46202 (Address of principal executive offices) (Zip Code) Accelerated filer Non-accelerated filer Smaller reporting company ITEM 3. ITEM 4. ITEM 1. ITEM 1A. ITEM 2. ITEM 3. ITEM 4. ITEM 5. ITEM 6. September 30, 2013 December 31, 2012 (Unaudited) Assets Cash and cash equivalents Restricted cash Short-term investments Accounts receivable, net of allowance for doubtful accounts of $1,050 and $922 at September 30, 2013 and December 31, 2012 Prepaid expenses and other current assets Total current assets Property and equipment, net Goodwill Amortizable intangible assets, net Deferred financing fees, net Total assets Liabilities and stockholders’ equity (deficit) Accounts payable Accrued liabilities Deferred membership revenue Deferred advertising revenue Total current liabilities Long-term debt, including accrued interest Deferred membership revenue, noncurrent Deferred advertising revenue, noncurrent Deferred income taxes Total liabilities 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 September 30, 2013 and December 31, 2012 Common stock, $0.001 par value: 300,000,000 shares authorized, 66,974,754 and 66,425,988 shares issued and 58,416,042 and 57,867,276 shares outstanding at September 30, 2013 and December 31, 2012, respectively Additional paid-in-capital Treasury stock, at cost: 8,558,712 shares of common stock at September 30, 2013 and December 31, 2012 ) ) Accumulated deficit ) ) Total stockholders’ equity (deficit) ) Total liabilities and stockholders’ equity (deficit) Three Months Ended September 30, Nine Months Ended September 30, 2013 2012 2013 2012 (Unaudited) (Unaudited) Revenue Membership Service provider Total revenue Operating expenses Operations and support Selling Marketing Technology General and administrative Operating loss ) ) ) ) Interest expense, net Loss before income taxes ) ) ) ) Income tax expense Net loss ) ) ) ) Net loss per common share—basic and diluted ) ) ) ) Weighted average number of common shares outstanding—basic and diluted Nine Months Ended September 30, 2013 2012 (Unaudited) Operating activities Net loss ) ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization Amortization of debt discount, deferred financing fees and bond premiums Noncash compensation expense Changes in certain assets: Accounts receivable ) ) Prepaid expenses and other current assets ) Changes in certain liabilities: Accounts payable ) Accrued liabilities Deferred advertising revenue Deferred membership revenue Net cash provided by (used in) operating activities ) Investing activities Restricted cash Purchase of short-term investments ) Sale of short-term investments Acquisition of business assets ) Property and equipment ) ) Data acquisition costs ) ) Net cash used in investing activities ) ) Financing activities Sale of common stock, net of costs Proceeds from exercise of stock options Net cash provided by financing activities Net decrease in cash and cash equivalents ) ) Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period Revenue from the sale of membership subscriptions is 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 Company received payment in advance of services or advertising to be provided. Basic and diluted net loss per common share was $(0.06) and $(0.14) for the three months ended March 31, 2014 and 2013, respectively. September 30, 2013 September 30, 2012 Stock options Warrants The Company’s cash equivalents are classified within Level 1 of the fair value hierarchy on the basis of valuations using quoted market prices. 2 of the fair value hierarchy. Fair Value Measurement at September 30, 2013 Using Carrying Value at September 30, 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 Investments: Certificates of deposit Corporate bonds Total assets 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 Investments: Certificates of deposit Corporate bonds Total assets 2013: Other Current Assets September 30, 2013 December 31, 2012 Prepaid and deferred commissions Other Total prepaid expenses and other current assets Software September 30, 2013 December 31, 2012 Furniture and equipment Land Buildings and improvements Software Less accumulated depreciation ) ) Liabilities September 30, 2013 December 31, 2012 Accrued sales commissions Sales and use tax Accrued compensation Uninvoiced accounts payable Other Total accrued liabilities Fair Value Allocation Weighted Average Amortization Period (in years) Acquired intangible assets: Member list Content Core technology 1,920 Goodwill Total assets acquired revise any forward-looking statements, whether as a result of new information, future events or otherwise. 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 $ 5,933,585 $ 39.05 $ 110.62 $ 1,285,741 454,016 10.7 % 34 % 2003-2007 35 3,965,746 34.20 92.42 1,352,104 1,293,550 8.3 % 44 % 2008-2010 103 220,786 16.28 32.40 187,168 550,209 8.6 % 43 % Post 2010 96 20,885 12.07 22.49 55,460 81,092 4.6 % * Total 244 2,378,867 Three Months Ended September 30, Nine Months Ended September 30, 2013 2012 2013 2012 Total paid memberships (end of period) Gross paid memberships added (in period) Marketing cost per paid membership acquisition (in period) First-year membership renewal rate (in period) % % % % Average membership renewal rate (in period) % % % % Participating service providers (end of period) Total service provider contract value (end of period, in thousands) 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. Three Months Ended September 30, Nine Months Ended September 30, 2013 2012 2013 2012 (dollars in thousands) (dollars in thousands) Revenue Membership Service provider Total revenue Operating expenses Operations and support(1) Selling(1) Marketing Technology(1) General and administrative(1) Operating loss ) ) ) ) Interest expense, net Net loss before income taxes ) ) ) ) Income tax expense Net loss ) ) ) ) Operations and support Selling Technology General and administrative Three Months Ended September 30, Nine Months Ended September 30, 2013 2012 2013 2012 Revenue Membership % % % % Service provider Total revenue % % % % Operating expenses Operations and support Selling Marketing Technology General and administrative Operating loss ) ) ) ) Interest expense, net Net loss before income taxes ) ) ) ) Income tax expense Net loss )% )% )% )% Three Months Ended September 30, 2013 2012 % Change (dollars in thousands) Revenue Membership % Service provider % Total revenue % Percentage of revenue by type Membership % % Service provider % % Total revenue % % Total paid memberships (end of period) % Gross paid memberships added (in period) % Participating service providers (end of period) % March 31, 2013. Operations and support Three Months Ended September 30, 2013 2012 % Change (dollars in thousands) Operations and support % Percentage of revenue % % Operations and support expense remained expense over the same time period. Three Months Ended September 30, 2013 2012 % Change (dollars in thousands) Selling % Percentage of revenue % % Selling expense increased March 31, 2013. Selling expense as a percentage of revenue decreased to 36% for the three months ended Three Months Ended September 30, 2013 2012 % Change (dollars in thousands) Marketing % Percentage of revenue % % Gross paid memberships added in the period % Marketing cost per paid membership acquisition Marketing expense increased 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. Our marketing cost per paid membership acquisition Three Months Ended September 30, 2013 2012 % Change (dollars in thousands) Technology % Percentage of revenue % % Non-cash stock-based compensation moving forward. Three Months Ended September 30, 2013 2012 % Change (dollars in thousands) General and administrative % Percentage of revenue % % Non-cash stock-based compensation office facilities, and a $0.3 million increase in personnel-related base compensation costs, all of which was offset by a $0.5 million decrease in bad dept expense year over year. General and administrative expense as a percentage of revenue Nine Months Ended September 30, 2013 2012 % Change (dollars in thousands) Revenue Membership % Service provider % Total revenue % Percentage of revenue by type Membership % % Service provider % % Total revenue % % Total paid memberships (end of period) % Gross paid memberships added (in period) % Participating service providers (end of period) % Nine Months Ended September 30, 2013 2012 % Change (dollars in thousands) Operations and support % Percentage of revenue % % Nine Months Ended September 30, 2013 2012 % Change (dollars in thousands) Selling % Percentage of revenue % % Nine Months Ended September 30, 2013 2012 % Change (dollars in thousands) Marketing % Percentage of revenue % % Gross paid memberships added in the period % Marketing cost per paid membership acquisition Nine Months Ended September 30, 2013 2012 % Change (dollars in thousands) Technology % Percentage of revenue % % Non-cash stock-based compensation Nine Months Ended September 30, 2013 2012 % Change (dollars in thousands) General and administrative % Percentage of revenue % % Non-cash stock-based compensation Liquidity and Capital Resources Nine Months Ended September 30, 2013 2012 (in thousands) Net cash provided by (used in) operating activities ) Net cash used in investing activities ) ) Net cash provided by financing activities Net Cash Provided by Financing Activities March 31, 2014. 