchase of the properties.

Rent expense to Henry Amalgamated was $11, $977 and $856 for 2013, 2012 and 2011, respectively. The Company did not owe Henry Amalgamated any amounts as of December 31, 2013 and 2012.


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Table Of Contents

17.14. Quarterly Financial Information (Unaudited)

The tabletables below setsset forth selected quarterly financial data for each of the last two fiscal years ($ in thousands, except per share data).

  

Fiscal Year Ended December 31, 2013

 
  

First
Quarter

  

Second
Quarter

  

Third
Quarter

  

Fourth
Quarter

 
  

(unaudited)

  

(unaudited)

  

(unaudited)

  

(unaudited)

 

Total revenue

 $52,171  $59,215  $65,500  $68,756 

Operating income (loss)

  (7,469

)

  (13,855

)

  (13,028

)

  3,271 

Net income (loss)

  (7,947

)

  (14,334

)

  (13,511

)

  2,803 

Net income (loss) per common share—basic and diluted

 $(0.14

)

 $(0.25

)

 $(0.23

)

 $0.05 

  

Fiscal Year Ended December 31, 2012

 
  

First
Quarter

  

Second
Quarter

  

Third
Quarter

  

Fourth
Quarter

 
  

(unaudited)

  

(unaudited)

  

(unaudited)

  

(unaudited)

 

Total revenue

 $31,094  $36,504  $42,022  $46,179 

Operating income (loss)

  (12,994

)

  (22,930

)

  (18,020

)

  2,911 

Net income (loss)

  (13,450

)

  (23,387

)

  (18,487

)

  2,430 

Net income (loss)per common share—basic and diluted

 $(0.24

)

 $(0.41

)

 $(0.32

)

 $0.04 

years. 

  Fiscal Year Ended December 31, 2016
  
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
  (unaudited) (unaudited) (unaudited) (unaudited)
Total revenue $83,856
 $83,060
 $79,745
 $76,668
Operating income (loss) (4,019) 6,015
 (15,380) 10,290
Net income (loss) (4,642) 4,657
 (16,820) 8,948
Net income (loss) per common share — basic (0.08) 0.08
 (0.29) 0.15
Net income (loss) per common share — diluted (0.08) 0.08
 (0.29) 0.15
  Fiscal Year Ended December 31, 2015
  
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
  (unaudited) (unaudited) (unaudited) (unaudited)
Total revenue $83,543
 $87,335
 $86,992
 $86,255
Operating income (loss) 5,282
 (7,556) 775
 14,757
Net income (loss) 4,360
 (8,349) 82
 14,150
Net income (loss) per common share — basic 0.07
 (0.14) 0.00
 0.24
Net income (loss) per common share — diluted 0.07
 (0.14) 0.00
 0.24
Information in any one quarterly period should not be considered indicative of annual results due to the effects of seasonality on the Company’s business.


The fourthfirst quarter of 2013 includes2016 included a $4.0 million$3,500 charge to general and administrative expense reflectiverelated to a contingent legal liability recorded in connection with the Moore litigation and related cases. This contingent liability was subsequently reduced during the fourth quarter of 2016, yielding a benefit of $671 to fourth quarter general and administrative expense.

In connection with the Company’s early adoption of ASU 2016-09 during the third quarter of 2016, the Company was required to record a modified retrospective transition adjustment at the time of adoption to reflect an expected settlementincrease in stock-based compensation expense for 2016 related to the Company’s forfeitures election under this new standard. Although this adjustment was recorded during the third quarter, given the modified retrospective nature of pending litigation.

the adjustment, the Company was precluded from presenting the full amount of the adjustment in the consolidated financial statements for the quarter ended September 30, 2016 and was instead required to update amounts previously reported, yielding retrospective increases to general and administrative expense of $638 and $140 for the quarters ended March 31, 2016 and June 30, 2016, respectively. As a result, the operating income (loss), net income (loss) and corresponding per share figures presented in the table above for the first and second quarters of 2016 differ from amounts previously reported.


For the third quarter of 2016, the Company’s basic and diluted weighted-average number of common shares outstanding was 58,883,623, and basic and diluted net loss per common share was $(0.29), as reflected in the table above. These amounts were previously incorrectly reported as 59,495,592 and $(0.28), respectively. The Company does not believe this correction is material to these consolidated financial statements or any previously issued consolidated financial statements.

The second quarter of 2015 included a $686 charge to general and administrative expense for the recognition of a non-cash long-lived asset impairment related to the Company’s decision not to pursue its Indianapolis campus expansion plan.

The fourth quarter of 2012 includes2015 included an out$892 charge to product and technology expense for the recognition of period adjustmenta non-cash long-lived asset impairment related to 2011 and prior to reduce commission expense by $700.

the abandonment of certain software assets.
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Table Of Contents

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

None.

ITEM 9A.   CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act that areof 1934, as amended (the “Exchange Act”), designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SECU.S. Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.

Based on their evaluation as of the end of the period covered by this Annual Report on Form 10-K, our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures wereare effective at the reasonable assurance level.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13(a)-15(f) and Rule 15(d)-15(f)13a-15(f) of the Exchange Act, to provide reasonable assurance regarding the reliability of the company’sour financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

Management assessed

Our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2013. Management2016 based its assessment on the criteria establishedset forth in the Internal Control—Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“1992 Framework”)(2013 Framework). Based on its assessment, ourthis evaluation, management has concluded that our internal control over financial reporting was effective as of December 31, 2013.

