Leslie Arena - Angie's List, Inc. Scott Durchslag - Angie's List, Inc. Thomas R. Fox - Angie's List, Inc.

Blake Harper - Loop Capital Markets LLC Alec Brondolo - Oppenheimer & Co., Inc. (Broker) Peter C. Stabler - Wells Fargo Securities LLC Justin T. Patterson - Raymond James & Associates, Inc.

Good day, ladies and gentlemen, and welcome to Angie's List Fourth Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference is being recorded. I would like to introduce your host, Leslie Arena. You may begin. Leslie Arena - Angie's List, Inc.: Thank you. Good morning and welcome to the Angie's List fourth quarter and full-year 2016 earnings conference call. With me today are Scott Durchslag, Angie's List President and CEO; and Tom Fox, our CFO. At the conclusion of our prepared remarks, we will be happy to take your questions. As a reminder, today's discussion will include statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially. More information about those risks and uncertainties is contained in our SEC filings. We caution you against placing undue reliance on these forward-looking statements and disclaim any intent or obligation to update them. In addition, as we refer to earnings, we will also refer to adjusted EBITDA, which we define as earnings before interest, income taxes, depreciation and amortization, non-cash stock-based compensation expense, amounts recorded for any legal settlement accrual and non-cash long-lived asset impairment charges as applicable. Adjusted EBITDA is a non-GAAP financial measure and you can find a reconciliation to GAAP in our earnings release, which is posted on the IR section of our website. We believe that the use of adjusted EBITDA provides additional insight for investors to use in evaluation of ongoing operating results and trends. However, it should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP. I would now like to turn the call over to Scott. Scott Durchslag - Angie's List, Inc.: Thanks, Leslie. Good morning and thank you for joining us on the call today. Before we dive into the results, I want to take a moment to look back on the progress we've made over the past 12 months. 2016 was a transformative year for Angie's List as we accomplished a number of very difficult milestones. While not without its challenges, we executed well and did not shy away from doing the necessary things to strengthen and reposition the core business. We began the year by embracing the opportunities that lie ahead in the large, vibrant home services space, while at the same time facing the reality of our company's slowing revenue growth and plateauing member addition. Our position in the industry has been unique. On the one hand, we had unparalleled brand awareness, tremendous site traffic and the highest levels of perceived quality among our peers. But on the other, we were not efficiently monetizing the more than 100 million annual visits to our site and we were not effectively penetrating the fastest-growing segments of the consumer base, especially home-owning millennials. While not an easy decision, last summer, we launched our new freemium service and removed the reviews paywall nationwide. Implementing freemium across our entire business was a significant undertaking and it's one that we completed successfully and on schedule. Not only did we make our reviews available free of charge, but we also rolled out new tiers to our more than 3 million members, and we did so without disruption. We recognized at the outset that monetization of freemium would take time and we believe it would occur in what we call waves. As a reminder, Wave 1 is about the top of the funnel to grow members and engagement. For the full year, we added 2.9 million gross members and we ended the year with a total of 5.1 million members. To put our full-year member additions into perspective, we've nearly tripled our gross additions in 2016 compared to 2015. This is a remarkable achievement, but it's only part of the member result. Aside from additions, we, of course, also monitor members' behavior. I want to take a moment to discuss what we're seeing in our new member engagement, which we defined here as new unique members who joined in the quarter. So, for the fourth quarter, unique new member visits increased 120% versus a year ago. Unique new members searching on the Angie's List platform increased 113%. And unique new members viewing profiles increased 98%. While good, those results are not sufficient, and we have more to do to engage the entire member base. We want members to use Angie's List more frequently and more extensively. While Wave 1 continues, we've now entered Wave 2, which is about converting those growing members into increasing sales origination. In 2016, we added 1,200 net participating service providers, up from 162 we added in the prior year. We now have nearly 56,000 service providers. While net service providers in the fourth quarter declined sequentially due to seasonality and the holidays, we see opportunities to grow this number over time with our focus on more and deeper member engagement and efforts to improve our value proposition to service providers. As a reminder, Wave 3 targets increasing service provider renewal rates. In this wave, we expect the flywheel to gain momentum, driving revenue growth and margin expansion. This wave should begin to build before year-end. But due to revenue recognition and the dynamics of our model, or what we referred to as the flywheel, it won't contribute meaningfully to revenue before 2018. Our progress for 2016 should be assessed against the five milestones that we first communicated to you at Investor Day last March. The first milestone was migrating our technology platform to AL 4.0, which we completed in April. This move from an old monolithic platform to a new cloud-hosted modular micro-services architecture now enables us to accelerate product innovation and delivery. The migration challenges that we encountered earlier in the year are largely behind us, although the related impact from lower renewals will be felt through summer due to the length of our 12-month advertising contract. In 2017, our technology and product focus is on leveraging the capabilities of the platform to deliver tangible improvements to the user experience that drive member engagement, a theme that exists across each of our 2017 priorities. The second milestone was the removal of the paywall, which led to the growth in members and new member engagement that I discussed. Our third milestone is to optimize the sales engine. During the year, we made broad and deep changes across both originations and client success, our account management sales organization. Sales originations productivity improved for the year, aided in part by the movement of head count within the sales organization. To achieve this, we improved sales processes, sales tools, service provider targeting, pricing, organization design, and leadership and training. In addition, we took steps to strengthen our service provider relationships by differentiating the presentation for advertisers on our website and reducing the portfolio size for our client service reps to improve effectiveness. Sales optimization will continue to be a priority in 2017. Our fourth milestone was to optimize marketing and operation. For the year, we reduced marketing spend by 22% as we made more higher return marketing investments, improved the mix of our spend between online and television, partnered with leading agencies, and increased usage of software solutions and tools to improve our marketing effectiveness. In 2017, we expect to derive continued marketing leverage from our freemium model. Our fifth milestone is building customer-centric products, which is our top priority in 2017. In 2016, we introduced new products for our customers, including our Bluebook Pricing Guide and service provider dashboard. In 2017, we're focused on improving the user experience on MobileWeb by, one, providing an improved user interface to our site and app; two, delivering a richer messaging functionality to facilitate communications between members and service providers; and three, evolving our search capabilities to better match results to our service providers and drive successful outcomes to support monetization flexibility to make it easier for service providers to buy from us. Turning to our financial results. For the year, the net loss was $7.9 million compared to net income of $10.2 million a year ago. Adjusted EBITDA, which is a non-GAAP financial measure, was a very good news story. For the year, we held