2013. Incorporated by Reference Exhibit No. Exhibit Description Form File No. Exhibit Filing Date Filed Herewith 10.1 Offer Letter with Thomas R. Fox dated August 20, 2013 8-K 10.1 8/21/2013 31.01 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act X 31.02 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act X 32.01 Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act X 32.02 Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act X 101 Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012, (ii) Consolidated Statements of Operations for the Nine Months ended September 30, 2013 and 2012, (iii) Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2013 and 2012 and (iv) Notes to Consolidated Financial Statements X By: /s/ THOMAS R. FOX Incorporated by Reference Exhibit No. Exhibit Description Form File No. Exhibit Filing Date Filed Herewith 10.1 Offer Letter with Thomas R. Fox dated August 20, 2013 8-K 10.1 8/21/2013 31.01 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act X 31.02 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act X 32.01 Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act X 32.02 Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act X 101 Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012, (ii) Consolidated Statements of Operations for the Nine Months ended September 30, 2013 and 2012, (iii) Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2013 and 2012 and (iv) Notes to Consolidated Financial Statements X☒x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 September 30, 2013March 31, 2014☐¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Delaware27-2440197Delaware 27-2440197 ☒x No ☐¨☒x No ☐¨Large accelerated filer ☐☒ ☐☐☐¨ No ☒xOctober 23, 2013 was: 58,422,542April 21, 2014 was 58,511,677.ITEM 1.Financial Statements3ITEM 1. ITEM 2. Management’s1126 $ 41,609 $ 42,638 50 50 20,972 �� 10,460 10,636 7,787 15,000 19,810 88,267 80,745 16,003 12,079 1,145 415 3,864 2,356 456 634 $ 109,735 $ 96,229 $ 3,814 $ 6,489 35,481 14,058 37,563 27,627 35,564 23,160 112,422 71,334 14,906 14,869 4,888 4,330 387 214 163 163 132,766 90,910 — — 67 66 255,767 248,326 (23,719 (23,719 (255,146 (219,354 (23,031 5,319 $ 109,735 $ 96,229 March 31,
2014 December 31,
2013 (Unaudited) Assets Cash and cash equivalents $ 43,654 $ 34,803 Restricted cash 50 50 Short-term investments 20,976 21,055 Accounts receivable, net of allowance for doubtful accounts of $1,399 and $1,107 at March 31, 2014 and December 31, 2013 13,438 12,385 Prepaid expenses and other current assets 15,732 13,651 Total current assets 93,850 81,944 Property, equipment and software, net 25,497 18,657 Goodwill 1,145 1,145 Amortizable intangible assets, net 3,461 3,500 Deferred financing fees, net 337 397 Total assets $ 124,290 $ 105,643 Liabilities and stockholders’ deficit Accounts payable $ 9,130 $ 6,838 Accrued liabilities 37,317 21,770 Deferred membership revenue 34,230 35,560 Deferred advertising revenue 42,976 39,448 Current portion of obligations under leases 179 — Total current liabilities 123,832 103,616 Long-term debt, including accrued interest 14,930 14,918 Deferred membership revenue, noncurrent 4,723 4,909 Deferred advertising revenue, noncurrent 468 521 Obligations under leases 447 — Deferred income taxes 169 169 Total liabilities 144,569 124,133 Commitments and contingencies (Note 9) Stockholders’ deficit: Preferred stock, $0.001 par value: 10,000,000 shares authorized, no shares issued or outstanding at March 31, 2014 and December 31, 2013 — — Common stock, $0.001 par value: 300,000,000 shares authorized, 67,070,389 and 67,014,757 shares issued and 58,511,677 and 58,456,045 shares outstanding at March 31, 2014 and December 31, 2013, respectively 67 67 Additional paid-in-capital 259,499 257,505 Treasury stock, at cost: 8,558,712 shares of common stock at March 31, 2014 and December 31, 2013 (23,719 ) (23,719 ) Accumulated deficit (256,126 ) (252,343 ) Total stockholders’ deficit (20,279 ) (18,490 ) Total liabilities and stockholders’ deficit $ 124,290 $ 105,643 $ 17,050 $ 12,769 $ 47,598 $ 34,036 48,450 29,253 129,288 75,584 65,500 42,022 176,886 109,620 11,016 7,140 29,418 19,631 23,960 16,240 65,582 42,974 28,189 26,088 75,870 71,316 6,942 4,905 19,349 12,223 8,421 5,669 21,019 17,420 (13,028 (18,020 (34,352 (53,944 468 467 1,395 1,380 (13,496 (18,487 (35,747 (55,324 15 — 45 — $ (13,511 $ (18,487 $ (35,792 $ (55,324 $ (0.23 $ (0.32 $ (0.62 $ (0.96 58,389,311 57,768,777 58,164,232 57,369,674 Three Months Ended
March 31, 2014 2013 (Unaudited) Revenue Membership $ 18,300 $ 14,637 Service provider 54,357 37,534 Total revenue 72,657 52,171 Operating expenses Operations and support 11,548 8,298 Selling 26,122 19,645 Marketing 23,481 19,722 Product and technology 7,457 5,595 General and administrative 7,356 6,380 Operating loss (3,307 ) (7,469 ) Interest expense, net 461 463 Loss before income taxes (3,768 ) (7,932 ) Income tax expense 15 15 Net loss $ (3,783 ) $ (7,947 ) Net loss per common share—basic and diluted $ (0.06 ) $ (0.14 ) Weighted average number of common shares outstanding—basic and diluted 58,491,230 57,948,822 $ (35,792 $ (55,324 2,874 1,960 420 209 2,666 2,213 (2,849 (3,353 4,810 (7,994 (3,175 4,152 21,423 12,601 12,577 6,540 10,494 11,199 13,448 (27,797 — 250 (27,572 — 16,855 — (2,150 — (5,685 (2,583 (701 (1,968 (19,253 (4,301 — 8,627 4,776 361 4,776 8,988 (1,029 (23,110 42,638 88,607 $ 41,609 $ 65,497 Three Months Ended
March 31, 2014 2013 (Unaudited) Operating activities Net loss $ (3,783 ) $ (7,947 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 1,220 842 Amortization of debt discount, deferred financing fees and bond premium 106 162 Non-cash compensation expense 1,533 822 Changes in certain assets: Accounts receivable (1,053 ) (1,946 ) Prepaid expenses and other current assets (2,081 ) 526 Changes in certain liabilities: Accounts payable 2,201 208 Accrued liabilities 14,843 11,374 Deferred advertising revenue 3,475 4,883 Deferred membership revenue (1,516 ) 977 Net cash provided by operating activities 14,945 9,901 Investing activities Purchase of short-term investments (2,595 ) (9,944 ) Sale of short-term investments 2,640 — Property, equipment and software (2,257 ) (1,514 ) Capitalized website and software development costs (3,953 ) — Intangible assets (390 ) (174 ) Net cash used in investing activities (6,555 ) (11,632 ) Financing activities Proceeds from exercise of stock options 461 1,706 Net cash provided by financing activities 461 1,706 Net increase (decrease) in cash and cash equivalents 8,851 (25 ) Cash and cash equivalents, beginning of period 34,803 42,638 Cash and cash equivalents, end of period $ 43,654 $ 42,613 Supplemental cash flow disclosures Capital expenditures incurred but not yet paid $ 974 $ — have beenwere prepared in conformity with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934. Accordingly, they do not include all of the information and footnotes necessary for fair presentation of financial position, results of operations and cash flows in conformity with U.S. generally accepted accounting principles. Operating results from interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole. The Company is subject to seasonal patterns that generally affect its business. