Angi Inc. (ANGI) Q4 2012 Earnings Report, Transcript and Summary

Good day ladies and gentlemen. Thank you for standing by and welcome to the Angie's List fourth quarter and fiscal year 2012 earnings conference call. (Operator Instructions) I would now like to turn the conference call over to Tom Ward, Angie's List Vice President of Investor Relations. Please go ahead, Tom.

Thank you, Kate. Good afternoon and welcome to the Angie's List fourth quarter and fiscal year 2012 earnings call. With me today are Bill Oesterle, Angie's List co-founder and CEO, Angie Hicks, our co-founder and chief marketing officer, and Bob Millard, the company's CFO. 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 including predictions, expectations, estimates, or other information that might be considered forward-looking. Throughout today's discussion, we will present some important factors relating to our business, which may potentially affect these forward-looking statements. While these forward-looking statements represent our current judgment, these statements are also subject to risks and uncertainties that may cause actual results to differ materially from statements made today. As a result, we caution you against placing undue reliance on these forward-looking statements. We encourage you to review our most recent public reports including our 2011 annual report on form 10-K and our quarterly report on form 10-Q for the third quarter of 2012 for a complete discussion of these factors and other risks that may affect our future results or the market price of our stock. We are not obligating ourselves to revise our results or publicly release any revisions to these forward-looking statements in light of new information or future events. In addition, as we refer to earnings, we also will refer to adjusted EBITDA, which we define as earnings before interest, income taxes, depreciation, amortization, loss on debt extinguishment, and non-cash stock based compensations. Adjusted EBITDA is a non-GAAP financial measure. And you can find a reconciliation of adjusted EBITDA to the most directly comparable GAAP financial measure in our fourth quarter and fiscal year 2012 earnings release, which is posted on the investor relations 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, non-GAAP financial measures such as adjusted EBITDA should not be considered an isolation form or as a substitute for financial information prepared in accordance with GAAP. I would now like to turn the call to Bill Oesterle, Angie's List CEO. Bill.

Thank you, Tom. Welcome everybody. As has become customary for us, we're going to try to keep our comments brief in order to maximize time available for discussion in Q&A. As I hope you can see in our press release, we had a very good quarter. Even more importantly, we had an outstanding 2012. We achieved new records for total revenue, total membership, and total service provider contract value. We accomplished all of this while simultaneously reducing our cost of acquisition and improving our margins. The exceptional performance of our acquisition investments and our marketing team in 2012 puts us in very good shape for 2013. The company's expanding recurring cash flow base will allow Angie's List to achieve a triple-lendy of sorts. The first will be that we can continue to rapidly grow revenue. Simultaneously, we will be able to significantly increase investments in products, technology, and mobile offerings. And third, we'll be able to maintain complete secure levels of cash and liquidity. 2013 should be the year that Angie's List begins to reveal its' substantial imbedded margins. Angie and Bob will expand on those themes. While I'm sure that everyone was pleased with our profitability in the fourth quarter, it's important for all of us to remain focused on our key operating metrics. Particularly as we enter the spring and summer, our key investment seasons. I would now like to turn the call over to Angie.

Thanks, Bill. Marketing continued to perform very well in the fourth quarter. We increased new member sales by 45% on an increase of only 10% in spend, which is a 24% reduction in our CPA. This performance was driven by our continued momentum from the second and third quarter activities, continued efficiency across our marketing channels, and our ability to leverage the offline channels with improvements in SCO. Specifically, member sales for our SCO efforts grew 185% year-over-year in the fourth quarter. Additionally, we've driven more of our new members to annual membership, which improved our total number growth. For the first quarter of 2013, we expect our marketing spend to be in the range of $19 million to $20 million. The first quarter spend ramps up as we head into our seasonally high periods of the second and third quarters. I'd now like to turn it over to Bob Millard.