2016. Management reviewed the results of its evaluation with our audit committee.

The effectiveness of our internal control over financial reporting was audited by Ernst & Young, LLP, an independent registered public accounting firm, has issuedas of December 31, 2016, and an attestation report on our internal control over financial reporting whichwas issued by them and is included in this Annual Report on Form 10-K.

Changes in Internal Control overOver Financial Reporting

There was no change in our internal control over financial reporting identified in connection with the evaluation required by RuleRules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the three months ended December 31, 2013fourth quarter of 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

70

Table Of Contents


The Board of Directors and Stockholders of Angie’s List, Inc.

We have audited Angie’s List, Inc.’s internal control over financial reporting as of December 31, 20132016, based on criteria established in Internal Control—Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (”1992 Framework”)(2013 Framework) (the COSO criteria). Angie’s List, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Angie’s List, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013,2016, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Angie’s List, Inc. as of December 31, 20132016 and 2012,2015, and the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 20132016 of Angie’s List, Inc. and our report dated February 28, 201421, 2017 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP


Indianapolis, Indiana



None.

PART III


ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Angie’s List hasWe adopted a code of business conduct and ethics for directors, officers (including Angie’s List’sour Chief Executive Officer and Chief Financial Officer) and employees, known as the Code of Business Conduct and Ethics. The Code of Business Conduct and Ethics is available on our “Investor Relations” website atinvestor.angieslist.com in the Corporate Governance section. Stockholders may request a free copy of the Code of Business Conduct and Ethics by sending an email request to investor@angieslist.com.

investor@angieslist.com.

The other information required by this item will be contained in our definitive proxy statement (the “Proxy Statement”) to be filed with the Securities and Exchange Commission in connection with our 2014 annual meeting2017 Annual Meeting of stockholders (the “Proxy Statement”),Stockholders, which is expected to be filed notno later than 120 days after the end of our fiscal year ended December 31, 2013,2016 and is incorporated in this report by reference.

ITEM 11.   EXECUTIVE COMPENSATION

Specifically, information required by this item regarding our directors and executive officers is incorporated by reference to the sections of the Proxy Statement entitled “Executive Officers” and “Information Regarding the Board of Directors and its Committees.” Information required by this Itemitem regarding our corporate governance, including our audit committee, is incorporated by reference to the section of the Proxy Statement entitled “Information Regarding the Board of Directors and its Committees.” Information required by this item regarding compliance with Section 16(a) of the Exchange Act is incorporated by reference to the section of the Proxy Statement entitled “Section 16(a) Beneficial Ownership Reporting Compliance.”

ITEM 11.    EXECUTIVE COMPENSATION
Information required by this item is incorporated by reference to the sections of the Proxy Statement entitled “Executive Compensation,” “Director Compensation,” “Information Regarding the Board of Directors and its Committees—Committees — Compensation Committee Interlocks and Insider Participation” and “Compensation Committee Report.”

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information regarding security ownership of certain beneficial owners and management is incorporated by reference to the section of the Proxy Statement entitled “Security Ownership of Certain Beneficial Owners and Management.”

Information regarding our stockholder approved and non-approved equity compensation plans is incorporated by reference to the section of the Proxy Statement entitled “Executive Compensation—Compensation — Equity Compensation Plan Information.”

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information required by this Itemitem is incorporated by reference to the sections of the Proxy Statement entitled “Certain Relationships and Related Party Transactions” and “Information Regarding the Board of Directors and its Committees—IndependenceCommittees —Independence of the Board of Directors.”

ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information required by this Itemitem is incorporated by reference to the section of the Proxy Statement entitled “Proposal No. 2 Ratification“Ratification of Appointment of Independent Registered Public Accounting Firm.”

PART IV


ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The following documents are included as part of this Annual Report on Form 10-K.

10-K


(1) Index to Financial Statements


(2) Financial Statement Schedule

Schedules

All other schedules arewere omitted as the information required is either inapplicable or the information is presented in the consolidated financial statements or the related notes.

notes thereto.


(3) Exhibits

The documents set forth below are filed herewith or incorporated by reference to the location indicated.

      Incorporated by Reference     

Exhibit
No.

  

Exhibit Description

  

Form

  

File No.

  

Exhibit

  

Filing
Date

  

Filed
Herewith

 
              

3.01

  

Amended and Restated Certificate of Incorporation

  

S-1/A

  

333-176503

  

3.1

  

10/31/11

  

  

3.02

  

Amended and Restated Bylaws

  

S-1/A

  

333-176503

  

3.2

  

10/31/11

  

  

4.01

  

Fifth Amended and Restated Investor Rights Agreement, by and among Angie’s List, Inc. and the investors listed on Schedule A thereto, dated March 15, 2011, as amended

  

S-1

  

333-176503

  

4.2

  

08/25/11

  

  

10.01†

  

Amended and Restated Omnibus Incentive Plan and form of award agreements under the Amended and Restated Omnibus Incentive Plan

  

S-8

  

333-191884

  

99.1

  

10/24/13

  

  

10.02

  

Lease Agreement, dated February 28, 2009, by and between Brownstone Publishing, LLC and Henry Amalgamated, LLC

  

S-1

  

333-176503

  

10.2

  

08/25/11

  

  

10.03

  

First Addendum to Lease Agreement, dated May 4, 2010, by and between Brownstone Publishing, LLC and Henry Amalgamated, LLC

  

S-1

  

333-176503

  