adjusted EBITDA flat from a year ago at approximately $28 million due to the actions we took to reduce our cost structure as we continue to invest in product and technology. During the year, we reduced operating cost by $10 million. And in the fourth quarter, we implemented annualized cost improvements of an additional $20 million, which will benefit our cost structure going forward. Revenue for the year was $323 million, down from $344 million a year ago. For the fourth quarter, we reported net income of nearly $9 million, adjusted EBITDA of $17 million and revenue of $77 million. Before turning the call over to Tom, you recall that we announced in November that we had formed the strategic committee of independent board members to explore strategic alternatives for the company and engage Allen & Company and BofA Merrill Lynch to advise us on this effort. That exploration is still active and ongoing, but we will not comment further at this time. Given the strategic alternatives process underway, we're not providing guidance for 2017. Now, I will turn the call over to Tom to detail our Q4 and 2016 financial results. Thomas R. Fox - Angie's List, Inc.: Thanks, Scott, and good morning. Revenue for the quarter was $76.7 million, a decline of $9.6 million from the year-ago quarter due to lower service provider and member revenue. For the year, as Scott mentioned, revenue was $323.3 million, a decline of 6% from 2015. Service provider revenue, which includes advertising and e-commerce, was $64.2 million in the quarter, a decline of $5.5 million compared to a year ago due to platform-related impact to attrition and e-commerce earlier in the year, and our lower originations bookings in December. Member revenue was $12.5 million, down from $16.6 million a year ago due to having fewer paid members as a result of our freemium offer and reflecting lower marketing spend. Gross merchandise value or GMV declined in the fourth quarter versus a year ago on lower unit sales. The resulting decline in e-commerce revenue in the fourth quarter was partially offset by increases in e-commerce take rates of nearly 3 percentage points in the fourth quarter versus a year ago. Service provider contract value backlog, which consists of that portion of contract value that has not yet been recognized as revenue, was $147.3 million at December 31, 2016, down from $151.8 million sequentially and $162.5 million at year-end 2015. Reflecting the sales process improvements that we've implemented over the past year, we grew originations productivity per rep on slightly lower total originations booking. While renewals booking has declined year-over-year on the fourth quarter due to the lingering impact of the platform migration, we expect renewals to improve as we progress to Wave 3, which is expected to begin by year-end. Net income and earnings per share in the fourth quarter were $8.9 million and $0.15, respectively, compared to $14.2 million and $0.24 per share in the fourth quarter of last year. The reduction in net income was driven by the decline in revenue and an increase in depreciation and amortization expense versus last year's fourth quarter. For the year, the net loss was $7.9 million compared to net income of $10.2 million a year ago on lower revenue, an increase in depreciation and amortization as our new platform and related software assets replaced into service and higher non-cash stock-based compensation expense. Net loss per share was $0.13 in 2016 compared to earnings per share of $0.18 in 2015. Adjusted EBITDA, which is a non-GAAP financial measure, was $16.9 million for the fourth quarter, as Scott mentioned, aided by leverage in key line items including operations and support, marketing and selling as we invested in product and technology. Included in our results in the fourth quarter are approximately $1.5 million in non-operational severance-related expenses associated with the reduction in force that we announced in the fourth quarter. Marketing expense for the fourth quarter was $6.3 million, a decline from $10.1 million in the year-ago quarter as we reduced spend in the tighter advertising market around the presidential election. We significantly improved customer acquisition efficiency and added 266% more members on 62% of the spend when compared to the year-ago quarter aided by freemium. For the year, marketing expense was $65.1 million versus $83.8 million in 2015. Paid member renewal rates in the fourth quarter declined a modest 1% sequentially, reflecting good resilience in paid membership. This follows a larger decline of paid members that occurred in the third quarter. We believe that the shift came as a result of our freemium introduction and outreach to customers, informing them of our new offers. We added 785,000 gross members in the fourth quarter compared to 214,000 in the year-ago quarter. For the year, we added 2.9 million compared to 1 million in 2015. Selling expense in the fourth quarter was $26.6 million, down $900,000 compared to a year ago. For the year, selling expense was $111 million compared to $116 million in 2015 as we improved processes, reduced head count and added leverage in the sales organization. We ended the quarter with a total of 860 people in our sales organization, an 8% reduction from 933 a year ago. Of the 860, 560 were responsible for originations and 300 responsible for client success. Operations and support expense in the fourth quarter declined to $7.7 million from $12.6 million in the year-ago quarter due to implementation of our digital content strategy, as well as a decrease in compensation and personnel-related costs. For the year, we reduced operations and support cost by 28% from a year ago to $40.3 million. This is a significant improvement. General and administrative expense for the fourth quarter was $10.2 million, a decrease from $11.7 million in the year-ago period. For the year, G&A expenses increased to $54 million compared to $38.3 million in 2015, primarily due to costs incurred for the development and execution of our long-term profitable growth plan, optimization of our service provider go-to-market activities, and stock-based comp and onetime non-operational expenses. Product and technology expense for the quarter was $15.7 million, an increase from $9.7 million in the year-ago period, reflecting an increase in personnel costs associated with deployment of our product roadmap and technology platform and platform-related depreciation expense. For the year, product and technology expense was $56 million compared to $36.7 million in 2015. Moving now to the balance sheet and cash flow. We ended the quarter with $38.9 million in cash, cash equivalents and investments. Cash generated from operations in the fourth quarter was $2.9 million compared to $5.3 million in the year-ago quarter. Capital expenditures were $2.7 million in the fourth quarter, down from $7.4 million in the year ago quarter. The resulting fourth quarter free cash flow was a net inflow of $200,000, an improvement from the use of $2.1 million a year ago. For the year, CapEx was $18.6 million versus $34.3 million in 2015, reflecting the operationalization of our platform that was put into service in 2016 and the resulting shift of capitalized spend to the income statement. Free cash flow in 2016 was a use of $17 million versus a use of $7.6 million a year ago. With that, I'll pass the call back over to Scott. Scott Durchslag - Angie's List, Inc.: Thanks, Tom. In summary, while we accomplished a great deal in 2016, we have more work to do before we see the full effects of the transformation. As we've said before, financial performance will lag operational progress and it will take time before we meaningfully improve trends in our financial results. In addition, there are things that we must do faster, better, more efficiently, and we need to do those things with a customer-first mentality. Most importantly, we must truly create a compelling user experience that will improve member engagement. We also want to drive value for our service providers, both in their ROI as well as through their experience with Angie's List to increase originations and renewal, which drive our financial performance. With that said, I want to be clear on our three priorities for 2017. One, build products that increase engagement; two, strengthen the value proposition to our service providers, including by upgrading our CRM and contract systems to improve our go-to-market flexibility; three, continue to improve our cost structure. Now, we'll move to Q&A. Operator, please open the line for questions.