Thank you, Bill and Angie. And good afternoon everyone. As a quick reminder, my comments on growth rates will refer to year-over-year changes for the respective period unless I indicate otherwise. We delivered a strong fourth quarter to end 2012. We added more than one million new members during the year. And total paid memberships ended the year at approximately 1.8 million. Total revenue in the fourth quarter increased 68% to $46 million. And total revenue for the full year increased 73% to approximately $156 million. These solid revenue growth rates reflect the successful investments we made in the business during the year to acquire new members and advertising service providers. Membership revenue increased 41% for the fourth quarter and full year 2012. While service provider revenue increased 83% for the fourth quarter and 92% for the full year, 2012. E-commerce revenue, which represents our storefront and big deal offerings was $3.5 million in the fourth quarter, up 30% compared to the fourth quarter of 2011. In addition, our service provider contract value backlog ended the fourth quarter at $82 million, an increase of nearly 80% compared to the prior year period. If you recall, the contract value backlog consists of the portion of service provider contract value that has not yet been recognized as revenue. Looking at expenses, we invested heavily in 2012 to grow our base of memberships and advertising service providers as well as technology to provide innovative efficient tools to our members and service providers. In spite of the growth in these investments, we are beginning to realize leverage in the business as our operating loss improved to 33% of total revenue compared to 49% in the prior year. Selling expense in the fourth quarter of 2012 was approximately $16 million. This number was below our expectations due to a combination of factors including conservative forecasting, careful expense management, and a favorable $1 million non-recurring accounting adjustment to our commission accrual. Adjusted EBITDA, a non-GAAP financial measure, was $4.4 million for the fourth quarter compared to a $2.9 million loss in the prior year period on a slightly higher marketing investment. Our adjusted EBITDA loss for the full year of 2012 was $45 million. Turning to the balance sheet, we ended 2012 with $53 million in cash, cash equivalents, and investments. And including our line of credit, we have accessed to total liquidity of approximately $68 million. We used $5.6 million of cash and operations in the fourth quarter of 2012 compared to $9.4 million used in the prior year period. As previously announced, we also used approximately $6.8 million of cash in the fourth quarter of 2012 for the purchase of our headquarters facility. We ended 2012 in a strong operational position with the momentum to simultaneously deliver continued rapid growth in revenue and margins, increased investments in products, technology, and mobile offerings, and with the confidence that we will accomplish this within the liquidity parameters we discussed on our third quarter earnings call. Before we up the lines for your questions, I'd like to provide you with our outlook for the first quarter of 2013. We currently expect total revenue in the range of $51 million to $52 million. As Angie mentioned, we expected marketing expense in the range of $19 million to $20 million. We anticipate selling expense to be in the range of $20 million to $22 million. This range reflects a full quarter impact of the transition to the new sales compensation plan. During this transition period, we expect a higher dollar amount of selling expense as a result of the expense recognition differences between the prior plan and the current plan. We expect this difference to negatively impact selling expense by approximately $1.5 million in the first quarter. Non-cash stock based compensation expense is expected to be approximately $800,000 in the first quarter. And we anticipate approximately 58 million shares outstanding at March 31, 2013. This concludes our prepared remarks. I will now open up the line for questions.