10.3

  

08/25/11

  

  

10.04

  

Second Addendum to Lease Agreement, dated December 1, 2010, by and between Brownstone Publishing, LLC and Henry Amalgamated, LLC

  

S-1

  

333-176503

  

10.4

  

08/25/11

  

  

10.05

  

Third Addendum to Lease Agreement, dated December 16, 2010, by and between Brownstone Publishing, LLC and Henry Amalgamated, LLC

  

S-1

  

333-176503

  

10.5

  

08/25/11

  

  

10.06

  

Fourth Addendum to Lease Agreement, dated January 1, 2011, by and between the registrant and Henry Amalgamated, LLC

  

S-1

  

333-176503

  

10.6

  

08/25/11

   

10.07

  

Fifth Addendum to Lease Agreement, dated June 1, 2011, by and between the registrant and Henry Amalgamated, LLC

  

S-1

  

333-176503

  

10.7

  

08/25/11

   

10.08

  

Sixth Addendum to Lease Agreement, dated June 1, 2011, by and between the registrant and Henry Amalgamated, LLC

  

S-1

  

333-176503

  

10.8

  

08/25/11

   

73
  Incorporated by Reference 
Exhibit
No.
Exhibit DescriptionFormFile No.Exhibit
Filing
Date
Filed
Herewith
3.01Third Amended and Restated Certificate of IncorporationS-1/A333-1765033.110/31/2011 
3.02Amended and Restated BylawsS-1/A333-1765033.210/31/2011 
4.01Form of Common Stock Certificate10-K001-353394.013/8/2016
4.02Amended and Restated Investor Rights Agreement, by and among Angie’s List, Inc. and the investors listed on Schedule A thereto, dated March 15, 2011, as amendedS-1333-1765034.28/25/2011 
4.03Amendment No. 1 to Amended and Restated Investors’ Rights Agreement, by and between Angie’s List, Inc. and TRI Investments, LLC, dated as of November 1, 201610-Q001-353394.0311/2/2016 
10.01†Amended and Restated Omnibus Incentive Plan and form of award agreements under the Amended and Restated Omnibus Incentive PlanS-8333-19188499.110/24/2013 
10.02†Form of Indemnification Agreement by and between Angie’s List, Inc. and each of its executive officers and its directors not affiliated with an investment fundS-1/A333-17650310.189/29/2011 
10.03†Form of Indemnification Agreement by and between Angie’s List, Inc. and each of its directors affiliated with an investment fundS-1/A333-17650310.199/29/2011 
10.04Project Agreement by and between Angie’s List, Inc. and the Consolidated City of Indianapolis, dated October 21, 2011S-1/A333-17650310.2211/2/2011 
10.05Purchase and sale agreement by and among Angie’s List, Inc. and Henry Amalgamated, LLC and Henry Amalgamated II, LLC, dated November 8, 20128-K001-3533910.111/9/2012 
10.06†Offer Letter Agreement, dated December 20, 2012, by and between Angie's List, Inc. and J. Mark Howell8-K001-3533910.11/17/2013 
10.07†Offer Letter Agreement, dated August 20, 2013, by and between Angie's List, Inc. and Thomas R. Fox8-K001-3533910.18/21/2013 
10.08†Amended Incentive Stock Option Grant Agreement under the Amended and Restated Omnibus Incentive Plan - Executive Officer10-Q001-3533910.017/24/2014 
10.09†Amended Nonqualified Stock Option Grant Agreement under the Amended and Restated Omnibus Incentive Plan - Executive Officer10-Q001-3533910.027/24/2014 

Table Of Contents

10.09

  

Contingent Addendum to Lease Agreement, dated January 1, 2011 and effective February 1, 2011, by and between the registrant and Henry Amalgamated, LLC

  

S-1

  

333-176503

  

10.9

  

08/25/11

   

10.10

  

Contingent Addendum to Lease Agreement, dated January 1 2011 and effective March 1, 2011, by and between the registrant and Henry Amalgamated, LLC

  

S-1

  

333-176503

  

10.10

  

08/25/11

   

10.11

  

Parking Lease, dated February 28, 2009, by and between Brownstone Publishing, LLC and Henry Amalgamated, LLC

  

S-1

  

333-176503

  

10.11

  

08/25/11

   

10.12

  

Lease, dated November 2, 2007, by and between AL Campus Kids, LLC, and Henry Amalgamated, LLC (124 Herman Street)

  

S-1

  

333-176503

  

10.12

  

08/25/11

   

10.13

  

Lease, dated November 2, 2007, by and between AL Campus Kids, LLC, and Henry Amalgamated, LLC (118 Herman Street)

  

S-1

  

333-176503

  

10.13

  

08/25/11

   

10.14 †

  

Employment Agreement, dated July 10, 2006, by and between Brownstone Publishing, LLC and Michael D. Rutz

  

S-1

  

333-176503

  

10.15

  

08/25/11

   

10.15†

  

Form of Indemnification Agreement by and between Angie’s List, Inc. and each of its executive officers and its directors not affiliated with an investment fund

  

S-1/A

  

333-176503

  

10.19

  

09/29/11

  

  

10.16†

  

Form of Indemnification Agreement by and between Angie’s List, Inc. and each of its directors affiliated with an investment fund

  

S-1/A

  

333-176503

  

10.20

  

09/29/11

 ��

  

10.17

  

Loan and Security Agreement, dated August 31, 2011, by and between ORIX Venture Finance LLC, Bridge Bank National Association and Angie’s List, Inc.