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates, but management does not believe such differences will materially affect Angie’s List, Inc.’s financial position or results of operations. The Consolidated Financial Statements reflect all adjustments considered, in the opinion of management, necessary to fairly present the results for the periods. Such adjustments are of a normal recurring nature.2012.2013. As used herein, the terms “Angie’s List”, “Company”, “we”, “our” and “us” mean Angie’s List, Inc. and its consolidated subsidiaries.have beenare eliminated in consolidation.arrangement;arrangement, the service has been provided to the customer;customer, the collection of the fees is reasonably assured;assured, and the amount of fees to be paid by the customer is fixed or determinable.6Membership Revenue7680 months for annual or multi-year members and 1513 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.has beenis delivered to the purchaser. The Company’sWhile the Company is not the merchant of record with respect to its customers for these transactions, it does offer customers refunds in certain circumstances. Revenue from e-commerce revenue was $6,472 and $3,806transactions is recorded net of a reserve for estimated refunds. During the three months ended September 30,March 31, 2014 and 2013, our e-commerce revenue represented $6,258 and 2012, respectively,$4,661 of total service provider revenue, respectively.$16,090 and $11,008advertising fees for which the nine months ended September 30, 2013 and 2012, respectively.potentialpotentially dilutive equity securities are not included in the diluted net loss per common share calculation becauseas they would have had an antidilutive effect: 2,980,233 2,794,562 — 88,240 March 31, 2014 March 31, 2013 Stock options 4,761,665 3,530,831 has beenwas 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 we could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.expandsexpanded 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 nonrecurringnon-recurring basis which have beenthat were adjusted to fair value during the period. In accordance with ASC 820, we have categorized our 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:7Valuation TechniquesBecauseAs 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 corporate bond investments and certificates of deposit with fixed maturities are valued using recent trades or pricing models and are therefore classified inwithin Level 2.2013. There2014, and there were no material unrealized gains or losses as of September 30, 2013March 31, 2014 or December 31, 2012. 2013. companyCompany at fair value based on the fair value hierarchy for each class of instrument as of September 30, 2013March 31, 2014 and December 31, 2012: $ 696 $ 696 $ — $ — 10,430 — 10,416 — 10,542 — 10,538 — $ 21,668 $ 696 $ 20,954 $ — $ 1,183 $ 1,183 $ — $ — 2,640 — 2,639 — 7,820 — 7,816 — $ 11,643 $ 1,183 $ 10,455 $ — Fair Value Measurement at March 31, 2014 Using Carrying Value at March 31, 2014 Cash equivalents: Money market funds $ 721 $ 721 $ — $ — Investments: Certificates of deposit 13,705 — 13,694 — Corporate bonds 7,271 — 7,270 — Total assets $ 21,697 $ 721 $ 20,964 $ — Fair Value Measurement at December 31, 2013 Using Carrying Value at December 31, 2013 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 $ — level twoLevel 2 inputs, becauseas this borrowing bears interest at a variable (market) rate at September 30, 2013March 31, 2014 and December 31, 2012.8other current assets $ 10,495 $ 17,215 4,505 2,595 $ 15,000 $ 19,810 March 31,
2014 December 31,
2013Prepaid and deferred commissions $ 9,768 $ 9,395 Other 5,964 4,256 Total prepaid expenses and other current assets $ 15,732 $ 13,651 Equipmentequipmentsoftware was comprised of the following: $ 7,404 $ 5,929 1,464 1,401 8,234 6,417 3,568 1,949 20,670 15,696 (4,667 (3,617 $ 16,003 $ 12,079 March 31,
2014 December 31,
2013Furniture and equipment $ 9,728 $ 7,965 Land 1,464 1,464 Buildings and improvements 9,546 8,711 Software 2,735 2,629 Capitalized website and software development costs 8,247 3,320 31,720 24,089 Less accumulated depreciation (6,223 ) (5,432 ) $ 25,497 $ 18,657 Cost Accumulated Amortization Net Amortization Period (in years) March 31, 2014 Member list $ 1,670 $ 186 $ 1,484 6.0 Content 140 31 $ 109 3.0 Core technology 110 24 $ 86 3.0 Data acquisition costs 3,386 1,896 $ 1,490 3.0 Other intangible assets 300 8 $ 292 3.0 $ 5,606 $ 2,145 $ 3,461 Cost Accumulated Amortization Net Amortization Period (in years) December 31, 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 liabilities $ 2,474 $ 4,342 2,841 2,130 5,960 2,246 17,985 2,372 6,221 2,968 $ 35,481 $ 14,058 7. March 31,
2014 December 31,
2013Accrued sales commissions $ 2,243 $ 2,570 Sales and use tax 3,368 3,158 Accrued compensation 5,821 5,229 Uninvoiced accounts payable 16,617 2,977 Legal accrual 4,000 4,000 Other 5,268 3,836 Total accrued liabilities $ 37,317 $ 21,770 providesprovided for a $15,000 term loan and a $15,000 revolving credit facility. The term loan bears interest at a per annum rate equal to the greater of (i) the current cash interest rate of LIBOR plus 10% or (ii) 10.5%, and requires monthly interest-only payments until maturity in August 2015. The revolving credit facility requires monthly interest-only payments on advances, which bear interest at a per annum rate equal to LIBOR plus 5%. In addition, when less than 50% of the revolving credit facility is drawn, the Company is required to pay a non-usage charge of 0.50% per annum of the average unused portion of the credit facility. The term loan provides for penalties for early prepayment. 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. As of September 30, 2013March 31, 2014 and December 31, 2012,2013, the Company had $15,000$14,930 and $14,918, respectively, in outstanding borrowings under the term loan and available credit of $15,000 under the revolving credit facility.September 30, 2013March 31, 2014 and December 31, 2012.2013.98. AcquisitionOn August 2, 2013 Angie's List acquired substantially all of the assets of SmartHabitat, Inc. (“BrightNest”) for a purchase price of $2,650. The purchase price consists of $2,150 in cash paid at closing and an additional $500 which 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 were not material for the period ended September 30, 2013, are included in the consolidated results of operations from the date of acquisition.The following table summarizes the purchase price allocation based on the preliminary fair values of the assets acquired at the date of acquisition: $ 1,670 6.0 140 3.0 110 3.0 5.6 730 $ 2,650 Goodwill recognized from the acquisition primarily relates to the expected contributions of BrightNest to the overall Company strategy in addition to synergies and acquired workforce, which are not separable from goodwill.have an adverseadversely impact on the Company because ofdue to defense and settlement costs, diversion of management resources, and other factors.AFritzinger v. Angie’s List, was filed against the Company on August 14, 2012 in the U.S. District Court for the Southern District of Indiana (the “Court”). After the Court granted the Company’s partial Motion to Dismiss plaintiff’s deception claims, theThe lawsuit currently alleges claims forof breach of contract and unjust enrichment. Plaintiffenrichment, alleging that the Company automatically renews membership fees at a higher rate than customers are led to believe, breaching their membership agreements. On April 17, 2014, the Court issued its Order granting Preliminary Approval of the Parties' Proposed Settlement and set a final approval hearing date for September 17, 2014. The Company recorded a $4,000 legal accrual related to the settlement at December 31, 2013, and for the three months ended March 31, 2014, the Company believes this amount represents the best estimate of the Company’s ultimate liability with respect to this litigation. Any difference between the amount recorded and the actual final court-approved settlement is not expected to have a material impact on our financial condition or results of operations. her Brief in Support of her Amended Motion for Class Certification, which requests certification of two classes ofthe 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.members, dating fromInc., et al. On January 1, 2009 through present, who meet either (1) members whose membership were renewed at9, 2014, a fee that exceededclass action complaint was filed in the lowest prevailing new-member feeCourt, naming the same defendants, asserting the same claims, and asking for the corresponding membership product; same relief as sought in Baron, described above. On January 29, 2014, the Court entered a scheduling order identical to the order entered in Baron.