Thank you. And our first question comes from the line of Blake Harper from Loop Capital. Your line is open. Blake Harper - Loop Capital Markets LLC: Yeah. Thanks. Hey, Scott. Appreciate you taking the question. I wanted to ask you specifically when you talked about building products for 2017. Can you give us a status update on your LeadFeed product, where it is as far iteration on – and also with the service provider adoption right now and adoption on the consumer side as well? Thanks. Scott Durchslag - Angie's List, Inc.: Sure. I mean, as you recall, Blake, we launched LeadFeed beta before we made the decision to launch freemium offer. So, our thinking has evolved some on LeadFeed. In a turnaround, we've got to make decisions about priorities and what we did was we put the paywall and the platform migration as a priority over doing all of the iterations on LeadFeed out of the beta. That would have been helpful in optimizing it. And it turns out actually, because of Google's changes, that's kind of a – it could have been a blessing in disguise because the way LeadFeed was actually working, it was capturing people that would have been bouncing off of the paywall. And in the changes that they made to their algorithm, that would have heavily penalized our SEO had we left it that way. So we would have been optimizing on something that effectively had a change anyhow in January when Google made their changes. So, what we're now doing as we look at our roadmap in 2017, LeadFeed is important and it has priority to be integrated into one of our solutions for either a deal or for convenience or for quality. So we know when consumers are coming in, they're looking for one of those three things. Give me a deal, get me connected with the service provider quickly. That's the LeadFeed funnel in our quality. That's our search experience. So, LeadFeed's for convenience. And what we're doing as we work on the user experience is having it seamlessly integrated into the flow, which I think will have a do very well with consumers because it solves the problem for them quite quickly, and the take-up has been quite good from service providers. So, we should have both supply and demand then. Blake Harper - Loop Capital Markets LLC: Okay. Thanks, Scott. Leslie Arena - Angie's List, Inc.: Next question, operator?