  

S-1/A

  

333-176503

  

10.21

  

09/29/11

  

  

10.18

  

Project Agreement by and between Angie’s List, Inc. and the Consolidated City of Indianapolis, dated October 21, 2011

  

S-1/A

  

333-176503

  

10.22

  

11/02/11

  

  

10.19

  

Contingent Addendum to Lease Agreement, dated November 15, 2011 by and between the registrant and Henry Amalgamated LLC

  

10-K

  

001-35339

  

10.23

  

03/15/12

  

  

10.20

  

Contingent Addendum to Lease Agreement, dated December 1, 2011 by and between the registrant and Henry Amalgamated LLC

  

10-K

  

001-35339

  

10.24

  

03/15/12

  

  

10.21

  

Contingent Addendum to Lease Agreement, dated April 10, 2012 by and between the registrant and Henry Amalgamated LLC [934 E Washington Street, Indianapolis, IN 46202]

  

10-Q

  

001-35339

  

10.1

  

08/09/12

  

  

10.22

  

Contingent Addendum to Lease Agreement, dated April 10, 2012 by and between the registrant and Henry Amalgamated LLC [25 Pine Street, Indianapolis, IN 46202]

  

10-Q

  

001-35339

  

10.2

  

08/09/12

  

  

10.23

  

Contingent Addendum to Lease Agreement, dated April 10, 2012 by and between the registrant and Henry Amalgamated LLC [902 E Washington Street, Indianapolis, IN 46202]

  

10-Q

  

001-35339

  

10.3

  

08/09/12

  

  

10.24

  

Contingent Addendum to Lease Agreement, dated July 1, 2012 by and between the registrant and Henry Amalgamated LLC [902, 932 & 934 Suite A, E Washington Street, Indianapolis, IN 46202]

  

10-Q

  

001-35339

  

10.4

  

08/09/12

  

  

10.25

  

Purchase and sale agreement by and among Angie’s List, Inc. and Henry Amalgamated, LLC and Henry Amalgamated II, LLC

  

8-K

  

001-35339

  

10.1

  

11/09/12

  

  

  Incorporated by Reference 
Exhibit
No.
Exhibit DescriptionFormFile No.Exhibit
Filing
Date
Filed
Herewith
10.10†Amended Nonqualified Stock Option Grant Agreement under the Amended and Restated Omnibus Incentive Plan - Non-Employee Director10-Q001-3533910.037/24/2014 
10.11Financing Agreement, dated as of September 26, 2014, by and among Angie's List, Inc., other subsidiaries of Angie's List, Inc. joined after in such capacity as Borrowers, certain subsidiaries of Angie's List, Inc. as Guarantors, the lenders from time to time party thereto as Lenders and TCW Asset Management Company as Collateral Agent and Administrative Agent10-Q/A001-3533910.012/26/2015 
10.12Pledge and Security Agreement, dated as of September 26, 2014, by and among Angie's List, Inc., AL Campus Kids, LLC and AL BV Investments, Inc. as Grantors and TCW Asset Management Company as Collateral Agent10-Q001-3533910.0210/22/2014 
10.13†Restricted Stock Unit Agreement under the Amended and Restated Omnibus Incentive Plan - Director, Executive Officer, Vice President10-K001-3533910.162/25/2015 
10.14†Restricted Stock Unit Agreement under the Amended and Restated Omnibus Incentive Plan - Other Employees10-K001-3533910.172/25/2015 
10.15†Employment Agreement, dated September 4, 2015, by and between Angie's List, Inc. and Scott A. Durchslag8-K001-3533910.19/8/2015 
10.16†Nonqualified Stock Option Agreement under the Amended and Restated Omnibus Incentive Plan, dated September 8, 2015, by and between Angie's List, Inc. and Scott A. Durchslag10-Q001-3533910.0410/22/2015 
10.17†Restricted Stock Unit Agreement under the Amended and Restated Omnibus Incentive Plan, dated September 8, 2015, by and between Angie's List, Inc. and Scott A. Durchslag10-Q001-3533910.0510/22/2015 
10.18†Performance Award Attributable to Restricted Stock Unit Agreement under the Amended and Restated Omnibus Incentive Plan, dated September 8, 2015, by and between Angie's List, Inc. and Scott A. Durchslag10-Q001-3533910.0610/22/2015 
10.19Settlement Agreement, dated February 29, 2016, by and among Angie's List. Inc. and Eric Semler and TCS Capital Management, LLC8-K001-3533910.13/1/2016 
10.20†Form of Performance Award Grant Agreement under the Amended and Restated Omnibus Incentive Plan for Executive Officer - Stock Options10-K001-3533910.233/8/2016
10.21First Amendment to Financing Agreement, dated as of June 10, 2016, by and among Angie's List, Inc., subsidiaries of Angie's List, Inc., the lenders party thereto and TCW Asset Management Company as Collateral Agent and Administrative Agent8-K001-3533910.016/15/2016 
10.22Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated as of June 10, 2016, by AL Real Estate Holdings, LLC to and for the benefit of TCW Asset Management Company8-K001-3533910.026/15/2016 
10.23†Employment Agreement, dated December 10, 2015, by and between Angie's List, Inc. and Darin E. Brown10-Q001-3533910.037/28/2016 
10.24†Employment Agreement, dated February 18, 2016, by and between Angie's List, Inc. and Shannon M. Shaw10-Q001-3533910.047/28/2016 
10.25†Form of Performance Award Attributable to Restricted Stock Unit Agreement under the Amended and Restated Omnibus Incentive Plan for Executive Officer - Long-Term Incentive Plan10-Q001-3533910.057/28/2016 
10.26Second Amendment to Financing Agreement, dated as of November 1, 2016, by and among Angie's List, Inc., subsidiaries of Angie's List, Inc., the lenders party thereto and TCW Asset Management Company as Collateral Agent and Administrative Agent10-Q001-3533910.0111/2/2016 
14Code of Business Conduct and Ethics, as amended March 15, 20168-K001-35339143/17/2016 
21.01Subsidiaries of the Registrant    X
23.01Consent of Independent Registered Public Accounting Firm    X
24.01Power of Attorney    X
31.01Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act    X