(2) members: (a) who were in a market that has been convertedBartolone are collectively referred to “paid health” status, (b) whose memberships predated that market’s conversion to “paid health” status, and (c) whose memberships were automatically renewed in an “Angie’s List Bundle” membership upon their first renewal following their market’s conversion to “paid health” status. The plaintiff seeks compensatory damages and an award of treble damages, attorneys’ fees and costs.as the “Stockholder Class Action.” The Company believes this suitthat the Stockholder Class Action is without merit and continuesintends to vigorously defend itself vigorously in this matter.10Korda 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 costs, as well as ancillary relief. The parties have agreed to a stay of the action pending a ruling on the complaint in the Stockholder Class Action, described above.You should readfollowing discussionmeaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and analysisSection 21E of our financial conditionthe Securities Exchange Act of 1934, each as amended. All statements other than statements of historical fact, including statements regarding market and industry prospects and future results of operations in conjunction with our consolidatedor financial statements and the notes thereto included elsewhereposition, made in this report. The following discussion containsForm 10-Q are forward-looking. In many cases, you can identify forward-looking statements that reflectby terminology, such as “may”, “should”, “expects”, “intends”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of such terms and other comparable terminology. The forward-looking information may include, among other information, statements concerning our estimated and projected earnings, revenues, costs, expenditures, cash flows, growth rates, financial results, our plans estimates and beliefs. Our actualobjectives for future operations, growth initiatives or strategies, or the expected outcome or impact of pending or threatened litigation. There may also be other statements of expectations, beliefs, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results couldmay differ materially from those discussed in the forward-looking statements as a result of various factors, many of which are beyond the Company’s control.Factors that could causeSome, but not all, of these risks are listed in Item 1A. of Part 1 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and in Item 1A of Part II of this Form 10-Q.contribute to these differences include those discussed below and elsewhere in this report, particularly in the “Risk Factors” section.reviewpurchase local professionalsservices for critical needs, such as home, health care and automotive services. Our ratings and reviews, which are available only to our members, help our members find the best provider for their local service needs. We had approximately 2.42.6 million paid memberships at September 30, 2013.March 31, 2014. We allow local service providers who are highly rated by our members to advertise discounts and other promotions to our members.non-refundablenonrefundable initiation fees for monthly, annual and multi-year memberships. These fees are typically are charged in advance andadvance. Subscription fees are recognized ratably over the subscription period, and initiation fees are recognized ratably over the expected life of the membership, respectively.membership. As of September 30, 2013,March 31, 2014, approximately 93%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.for these contracts ratably over the period in which an advertising campaign is run. We are expanding our service provider sales force to continuepersonnel to drive increased service provider revenue. Our high service provider renewal raterates, both in number of service providers renewing and as a percentage of initial contract value renewed, hashave provided us with a relatively predictable revenue stream.that arerated highly rated on our website. These offerings are available through both email promotions and through postings on our website. When the member purchases a 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 fulfill their service needs.grow,grows, we begin charging membership fees and offering advertising opportunities to eligible local service providers. Historically, we have begunbegin to convert most markets to paid membership status within 24 months after launch.oura key growth strategy. Increased penetration in a market results in more member reviews of local service providers, which increases the value of our service to consumers and drives further membership growth in that market. Increased penetration in a market also drives increased advertising sales to service providers and supports higher advertising rates as the pool of members actively seeking to hire service providers grows. However, our ability to increase advertising rates tends to lag increased penetration 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. Our marketing expense increases in the second and third quarters of the year, typically peaking in the third quarter, as we increase our investment in advertising to attract consumers during the periods when we have found they are most actively seeking Angie’s List services.We have completedtransition toestimated penetration rate and average revenue per market will increase as markets mature, and over the new compensation structure for our sales force responsible for new advertising originations wherebylong term, we pay commissions to our employees as cash is collected from our service providers ratherbelieve that these increased revenues will more than upfront at booking, as we had done historically. We have seen a reduction in our prepaid expenses and therefore we have experienced a positive impact onoffset our operating cash flows, as it allowed us to grow newly originated service provider revenue on a primarily self-funded basis.expenses. In 2013,addition, our prepaid expenses related to commissions decreased while service provider revenue increased, which contributed to our ability to generate positive operating cash flows of $13.4 million for the nine months ended September 30, 2013 compared to negative operating cash flows of $27.8 million in the prior year period. 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 whichadvertising spending is payable on the one-year anniversary of the closing, subject to certain performance criteria of BrightNest employees hired by usfocused on the acquisition date. Theof new members, rather than the maintenance of existing members. Given that our 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 BrightNest assets addssize of our paid membership base at 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 September 30, 2013, are included in the consolidated resultslower level of operations from the dateoverall advertising spending. acquisition.11September 30, 2013March 31, 2014 by the following cohorts.each respective cohort. 