Thank you. And the next question comes from the line of Jason Helfstein from Oppenheimer. Your line is open. Alec Brondolo - Oppenheimer & Co., Inc. (Broker): Hey. This is Alec. Thanks for taking the question. So, marketing spend down 22% year-over-year. Thinking about that spend in 2017, is the expectation that that will be sort of flat or might we see some sort of reacceleration in that? And then I have a follow-up. Thank you. Thomas R. Fox - Angie's List, Inc.: Hi, Alec. It's Tom. Yeah, we're not providing specific guidance on the P&L, so I can't really answer that question. Alec Brondolo - Oppenheimer & Co., Inc. (Broker): Okay. And then, I guess you guys called out some product improvements that you're looking to make going into 2017, one of them being the user interface. Can you kindly give us some color around where you think improvements need to happen to improve the consumer experience there? Scott Durchslag - Angie's List, Inc.: Yeah. I mean, I think as we look at the member base that's coming in, Green members behave a little bit differently from our existing paid members, and we want to try and make sure that the user experience works well so that they can actually get done what they want to get done when they come to the site. So, for competitive reasons, I'm not going to give you the whole roadmap on everything that we're going to do. But we're basically trying to overhaul the experience to be able to make it sort of simplified and streamlined to be able to get to exactly the content and the action that they want in order to be able to get work done, to get their to-do list kind of done. And at the same time, we want to enhance some of the capabilities that link the consumers to the service providers. So at those connection points, they can, in a much more frictionless way, be able to get connected with the right service provider and get them out at the right time to get a job well done. We did also talk about the improvements kind of in the search capability itself, the dynamic search capabilities kind of on the matching algorithms to take it to the next level in terms of being more multi-dimensional in terms of what it looks at in connecting the right consumer to the right service provider. So, it's a win on both sides. At the end of the day, the service providers want a higher close rate on that consumer for a job that is going to really happen. And so, we're sort of looking at improvements on those three dimensions. Alec Brondolo - Oppenheimer & Co., Inc. (Broker): Perfect. Thanks so much. Scott Durchslag - Angie's List, Inc.: Okay.

Thank you. And our next question comes from the line of Peter Stabler from Wells Fargo Securities. Your line is open. Peter C. Stabler - Wells Fargo Securities LLC: Good morning. Thanks for taking the questions. I've got a couple. So, first of all, on the removal of guidance, could you help us with your thinking there? As the overall revenue picture for Angie's continue to skew more towards service providers and really in annual contract business, just wondering why we won't get any guidance going forward. And with no guidance, just in the absence or in the absence of formal guidance, could you help us maybe more broadly on when do you think from a phasing perspective throughout 2017 when the improvements that you're expecting on some of the service provider metrics in terms of backlog and origination value might kick in? So, that's one. And then, secondly, wondering if you could give us a little bit of color around your comments around need for increased flexibility in your go-to-market strategy. Would that include potentially signing shorter contracts? Many of your competitors are willing to sign shorter contracts with their SPs. So, just my question there. Thank you. Scott Durchslag - Angie's List, Inc.: Yeah. Peter, I mean – I'm sorry, no. Because of the strategic alternatives process, we're not providing guidance for 2017. So, I really can't go into the first part of your question. On the second part of your question, as it relates to kind of how we're thinking about flexibility in our go-to-market strategy, the answer to that is yes. We are thinking broadly about different ways to just make it easier for service providers to be able to do business with us and we're trying to think about it in ways that also make us more addressable to a broader segment of service providers. So contract duration is one thing that you look at there. There's a couple of other things that you potentially could look at as well. And so we're looking across those things, but that's the reason one of the priorities that I talked about on the product side was systems in sales support that enable that flexibility. One of the reasons we haven't done that sooner is we've been constrained in that regard, and our salespeople have to actually go through too many hoops in multiple systems in order to get somebody new up and running, and we want to simplify and streamline that dramatically. And at the same time we do that, it'll also give us the ability to have more flexibility in the type of contracts that we sign. Peter C. Stabler - Wells Fargo Securities LLC: Thank you.