74
31.02Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley ActX
32.01Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act*X
32.02Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act*X
101.INSXBRL Instance DocumentX
101.SCHXBRL Taxonomy Extension Schema DocumentX
101.CALXBRL Taxonomy Extension Calculation Linkbase DocumentX
101.DEFXBRL Taxonomy Extension Definition Linkbase DocumentX
101.LABXBRL Taxonomy Extension Label Linkbase DocumentX
101.PREXBRL Taxonomy Extension Presentation Linkbase DocumentX

Table Of Contents

10.26†

  

Offer letter with Mark Howell, dated December 20, 2012

  

8-K

  

001-35339

  

10.1

  

01/17/13

  

  

10.27†

 

Offer letter with Patrick Brady, dated May 14, 2013

 

10-Q

 

001-35339

 

10.1

 

07/25/13

   

10.28†

 

Offer Letter Agreement by and between Angie’s List, Inc. and Thomas R. Fox, dated August 20, 2013

 

8-K

 

001-35339

 

10.1

 

08/21/13

   

21.01

  

Subsidiaries of the Registrant

  

S-1

  

333-176503

  

21.1

  

08/25/11

  

  

23.01

  

Consent of independent registered public accounting firm

  

 

  

 

  

 

  

 

  

X

 

24.01

  

Power of Attorney (included on signature page of this Annual Report on Form 10-K)

  

 

  

 

  

 

  

 

  

X

 

31.01

  

Certification of the Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act

  

 

  

 

  

 

  

 

  

X

 

31.02

  

Certification of the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act

  

 

  

 

  

 

  

 

  

X

 

32.01

  

Certification of the Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act

  

 

  

 

  

 

  

 

  

X

 

32.02

  

Certification of the Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act

  

 

  

 

  

 

  

 

  

X

 

101.INS*(1)

 

XBRL Instance Document

         

X

 

101.SCH*(1)

 

XBRL Taxonomy Extension Schema Document

         

X

 

101.CAL*(1)

 

XBRL Taxonomy Extension Calculation Linkbase Document

         

X

 

101.DEF*(1)

 

XBRL Taxonomy Extension Definition Linkbase Document

         

X

 

101.LAB*(1)

 

XBRL Taxonomy Extension Labels Linkbase Document

         

X

 

101.PRE*(1)

 

XBRL Taxonomy Extension Presentation Linkbase Document

         

X

 
              

Indicates management contract or compensatory plan.

* Furnished, not filed.

ITEM 16.    FORM 10-K SUMMARY
 
75None.

Table Of Contents

SIGNATURES

SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrantregistrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on February 28, 2014.

authorized.
ANGIE’S LIST, INC.
     

ANGIE’S LIST, INC.

Date: February 21, 2017
By:/s/ SCOTT A. DURCHSLAG     
 

By:

Name:

/S/ WILLIAM S. OESTERLE

Scott A. Durchslag
 

Title:

Name: William S. Oesterle

Title:

Chief Executive Officer and Director

(Principal Executive Officer)

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints William S. Oesterle, Thomas R. Fox and Shannon Shaw and each of them, his or her true and lawful attorneys-in-fact and agents, with full power to act separately and full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact and agent full power and authority to do and perform each and every act in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them or his or her or their substitute or substitutes may lawfully do or cause to be done by virtue hereof.


Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

SignatureTitleDate
     

Signature

Title

Date

/S/ WILLIAM S. OESTERLE

Chief Executive Officer and Director (Principal Executive

February 28, 2014

William S. OesterleOfficer)

/S/ THOMAS R. FOX

Chief Financial Officer (Principal Financial and

February 28, 2014

Thomas R. FoxAccounting Officer)

/S/ JOHN W. BIDDINGER

Director

February 28, 2014

John W. BiddingerSCOTT A. DURCHSLAG    February 21, 2017
Scott A. Durchslag 

/S/ MARK BRITTO

Chief Executive Officer and Director

February 28, 2014

Mark Britto

/S/ JOHN H. CHUANG

Director

February 28, 2014

John H. Chuang

/S/ STEVEN M. KAPNER

Director

February 28, 2014

Steven M. Kapner

/S/ KEITH J. KRACH

Director

February 28, 2014

Keith J. Krach

Signature

Title

Date

/S/ ROGER H. LEE

Director

February 28, 2014

Roger H. Lee

/S/ MICHAEL S. MAURER

Director

February 28, 2014

Michael S. Maurer

/S/ SUSAN THRONSON

Director

February 28, 2014

Susan Thronson
(Principal Executive Officer)
  
     