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 2003-20072003 through 2007 cohort includes the first major subset of markets, including many of our largest potential markets, which we targeted in our national expansion strategy. The markets in this cohortthese older cohorts have begun to achievegenerally 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 haveutilize predominantly introductorylower membership and advertising rates. Therates as the markets in these cohorts generally are smaller markets that we entered to fill out our national presence. Cohort Pre-2003 10 $ 6,662,119 $ 38.54 $ 113.63 $ 1,375,876 493,817 12.6 % 29 % 2003-2007 35 4,766,477 33.79 100.09 1,456,256 1,427,873 9.8 % 34 % 2008-2010 103 285,235 17.02 38.37 198,781 606,325 10.4 % 33 % Post 2010 105 29,693 12.65 28.39 57,530 100,689 5.9 % 97 % Total 253 2,628,704 *Not meaningful(1)(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 period end. (2)(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)(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)(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 sucheach cohort, as determined by third-party data, and then dividing the allocated cohort marketing expense by the number of markets in the cohort at period 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 September 2013March 2014 demographic study by Merkle Inc. that we commissioned, there were approximately 3129 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 2826 million of these households were in our markets. The average number of households per market in our target demographic target was 425,000, 445,000,390,000, 410,000, 60,000 and 20,000 for the pre-2003, 2003-2007, 2008-2010 and post-2010 cohorts, respectively.(5)(5) Includes total paid memberships as of September 30, 2013.March 31, 2014. Total paid memberships in each cohort includes a de minimis number of complimentary memberships in our paid markets for the period presented. All revenue and paid memberships relating to locations that were not identified as part of a specific market are included in the 2008-2010 cohort.(6)(6) Estimated penetration rate is calculated by dividing the number of paid memberships in a given cohort as of September 30, 2013March 31, 2014 by the number of households meeting our target demographic criteria in suchthat cohort.(7)(7) Annual membership growth rate is the rate of increase in the total number of paid memberships in the cohort between September 30, 2013March 31, 2014 and September 30, 2012.2013.12membershipand total revenue per paid membership and service provider revenue per paid membershiphave generally increaseincreased with the maturity and corresponding increased penetration of our markets. However,markets in prior periods. In the future, we expect total revenue per paid membership to fluctuate from period to period, and inreflecting the period presented as we recorded declining total revenue per paid membership overall. This decline reflects rapid membership growth in less penetrated markets where the average membership and service provider revenue per paid membership is lower than in more penetrated markets. In addition, the decline reflects a lag intiming of our ability to leverage increased penetration in a market into increasedadjust advertising rates asgiven our advertising contract terms and membership pricing innovations designed to drive increased penetration. For example:We also have adopted As such, there is a dynamic pricing modellag in 78our ability to leverage increased penetration in a market into increased advertising rates;maturemembership 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 on an annualized basis; andoffer membersdrive deeper penetration via enhanced membership growth and to increase service provider participation.opportunitynetwork effects of a more valuable service for consumers and a more attractive commercial platform for service providers. We intend to purchase only those segments of Angie’s List that are most relevant to them, which includes the original Angie’s List, which covers 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 marketsevaluate and adopt innovative pricing and packaging strategies, such 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 thisdeeply reduced membership pricing, model will enable us to offer a betterdeliver compelling value proposition to our members and preserve cross-selling opportunities as members’ needs evolve.thereby support membership growth and retention. Although we expect that this strategythese overall dynamics have caused and may result in lower average membership fees per paid membership overall, we believe the new members generated by this pricing model should ultimately produce increased service provider revenue per paid membership. Additionally, whilecontinue to cause membership revenue per paid membership has declinedto decline sequentially in recent periodssome of our cohorts, we believe that the increase in our more mature cohortsmembership base is critical for continuing to produce the overall growth in part as a result of this dynamic pricing model,average revenue per market, service provider revenue per paid membership and total revenue per paid membership have generally continued to increase across all cohorts. In our pre-2003 cohort, service provider revenue per paid membership typically have declined slightly in the second and third quarter over the preceding quarter, due to seasonal increases in the number of paid memberships.have often achievedachieve 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 100%the majority of our marketing dollars on national advertising. Weadvertising, and 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 haveprovide fewer advertising outlets than larger markets. WeTherefore, 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. BecauseAs several of these larger markets are in the 2003-2007 cohort, over time our penetration rate in this cohort may lag other cohorts.and nine months ended September 30, 2013March 31, 2014 and 2012: 2,378,867 1,656,768 2,378,867 1,656,768 371,318 341,522 993,556 862,014 $ 76 $ 76 $ 76 $ 83 75 76 75 76 78 78 78 78 44,876 33,209 44,876 33,209 $ 181,975 $ 119,091 $ 181,975 $ 119,091 Three Months Ended March 31, 2014 2013 Total paid memberships (end of period) 2,628,704 1,951,774 Gross paid memberships added (in period) 286,626 274,896 Marketing cost per paid membership acquisition (in period) $ 82 $ 72 First-year membership renewal rate (in period) 73 % 73 % Average membership renewal rate (in period) 76 % 75 % Participating service providers (end of period) 49,370 39,265 Total service provider contract value (end of period, in thousands) $ 211,635 $ 150,262 theall periods presented. We generally expect that there will be one membership per household and, as such, each membership may actually represent multiple individual consumers.has beenwas driven by our increasingcontinually significant investment in national advertising and, to a lesser extent, by “word of mouth” referrals from our existing members.13BecauseAs we advertise in national media, somea portion of our marketing expenseexpenditures also increasesincrease 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, “word of mouth” referrals and experimentation and adjustments to our marketing expense to focus on more effective advertising outlets for membership acquisition. We typically haveincur higher marketing expense and marketing cost per paid membership acquisition 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. As such, marketing cost per paid membership also tends to be higher in these periods, particularly in the second and third quarters as we ramp up spending to build brand awareness. Our marketing expense and marketing cost per paid membership acquisition 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.7%6% of our total membership base as of September 30, 2013.March 31, 2014. 