Thank you. Leslie Arena - Angie's List, Inc.: Next question?

And our next question comes from the line of Kerry Rice from Needham. Your line is open.

Thanks for taking question. This is Danielle (28:46) for Kerry. One question is on the member revenue. When do you think it'll stabilize from the rollout of the freemium model and maybe start to reaccelerate? And second is to digging on the SP revenue, what should we think about in terms of the selling expense for 2017 and whether you would reaccelerate the sales force investment? Thank you. Thomas R. Fox - Angie's List, Inc.: I'll take the second one. I'll let maybe Scott talk about the member business. But we're not providing specific guidance on any of the expense lines for 2017. I mean, I can take you back to what we said for many, many years. As we look at the kind of economics of the sales organization and the rep (29:41) economics and we're always trying to optimize. As we talked in the prepared remarks, we've seen really good improvements in productivity, particularly in 2016 that I think we like particularly because they enable us to think about ways we staff the selling organization, the amount of resources they put to bear there. But we've actually been able to do kind of more with less in 2016, which is a good foundation from which to build. But beyond those sort of just conceptual comments, I don't want to provide any specific kind of guidance on what to expect for 2017. Scott Durchslag - Angie's List, Inc.: Yeah. And on the first part of your question on numbers, you're straying into guidance there as well. But what I will say is that we're focused on engagement. That's the priority in 2017. With respect to what's likely to happen with the existing paid numbers, we're going to continue to keep growing the Green member join. So, you can expect kind of a managed decline in paid numbers. But at the same time, there's elements in the experience that create options for some of those free members to become paid members to take advantage of the benefits that we're offering there. It's more important from the overall kind of financial outlook for the company to focus on the service provider revenue side and how we look to kind of grow service provider revenues. And in particular, as we've said, given the nature of the freemium transition we've made, focus first on the originations, numbers at the first place you'll see kind of the financial realization of the improvements that we've made in new member join and engagement. And then what we should start to see towards the end of the year, we've had some improvement on the renewal side. And those time delays just have to do with how revenue recognition works and what the cycle is for our business.

In terms of... Scott Durchslag - Angie's List, Inc.: I can't say more than that actually (32:07).

Okay. All right. Thank you.

Thank you. And our next question comes from the line of Aaron Kessler from Raymond James. Your line is open. Justin T. Patterson - Raymond James & Associates, Inc.: Hi. Great. Thanks. This is Justin for Aaron. With respect to service providers and differentiation, could you just really comment on how exactly service providers reviewing the new format and just the customer experience that they're seeing from this? Thanks. Scott Durchslag - Angie's List, Inc.: Sure. So, I mean, generally, what we're seeing is that the demographic characteristics that our service providers really like in terms of our having average higher income than is typically the case, most of our consumers are over $75,000 a year in income. In homes that are above the average, above by say $300,000 value homes. Those characteristics have not changed and they like that. And then, I would also say in terms of what they're seeing on the quality of the traffic that they're getting from us, the surveys that we've done, the resource that we do there to monitor that and we watch that closely, we're satisfied with what we're seeing there. If we do start to see changes there, then we're going to try and manage the quality through the questions that we ask as people look to join to become members. So, we'll keep a close eye on that, but I'm satisfied with what I'm seeing right now. Justin T. Patterson - Raymond James & Associates, Inc.: Got it. Thanks.

Thank you. At this time, I'm showing no further questions. I would like to turn the call back over to Leslie Arena for closing remarks. Leslie Arena - Angie's List, Inc.: Thank you, operator. With that, we'll conclude today's call. Thanks everyone for joining us.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may now disconnect. Everyone have a great day.