/S/ ANGELATHOMAS R. HICKS BOWMAN

Director

FOX
  

February 28, 2014

21, 2017
Thomas R. FoxChief Financial Officer
(Principal Financial Officer)
/S/ CHARLES HUNDTFebruary 21, 2017
Charles HundtChief Accounting Officer
(Principal Accounting Officer)
*February 21, 2017
George D. Bell
Director

*February 21, 2017
Mark Britto
Director

*February 21, 2017
Thomas R. Evans
Director

*February 21, 2017
Angela R. Hicks Bowman 
Director

*February 21, 2017
Michael S. Maurer
Director

*February 21, 2017
David B. Mullen
Director

*February 21, 2017
Michael D. Sands
Director

*February 21, 2017
H. Eric Semler
Director

*February 21, 2017
Susan E. Thronson
Director

  



77
/s/ SCOTT A. DURCHSLAG
By: Scott A. Durchslag, Attorney-in-Fact

Table Of Contents

EXHIBIT INDEX

      Incorporated by Reference     

Exhibit
No.

  

Exhibit Description

  

Form

  

File No.

  

Exhibit

  

Filing
Date

  

Filed
Herewith

 
              

3.01

  

Amended and Restated Certificate of Incorporation

  

S-1/A

  

333-176503

  

3.1

  

10/31/11

  

  

3.02

  

Amended and Restated Bylaws

  

S-1/A

  

333-176503

  

3.2

  

10/31/11

  

  

4.01

  

Fifth Amended and Restated Investor Rights Agreement, by and among Angie’s List, Inc. and the investors listed on Schedule A thereto, dated March 15, 2011, as amended

  

S-1

  

333-176503

  

4.2

  

08/25/11

  

  

10.01†

  

Amended and Restated Omnibus Incentive Plan and form of award agreements under the Amended and Restated Omnibus Incentive Plan

  

S-8

  

333-191884

  

99.1

  

10/24/13

  

  

10.02

  

Lease Agreement, dated February 28, 2009, by and between Brownstone Publishing, LLC and Henry Amalgamated, LLC

  

S-1

  

333-176503

  

10.2

  

08/25/11

  

  

10.03

  

First Addendum to Lease Agreement, dated May 4, 2010, by and between Brownstone Publishing, LLC and Henry Amalgamated, LLC

  

S-1

  

333-176503

  

10.3

  

08/25/11

  

  

10.04

  

Second Addendum to Lease Agreement, dated December 1, 2010, by and between Brownstone Publishing, LLC and Henry Amalgamated, LLC

  

S-1

  

333-176503

  

10.4

  

08/25/11

  

  

10.05

  

Third Addendum to Lease Agreement, dated December 16, 2010, by and between Brownstone Publishing, LLC and Henry Amalgamated, LLC

  

S-1

  

333-176503

  

10.5

  

08/25/11

  

  

10.06

  

Fourth Addendum to Lease Agreement, dated January 1, 2011, by and between the registrant and Henry Amalgamated, LLC

  

S-1

  

333-176503

  

10.6

  

08/25/11

   

10.07

  

Fifth Addendum to Lease Agreement, dated June 1, 2011, by and between the registrant and Henry Amalgamated, LLC

  

S-1

  

333-176503

  

10.7

  

08/25/11

   

10.08

  

Sixth Addendum to Lease Agreement, dated June 1, 2011, by and between the registrant and Henry Amalgamated, LLC

  

S-1

  

333-176503

  

10.8

  

08/25/11

   

10.09

  

Contingent Addendum to Lease Agreement, dated January 1, 2011 and effective February 1, 2011, by and between the registrant and Henry Amalgamated, LLC

  

S-1

  

333-176503

  

10.9

  

08/25/11

   