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.hasis not yet been recognized as revenue. At September 30, 2013March 31, 2014 and 20122013, our contract value backlog was $114.3$132.1 million and $74.9$95.1 million, respectively.14 $ 17,050 $ 12,769 $ 47,598 $ 34,036 48,450 29,253 129,288 75,584 65,500 42,022 176,886 109,620 11,016 7,140 29,418 19,631 23,960 16,240 65,582 42,974 28,189 26,088 75,870 71,316 6,942 4,905 19,349 12,223 8,421 5,669 21,019 17,420 (13,028 (18,020 (34,352 (53,944 468 467 1,395 1,380 $ (13,496 $ (18,487 $ (35,747 $ (55,324 15 — 45 — $ (13,511 $ (18,487 $ (35,792 $ (55,324 Three Months Ended March 31, 2014 2013 (dollars in thousands) Revenue Membership $ 18,300 $ 14,637 Service provider 54,357 37,534 Total revenue 72,657 52,171 Operating expenses Operations and support(1) 11,548 8,298 Selling(1) 26,122 19,645 Marketing 23,481 19,722 Product and technology(1) 7,457 5,595 General and administrative(1) 7,356 6,380 Operating loss (3,307 ) (7,469 ) Interest expense, net 461 463 Loss before income taxes $ (3,768 ) $ (7,932 ) Income tax expense 15 15 Net loss $ (3,783 ) $ (7,947 ) (1)(1) Includes non-cash stock-based compensation as follows: $ 19 $ — $ 52 $ — 50 — $ 101 $ — (418 ) 225 $ (55 ) $ 563 1,025 545 2,568 1,650 $ 676 $ 770 $ 2,666 $ 2,213 26 30 27 31 74 70 73 69 100 100 100 100 17 17 17 18 36 39 37 39 43 62 43 65 11 12 11 11 13 13 12 16 (20 (43 (20 (49 1 1 1 1 (21 (44 (21 (50 — — — — (21 (44 (21 (50 Operations and support $ 13 $ 16 Selling 104 25 Product and technology 209 215 General and administrative 1,207 566 $ 1,533 $ 822 15 Three Months Ended March 31, 2014 2013 Revenue Membership 25 % 28 % Service provider 75 72 Total revenue 100 % 100 % Operating expenses Operations and support 16 16 Selling 36 38 Marketing 32 38 Product and technology 10 10 General and administrative 10 12 Operating loss (4 ) (14 ) Interest expense, net 1 1 Loss before income taxes (5 ) (15 ) Income tax expense — — Net loss (5 )% (15 )% September 30,March 31, 2014 and 2013 and 2012 $ 17,050 $ 12,769 34 48,450 29,253 66 $ 65,500 $ 42,022 56 26 30 74 70 100 100 2,378,867 1,656,768 44 371,318 341,522 9 44,876 33,209 35 Three Months Ended March 31, 2014 2013 % Change (dollars in thousands) Revenue Membership $ 18,300 $ 14,637 25 % Service provider 54,357 37,534 45 % Total revenue $ 72,657 $ 52,171 39 % Percentage of revenue by type Membership 25 % 28 % Service provider 75 % 72 % Total revenue 100 % 100 % Total paid memberships (end of period) 2,628,704 1,951,774 35 % Gross paid memberships added (in period) 286,626 274,896 4 % Participating service providers (end of period) 49,370 39,265 26 % $23.5$20.5 million for the three months ended September 30, 2013March 31, 2014 as compared to the three months ended September 30, 2012.$4.3$3.7 million, primarily due to a 44%35% increase in the total number of paid memberships, partially offset by a 9%7% decrease in membership revenue per paid membership in the three months ended September 30, 2013.March 31, 2014. The decrease in average membership revenue per paid membership resulted primarily from growth in paid memberships in less penetrated markets where average membership fees per paid membership are lower. ThisIn addition, we reduced new membership fees, on average, across all markets in the current year as compared to the prior year, which further contributed to the year over year 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 loweraverage membership rate than applicable for the full service. We offer only bundled memberships to members in less penetrated markets.revenue per paid membership. The decrease in membership revenue per paid membership in the three months ended September 30, 2013March 31, 2014 also resulted from an increase from 90%92% to 93%94% of total memberships constituting annual and multi-year memberships.memberships year over year. Consumers pay more per month for a monthly membership than for an annual membership. Therefore, in periods in which our percentage of memberships shifts to more annual and multi-year memberships, our membership revenue per paid membership decreases.$19.2$16.8 million to 74%75% of total revenue, primarily as a result of a 35%26% increase in the number of local service providers participating in our advertising programs and a 10%15% increase in the average service provider contract value.revenue per 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 as service providers are able to reach a larger base of potential customers. However, as 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. E-commerce revenue of $6.4$6.3 million and $3.8$4.7 million is also included in service provider revenue infor the three months ended September 30,March 31, 2014 and 2013, and 2012, respectively. 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 fluctuate from period to period as the offerings evolve and due to seasonality.16 $ 11,016 $ 7,140 54 17 17 Three Months Ended March 31, 2014 2013 % Change (dollars in thousands) Operations and support $ 11,548 $ 8,298 39 % Percentage of revenue 16 % 16 % $3.9$3.3 million for the three months ended September 30, 2013March 31, 2014 compared to the three months ended September 30, 2012.March 31, 2013. This increase was due in part to a $1.8$1.5 million increase in call centeroperations and support personnel-related costs as compared to the prior year period as we increased our headcount to meet the needs ofservice our membersgrowing member and service providers. In addition, there was a $1.4provider base. Additionally, we incurred an approximately $1.0 million increase in publicationpublication-related costs as weassociated with the increased the circulation of ourthe Angie’s List Magazine and andue to the continued expansion of our membership base. There was also a $0.3 million increase in credit card processing fees for increased memberyear over year attributable to the growing volume of membership enrollment and service provider transactions. We expect operations and support expense to continue to increase in absolute dollars as we grow our membership and service provider bases.consistentconstant as a percentage of revenue. We expectrevenue primarily due to the fact that the year over year growth in total revenue approximated the increase in operations and support to remain relatively consistent as a percent of revenue in future periods. Three Months Ended March 31, 2014 2013 % Change (dollars in thousands) Selling $ 26,122 $ 19,645 33 % Percentage of revenue 36 % 38 % Non-cash stock-based compensation $ 104 $ 25 Selling $ 23,960 $ 16,240 48 36 39 $7.7$6.5 million for the three months ended September 30, 2013March 31, 2014 compared to the three months ended September 30, 2012. ServiceMarch 31, 2013. This increase is largely attributable to growth in service provider revenue, which increased 66%45% over the same period in the prior year. WeAdditionally, we increased the number of our sales personnel and management responsible for originating new advertising contracts and generating e-commerce offeringstransactions by 32%55% to 732 and881. We also increased the number of our sales personnel and management responsible for contract renewals by 49%54% to 186237 from the end of the prior year period.September 30, 2013 as compared toMarch 31, 2014 from 38% for the three months ended September 30, 2012March 31, 2013, primarily as a result of our transition to a new compensation structure for our sales force.personnel. As selling expense primarily consists of commissions, we generally expect it to fluctuate with service provider revenue and the composition of that revenue over time. Three Months Ended March 31, 2014 2013 % Change (dollars in thousands) Marketing $ 23,481 $ 19,722 19 % Percentage of revenue 32 % 38 % Gross paid memberships added in the period 286,626 274,896 4 % Marketing cost per paid membership acquisition $ 82 $ 72 Marketing $ 28,189 $ 26,088 8 43 62 371,318 341,522 9 $ 76 $ 76 $2.1$3.8 million for the three months ended September 30, 2013March 31, 2014 compared to the three months ended September 30, 2012,March 31, 2013 due to a plannedan increase in national advertising to acquire new members.remained consistent.increased from $72 for the three months ended March 31, 2013 to $82 for the three months ended March 31, 2014 due to the fact that marketing expenditures increased by approximately 19% year over year, while gross paid memberships added during the period only increased by 4% over the same time period. Consistent with the seasonality that characterizes our business, our marketing expense and marketing cost per paid membership acquisition typically peak in the second orand third quarters of the year. Three Months Ended March 31, 2014 2013 % Change (dollars in thousands) Product and technology $ 7,457 $ 5,595 33 % Percentage of revenue 10 % 10 % Non-cash stock-based compensation $ 209 $ 215 17Technology $ 6,942 $ 4,905 42 11 12 $ (418 ) $ 225 TechnologyProduct and technology expense increased $2.0$1.9 million for the three months ended September 30, 2013March 31, 2014 compared to the three months ended September 30, 2012.March 31, 2013. The increase in product and technology expense was primarily attributable to a $1.0$0.8 million increase in technology-related outside consulting and professional fees and a $0.5 million increase in personnel-related costs as well as costs incurred to continue to develop our technology platform and service our growing base of members and service providers. This increase is partially offset by a decrease in non-cash stock based compensation due to forfeitures in the current period. We expect product and technology expense, to continuewhich includes costs associated with new product development as well as maintenance of our website, to increase in absolute dollars in future periods as we continue to develop our technology platform and service our growing base of members and service providers.Technology Product and technology expense as a percentage of revenue was consistent compared to the prior year period. Weperiod, and we expect technology expensethis trend to continue to remain relatively consistent as a percentage of revenue. $ 8,421 $ 5,669 49 13 13 $ 1,025 $ 545 Three Months Ended March 31, 2014 2013 % Change (dollars in thousands) General and administrative $ 7,356 $ 6,380 15 % Percentage of revenue 10 % 12 % Non-cash stock-based compensation $ 1,207 $ 566 $2.8$1.0 million for the three months ended September 30, 2013March 31, 2014 compared to the three months ended September 30, 2012. This increase is primarilyMarch 31, 2013. The most significant drivers behind the result of increasesfluctuation in personnel, professional and other consulting fees, product development, and general business costs to support the growth of the company. We expect general and administrative expense toyear over year were a $0.6 million increase in absolute dollarsgeneral and administrative non-cash stock-based compensation expense, a $0.5 million increase in future periodsgeneral office expenditures such as we supportutilities and telephone expense attributable to the expansion and upgrading of our growing organization. has remained relatively consistent. Becausethe reasons stated above,economies of scale. Moving forward, we expect general and administrative expense as a percentage of revenue to increase inremain consistent from one period to the near term.next.18Comparison ofInterest expense was approximately $0.5 million for both the ninethree months ended September 30, 2013March 31, 2014 and 2012Revenue $ 47,598 $ 34,036 40 129,288 75,584 71 $ 176,886 $ 109,620 61 27 31 73 69 100 100 2,378,867 1,656,768 44 993,556 862,014 15 44,876 33,209 35 Total revenue increased $67.3 million for the ninethree months ended September 30,March 31, 2013 as compared to the nine months ended September 30, 2012.Membership revenue increased $13.6 million primarily due to a 44% increase in the total number of paid memberships, partially offset by a 8% decrease in membership revenue per paid membership in the nine months ended September 30, 2013. The decrease in membership revenue per 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. The decrease in membership revenue per paid membership in the nine months ended September 30, 2013 also resulted from an increase from 90% to 93% of total memberships constituting annual and multi-year memberships.Service provider revenue increased $53.7 million to 73% of total revenue primarily as a result of a 35% increase in the number of local service providers participating in our advertising programs and an 8% increase in the average service provider contract value. Service provider revenue primarily consists of revenue from advertising contracts with service providers. E-commerce revenue of $16.1 million and $11.0 million is included in service provider revenue in the nine months ended September 30, 2013 and 2012, respectively.Operations and supportoutstanding debt remained constant. $ 29,418 $ 19,631 50 17 18 Operations and support expense increased $9.8 million for the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012. This increase was due in part to a $4.3 million increase in call center costs as compared to the prior year period as a result of increased headcount. In addition, there was a $3.5 million increase in publication costs as we increased the circulation of ourAngie’s List Magazine and $1.7 million increase in credit card processing fees for member enrollment and service provider transactions.19Selling $ 65,582 $ 42,974 53 37 39 Selling expense increased $22.6 million for the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012. Service provider revenue increased 71% over the same period in the prior year.Selling expense as a percentage of revenue decreased for the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012 primarily as a result of our transition to a new compensation structure for our sales force.Marketing $ 75,870 $ 71,316 6 43 65 993,556 862,014 15 $ 76 $ 83 Marketing expense increased $4.6 million for the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012, due to a planned increase in national advertising 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.Technology $ 19,349 $ 12,223 58 11 11 $ (55 ) $ 563 Technology expense increased $7.1 million for the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012. The increase in technology expense was primarily attributable to a $4.0 million increase in personnel-related costs as well as costs incurred to continue to develop our technology platform and service our growing base of members and service providers. This is partially offset by a decrease in non-cash stock based compensation related to forfeitures which occurred in the current period.Technology expense as a percent of revenue remained consistent compared with the prior year period.20General and administrative $ 21,019 $ 17,420 21 12 16 $ 2,568 $ 1,650 General and administrative expense increased $3.6 million for the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012. The increase is the result of bad debt expense recorded in the current year to date period related to uncollectible receivables, increase in headcount and an increase in outside consulting and professional services fees. This is 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 was 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 as well as the one time charge in the prior year for the follow-on sale of common stock offering that was not repeated in the current year period.21September 30, 2013,March 31, 2014, we had $41.6$43.7 million in cash and cash equivalents and $21.0 million in short-term investments. Cash and cash equivalents consists of bank deposit accounts and money market funds with contractual maturities of three months or less, which, at times, may exceed federally insured limits. Short termShort-term investments consist of corporate bonds and certificates of deposit with maturities of more than 90 days but less than one year. To date, the carrying value of these investments approximate their fair values, and we have experiencedincurred no loss in these accounts.ninethree months ended September 30,March 31, 2014 and 2013 and 2012 is set forth below. $ 13,448 $ (27,797 (19,253 (4,301 4,776 8,988 Three Months Ended March 31, 2014 2013 (in thousands) Net cash provided by operating activities $ 14,945 $ 9,901 Net cash used in investing activities (6,555 ) (11,632 ) Net cash provided by financing activities 461 1,706 (Used in) Operating Activitiesforcepersonnel to originate service provider contracts, investing in technology personnel and associated compensation structure,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. We expect positive operating cash flows in some periods and negative operating cash flows in others depending on seasonality and the extent of our investments in future growth of the business.ninethree months ended September 30, 2013March 31, 2014 of $13.4$14.9 million was achieved despite a net loss of $35.8$3.8 million. Our cash provided by operating activities was attributable to a deferred advertising revenue increase of $23.1$3.5 million as a result of an increase in both the number of our paid memberships and in the number of service providers participating in our advertising programs and a $17.0 million net increase in accounts payable and accrued liabilities primarily related to increases in accrued marketing expenses ($11.2 million increase), accrued e-commerce ($1.1 million increase), accrued base payroll ($1.1 million