78
  Incorporated by Reference 
Exhibit
No.
Exhibit DescriptionFormFile No.Exhibit
Filing
Date
Filed
Herewith
3.01Third Amended and Restated Certificate of IncorporationS-1/A333-1765033.110/31/2011 
3.02Amended and Restated BylawsS-1/A333-1765033.210/31/2011 
4.01Form of Common Stock Certificate10-K001-353394.013/8/2016
4.02Amended and Restated Investor Rights Agreement, by and among Angie’s List, Inc. and the investors listed on Schedule A thereto, dated March 15, 2011, as amendedS-1333-1765034.28/25/2011 
4.03Amendment No. 1 to Amended and Restated Investors’ Rights Agreement, by and between Angie’s List, Inc. and TRI Investments, LLC, dated as of November 1, 201610-Q001-353394.0311/2/2016 
10.01†Amended and Restated Omnibus Incentive Plan and form of award agreements under the Amended and Restated Omnibus Incentive PlanS-8333-19188499.110/24/2013 
10.02†Form of Indemnification Agreement by and between Angie’s List, Inc. and each of its executive officers and its directors not affiliated with an investment fundS-1/A333-17650310.189/29/2011 
10.03†Form of Indemnification Agreement by and between Angie’s List, Inc. and each of its directors affiliated with an investment fundS-1/A333-17650310.199/29/2011 
10.04Project Agreement by and between Angie’s List, Inc. and the Consolidated City of Indianapolis, dated October 21, 2011S-1/A333-17650310.2211/2/2011 
10.05Purchase and sale agreement by and among Angie’s List, Inc. and Henry Amalgamated, LLC and Henry Amalgamated II, LLC, dated November 8, 20128-K001-3533910.111/9/2012 
10.06†Offer Letter Agreement, dated December 20, 2012, by and between Angie's List, Inc. and J. Mark Howell8-K001-3533910.11/17/2013 
10.07†Offer Letter Agreement, dated August 20, 2013, by and between Angie's List, Inc. and Thomas R. Fox8-K001-3533910.18/21/2013 
10.08†Amended Incentive Stock Option Grant Agreement under the Amended and Restated Omnibus Incentive Plan - Executive Officer10-Q001-3533910.017/24/2014 
10.09†Amended Nonqualified Stock Option Grant Agreement under the Amended and Restated Omnibus Incentive Plan - Executive Officer10-Q001-3533910.027/24/2014 
10.10†Amended Nonqualified Stock Option Grant Agreement under the Amended and Restated Omnibus Incentive Plan - Non-Employee Director10-Q001-3533910.037/24/2014 
10.11Financing Agreement, dated as of September 26, 2014, by and among Angie's List, Inc., other subsidiaries of Angie's List, Inc. joined after in such capacity as Borrowers, certain subsidiaries of Angie's List, Inc. as Guarantors, the lenders from time to time party thereto as Lenders and TCW Asset Management Company as Collateral Agent and Administrative Agent10-Q/A001-3533910.012/26/2015 
10.12Pledge and Security Agreement, dated as of September 26, 2014, by and among Angie's List, Inc., AL Campus Kids, LLC and AL BV Investments, Inc. as Grantors and TCW Asset Management Company as Collateral Agent10-Q001-3533910.0210/22/2014 
10.13†Restricted Stock Unit Agreement under the Amended and Restated Omnibus Incentive Plan - Director, Executive Officer, Vice President10-K001-3533910.162/25/2015 
10.14†Restricted Stock Unit Agreement under the Amended and Restated Omnibus Incentive Plan - Other Employees10-K001-3533910.172/25/2015 
10.15†Employment Agreement, dated September 4, 2015, by and between Angie's List, Inc. and Scott A. Durchslag8-K001-3533910.19/8/2015 
10.16†Nonqualified Stock Option Agreement under the Amended and Restated Omnibus Incentive Plan, dated September 8, 2015, by and between Angie's List, Inc. and Scott A. Durchslag10-Q001-3533910.0410/22/2015 
10.17†Restricted Stock Unit Agreement under the Amended and Restated Omnibus Incentive Plan, dated September 8, 2015, by and between Angie's List, Inc. and Scott A. Durchslag10-Q001-3533910.0510/22/2015 

Table Of Contents

10.10

  

Contingent Addendum to Lease Agreement, dated January 1 2011 and effective March 1, 2011, by and between the registrant and Henry Amalgamated, LLC

  

S-1

  

333-176503

  

10.10

  

08/25/11

   

10.11

  

Parking Lease, dated February 28, 2009, by and between Brownstone Publishing, LLC and Henry Amalgamated, LLC

  

S-1

  

333-176503

  

10.11

  

08/25/11

   

10.12

  

Lease, dated November 2, 2007, by and between AL Campus Kids, LLC, and Henry Amalgamated, LLC (124 Herman Street)

  

S-1

  

333-176503

  

10.12

  

08/25/11

   

10.13

  

Lease, dated November 2, 2007, by and between AL Campus Kids, LLC, and Henry Amalgamated, LLC (118 Herman Street)

  

S-1

  

333-176503

  

10.13

  

08/25/11

   

10.14 †

  

Employment Agreement, dated July 10, 2006, by and between Brownstone Publishing, LLC and Michael D. Rutz

  

S-1

  

333-176503

  

10.15

  

08/25/11

   

10.15†

  

Form of Indemnification Agreement by and between Angie’s List, Inc. and each of its executive officers and its directors not affiliated with an investment fund

  

S-1/A

  

333-176503

  

10.19

  

09/29/11

  

  

10.16†

  

Form of Indemnification Agreement by and between Angie’s List, Inc. and each of its directors affiliated with an investment fund

  

S-1/A

  

333-176503

  

10.20

  

09/29/11

  

  

10.17

  

Loan and Security Agreement, dated August 31, 2011, by and between ORIX Venture Finance LLC, Bridge Bank National Association and Angie’s List, Inc.

  

S-1/A

  

333-176503

  

10.21

  

09/29/11

  

  

10.18

  

Project Agreement by and between Angie’s List, Inc. and the Consolidated City of Indianapolis, dated October 21, 2011

  

S-1/A

  

333-176503

  

10.22

  

11/02/11

  

  

10.19

  

Contingent Addendum to Lease Agreement, dated November 15, 2011 by and between the registrant and Henry Amalgamated LLC

  

10-K

  

001-35339

  

10.23

  

03/15/12

  

  

10.20

  

Contingent Addendum to Lease Agreement, dated December 1, 2011 by and between the registrant and Henry Amalgamated LLC

  

10-K

  

001-35339

  

10.24

  

03/15/12

  

  

10.21

  

Contingent Addendum to Lease Agreement, dated April 10, 2012 by and between the registrant and Henry Amalgamated LLC [934 E Washington Street, Indianapolis, IN 46202]

  

10-Q

  

001-35339

  

10.1

  

08/09/12

  

  

10.22

  

Contingent Addendum to Lease Agreement, dated April 10, 2012 by and between the registrant and Henry Amalgamated LLC [25 Pine Street, Indianapolis, IN 46202]

  

10-Q

  

001-35339

  

10.2

  

08/09/12

  

  

10.23

  

Contingent Addendum to Lease Agreement, dated April 10, 2012 by and between the registrant and Henry Amalgamated LLC [902 E Washington Street, Indianapolis, IN 46202]

  

10-Q

  

001-35339

  

10.3

  

08/09/12

  

  

10.24

  

Contingent Addendum to Lease Agreement, dated July 1, 2012 by and between the registrant and Henry Amalgamated LLC [902, 932 & 934 Suite A, E Washington Street, Indianapolis, IN 46202]

  

10-Q

  

001-35339

  

10.4

  

08/09/12

  

  

10.25

  

Purchase and sale agreement by and among Angie’s List, Inc. and Henry Amalgamated, LLC and Henry Amalgamated II, LLC

  

8-K

  

001-35339

  

10.1

  

11/09/12

  

  

10.26†

  

Offer letter with Mark Howell, dated December 20, 2012

  

8-K

  

001-35339

  

10.1

  

01/17/13

  

  

10.27†

 

Offer letter with Patrick Brady, dated May 14, 2013

 

10-Q

 

001-35339

 

10.1

 

07/25/13

   

10.28†

 

Offer Letter Agreement by and between Angie’s List, Inc. and Thomas R. Fox, dated August 20, 2013

 

8-K

 

001-35339

 

10.1

 

08/21/13

   

  Incorporated by Reference 
Exhibit
No.
Exhibit DescriptionFormFile No.Exhibit
Filing
Date
Filed
Herewith
10.18†Performance Award Attributable to Restricted Stock Unit Agreement under the Amended and Restated Omnibus Incentive Plan, dated September 8, 2015, by and between Angie's List, Inc. and Scott A. Durchslag10-Q001-3533910.0610/22/2015 
10.19Settlement Agreement, dated February 29, 2016, by and among Angie's List. Inc. and Eric Semler and TCS Capital Management, LLC8-K001-3533910.13/1/2016 
10.20†Form of Performance Award Grant Agreement under the Amended and Restated Omnibus Incentive Plan for Executive Officer - Stock Options10-K001-3533910.233/8/2016
10.21First Amendment to Financing Agreement, dated as of June 10, 2016, by and among Angie's List, Inc., subsidiaries of Angie's List, Inc., the lenders party thereto and TCW Asset Management Company as Collateral Agent and Administrative Agent8-K001-3533910.016/15/2016 
10.22Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated as of June 10, 2016, by AL Real Estate Holdings, LLC to and for the benefit of TCW Asset Management Company8-K001-3533910.026/15/2016 
10.23†Employment Agreement, dated December 10, 2015, by and between Angie's List, Inc. and Darin E. Brown10-Q001-3533910.037/28/2016 
10.24†Employment Agreement, dated February 18, 2016, by and between Angie's List, Inc. and Shannon M. Shaw10-Q001-3533910.047/28/2016 
10.25†Form of Performance Award Attributable to Restricted Stock Unit Agreement under the Amended and Restated Omnibus Incentive Plan for Executive Officer - Long-Term Incentive Plan10-Q001-3533910.057/28/2016 
10.26Second Amendment to Financing Agreement, dated as of November 1, 2016, by and among Angie's List, Inc., subsidiaries of Angie's List, Inc., the lenders party thereto and TCW Asset Management Company as Collateral Agent and Administrative Agent10-Q001-3533910.0111/2/2016 
14Code of Business Conduct and Ethics, as amended March 15, 20168-K001-35339143/17/2016 
21.01Subsidiaries of the Registrant    X
23.01Consent of Independent Registered Public Accounting Firm    X
24.01Power of Attorney    X
31.01Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act    X
31.02Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act    X
32.01Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act*    X
32.02Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act*    X
101.INSXBRL Instance Document    X
101.SCHXBRL Taxonomy Extension Schema Document    X
101.CALXBRL Taxonomy Extension Calculation Linkbase Document    X
101.DEFXBRL Taxonomy Extension Definition Linkbase Document    X
101.LABXBRL Taxonomy Extension Label Linkbase Document    X
101.PREXBRL Taxonomy Extension Presentation Linkbase Document    X
79

Table Of Contents

21.01

  

Subsidiaries of the Registrant

  

S-1

  

333-176503

  

21.1

  

08/25/11

  

  

23.01

  

Consent of independent registered public accounting firm

  

 

  

 

  

 

  

 

  

X

 

24.01

  

Power of Attorney (included on signature page of this Annual Report on Form 10-K)

  

 

  

 

  

 

  

 

  

X

 

31.01

  

Certification of the Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act

  

 

  

 

  

 

  

 

  

X

 

31.02

  

Certification of the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act

  

 

  

 

  

 

  

 

  

X

 

32.01

  

Certification of the Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act

  

 

  

 

  

 

  

 

  

X

 

32.02

  

Certification of the Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act

  

 

  

 

  

 

  

 

  

X

 

101.INS*(1)

 

XBRL Instance Document

         

X

 

101.SCH*(1)

 

XBRL Taxonomy Extension Schema Document

         

X

 

101.CAL*(1)

 

XBRL Taxonomy Extension Calculation Linkbase Document

         

X

 

101.DEF*(1)

 

XBRL Taxonomy Extension Definition Linkbase Document

         

X

 

101.LAB*(1)

 

XBRL Taxonomy Extension Labels Linkbase Document

         

X

 

101.PRE*(1)

 

XBRL Taxonomy Extension Presentation Linkbase Document

         

X

 
              

Indicates management contract or compensatory plan.

80

* Furnished, not filed.


88