increase) and general accounts payable ($2.3 million increase) and the expected timing of payment of these balances. In addition, our net loss was adjusted for $2.8 million of non-cash expenses, which included $1.5 million of stock-based compensation expense, $1.2 million of depreciation and amortization, and $0.1 million attributable to the amortization of debt discount, deferred financing fees and the bond premium. Uses of cash included a $1.1 million increase in accounts receivable attributable to an $18.2increase in service provider billings, a $2.1 million increase in prepaid expenses and other current assets and a $1.5 million decrease in deferred membership revenue.timingnumber of paymentour paid memberships and the number of these balances, and a decreaseservice providers participating in prepaid expenses of $4.8 million primarily attributable to our change in compensation structure for our sales force responsible for new advertising originations.programs. In addition, our net loss was adjusted for $6.0$1.8 million of non-cash expenses, which included $2.7$0.8 million of stock-based compensation expense, $2.9 million of depreciation and amortization, and $0.4 million attributable to the amortization of debt discount and deferred financing fees. Uses of cash included a $2.8 million increase in accounts receivable attributable to an increase in service provider billings.Our use of cash in operating activities for the nine months ended September 30, 2012 was primarily attributable to our net loss of $55.3 million, reflecting continued investments in national advertising, an increase in our sales personnel, our increased investment in technology as we increased engineering headcount, as well as other headcount increases and other expenses to grow our business. This net loss was adjusted for $4.4 million of non-cash expenses, which included $2.2 million of stock-based compensation expense, $2.0$0.8 million of depreciation and amortization, and $0.2 million attributable to the amortization of debt discount and deferred financing fees. Additional usesUses of cash included a $8.0$1.9 million increase in prepaid expenses primarily as a result of the timing of payment of commissions to our sales personnel and an increase in accounts receivable of $3.4 million attributable to an increase in service provider billings. These usesninethree months ended September 30,March 31, 2014 was largely attributable to the total combined $6.2 million in property, equipment and software related spend during the period, consisting of $2.3 million for facilities and information technology hardware and software and nearly $4.0 million for capitalized website and software development costs, as we continue to make significant upgrades to our web and mobile platforms and implement new information technology infrastructure to support our growth. We also spent approximately $0.4 million during the quarter on data acquisition to acquire consumer reports on service providers and to purchase a website domain name.purchases netpurchase of sales of $10.7$9.9 million in investments in corporate bonds commercial paper and certificates of deposit with maturities between ninety days and one year, $5.7$1.5 million for facilities and information technology hardware and software $2.2 million for the purchase of BrightNest assets in August 2013 and $0.7$0.2 million for data acquisition to acquire consumer reports on service providers.22Our use of cash in investing activities in the nine months ended September 30, 2012 was attributable to $2.6 million in information technology investments and $2.0 million for data acquisition, consisting primarily of consumer reviews on service providers. These uses of cash were offset in part by a decrease in restricted cash of $0.3 million during the period, which had previously been established as a reserve required under our credit card agreements.ninethree months ended September 30,March 31, 2014 and 2013 consisted solely of proceeds from the exercise of employee stock options.Net cash provided by financing activities for the nine months ended September 30, 2012 consisted of proceeds from the sale of common stock of $8.6 million, net of underwriting discounts, commissions, fees and expenses, and $0.4 million in proceeds from the exercise of employee stock options.providesprovided for a $15.0 million term loan and a $15.0 million revolving credit facility. AsThe term loan bears interest at a per annum rate equal to the greater of September 30, 2013,(i) the current cash interest rate of LIBOR plus 10% or (ii) 10.5%, and requires monthly interest-only payments until maturity in August 2015. The revolving credit facility requires monthly interest-only payments on advances, which bear interest at a per annum rate equal to LIBOR plus 5%. In addition, when less than 50% of the revolving credit facility is drawn, the Company is required to pay a non-usage charge of 0.50% per annum of the average unused portion of the credit facility. The term loan provides for penalties for early prepayment. 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.As of March 31, 2014, we had $15.0$14.9 million in outstanding borrowings under the term loan and available credit of $15.0 million under the revolving credit facility.September 30, 2013.havehold any off-balance sheet interest in variable interest entities, which include special purpose entities and other structured finance entities.and non-cancellable operating leases. There have beenleases and a capital lease. Other than the execution of a new capital lease obligation during the quarter, there were no significant changes in our contractual obligations from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012.have beenwere no material changes to our critical accounting policies and estimates from those described in our Annual Report on Form 10-K for the year ended December 31, 2012.2013.have beenwere no material changes in our exposure to market risk since the disclosure in our Annual Report on Form 10-K for the year ended December 31, 2012.2013. Please refer to Part II, Item 7A. Quantitative and Qualitative DisclosureDisclosures about Market Risk included in our Annual Report on Form 10-K for our fiscal year ended December 31, 20122013 for a more complete discussion of the market risks we encounter.have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2013.March 31, 2014.8.9. Commitments and Contingencies” of this Quarterly Report on Form 10-Q, and is incorporated by reference herein.2012.2013. The risks discussed in our Annual Report on Form 10-K could materially affect our business, financial condition and future results. The risks described in our Annual Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we 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 orof your investment.None.None.25 001-35339 26Exhibit Description Form File No. Exhibit 31.01 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act X 31.02 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act X 32.01 Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act* X 32.02 Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act* X 101 Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets as of March 31, 2014 and December 31, 2013, (ii) Consolidated Statements of Operations for the Three Months ended March 31, 2014 and 2013, (iii) Consolidated Statements of Cash Flows for the Three Months ended March 31, 2014 and 2013 and (iv) Notes to Consolidated Financial Statements X SIGNATURESOctoberApril 24, 2013.2014.ANGIE’S LIST, INC. Name: Thomas R. Fox Name:Thomas R. FoxTitle:Exhibit Description Form File No. Exhibit 31.01 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act X 31.02 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act X 32.01 Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act* X 32.02 Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act* X 101 Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets as of March 31, 2014 and December 31, 2013, (ii) Consolidated Statements of Operations for the Three Months ended March 31, 2014 and 2013, (iii) Consolidated Statements of Cash Flows for the Three Months ended March 31, 2014 and 2013 and (iv) Notes to Consolidated Financial Statements X EXHIBIT INDEX 001-35339 28