(Operator instructions). Our first question comes from the line of Justin Post with Merrill Lynch. Your line is open. Justin Post – Bank of America – Merrill Lynch: Thank you. First a question on SCO, it was obviously pretty low this quarter. Was there any hurricane benefit, and how does this quarter translate when we start thinking about 2013? Can it still stay down year-over-year? And then I have a couple follow-ups. Angie Hicks Bowman – Co-Founder and CMO: Hi, Justin. So, hurricane Sandy the impact there, - I mean, the important thing to keep in mind is while it hit some big markets, it was only a fraction of the markets we cover. So we did see some impact in those markets, but when you look at it overall, it wasn’t a driver for Q4. But you know our experience with weather and things like that is it’s not always something that the demand hits immediately. It can take a long time for that kind of a recovery to take place. So, you know, it can tend to be a little – not quite as much of a spike, but lasts a longer period of time. On CPA and the drivers of it this quarter and kind of how it leads into 2013, you know, we continually talked before; we continue to turn all the dials to just improve our marketing. You know, whether it be the offline channels, better word of mouth, and the online channels. You know SCO, is really allowing us to leverage that spend that we’re making and make it more efficient. So that has been some very positive developments that we’ve been working on throughout all of 2012. When it comes down – when we look into 2013, you know, it’s really dependent on what happens with the spend. You know in 2012 it was really remarkable, and we increased the spend dramatically and lowered CPA. I mean that is something that doesn’t typically happen. Usually when you’re spending marginal dollars, it’s not unusual for your CPA to increase. So as we move into ’13, you know, it’s going to be dependent on the level of spend, but we’ll be continuing to work to make efficiencies in that spend as well. But we manage to the marginal CPA. So at average CPA is really an output of those dials as we turn them throughout the year. Justin Post – Bank of America – Merrill Lynch: Okay. And if you just think about, you know, how so much progress I guess you made in marketing efficiency, do you still see opportunities to go forward, or are you – how far along are you on that path of improving efficiencies? Angie Hicks Bowman – Co-Founder and CMO: That’s something we continually work to make improvements on those. So, you know, I foresee that there’s still opportunity. It’s something that we work on every day around here. So, in someextent we have to get into the quarter and see what we, you know, [inaudible] end of the year to see what we discover. But that is a goal for us to continue to make improvements as we move along. Justin Post – Bank of America – Merrill Lynch: Okay. Bill Oesterle – Co-Founder and CEO: Justin, just a follow-up. You [inaudible] it was a broad base they’ve got everything working. But in particular, we highlighted SCO, and that’s because we have developed substantial capacity to take our content, you know, highly relevant content, package it up and get it to work in SCO, and that’s just a – that’s a very good sign for us and it’s working. And the thing that that does for us is it leverages all of the other marketing investments that we have. And that will be an important driver in 2013. Justin Post – Bank of America – Merrill Lynch: Great. And then, on the service provider revenues, maybe you could tell us how much the contribution was from Big Deal and store front if you can. And then secondly, it did decelerate. I know that it’s a much tougher year growth comp, because you had a very good Q4 last year. But any thoughts on the deceleration there, was there anything unusual in the quarter, or is that just more of a factor of the [inaudible] ? Bill Oesterle – Co-Founder and CEO: We do break out, right? Bob Millard –CFO: We had 3.5 million. Bill Oesterle – Co-Founder and CEO: So, yeah, 3.5 million. And what I’ll say is while those aren’t gaudy growth numbers, they actually – beneath those is a tremendous amount of activity and very positive development. So, as we mentioned to you in the, I think second or third quarter, we constrained back territory, we really sort of focused on building appropriate infrastructure for e-commerce. And as a result of that, the operating metric inside of e-commerce, all of them are improving. So our close rates are dollar per sale rates, our refund rates are down, our re-use rates by the service providers are up. And we’re building out considerably – to do this right, you have to focus on customer service, and we’re putting material effort behind doing it right, and that’s starting to bear fruit. So, we are more enthusiastic than we have ever been about what’s going on in e-commerce. It may not show up in raw income numbers in the short-term, but it’s coming along nicely for us. Justin Post – Bank of America – Merrill Lynch: And then total service provider revenues I think grew in the 80s. It was deceleration from last quarter. Was anything going there, or are you just again hitting a tough comp on that? Bill Oesterle – Co-Founder and CEO: You know, the numbers are up large enough where it’s hard to – we’re growing big numbers these days, and it’s all working. So, yeah, that is a tough number to continually accelerate from where it is. Justin Post – Bank of America – Merrill Lynch: Okay, and last one. How do you think about mobile, it’s obviously a huge internet theme? Do your members really need to access Angie’s List on mobile devices? And how far along are you on kind of mobile technology, and is that a leg up potentially for the company down the road? Bill Oesterle – Co-Founder and CEO: Yeah. Well the interesting thing – so there’s on the member side access I think just has to portable. You know, it’s where we have to provide functionality wherever the member is, and we’re doing that. It turns out a lot of our ship is being place at tablets, as opposed to mobile phones, handheld devices. But on the service provider’s side, it’s a transformational time. Mobile devices are giving them the ability to deploy tools that they’ve never had before on a mobile basis, and that is our service provider base. And that can be transformational for the service provider, but more importantly just for the members, in terms of the service that they can receive. And we are pouring a lot of effort into that. Into building the infrastructure for them to improve customer experience, and that is by definition based on mobile capability. Justin Post – Bank of America – Merrill Lynch: Okay, great. Thank you, appreciate it.

Our next question comes from the line of Matt [inaudible] from Stifel. Your line is open. Matt [inaudible] – Stifel: Hi, guys, thanks for the time. Just two quick ones from me. On that front you talk about the partnership with Squire and how that’s impacting, you know, the mobile transition on the service provider’s side? And then just secondly on the e-com number, you know, shouldn’t there be a natural lift from 3Q to 4Q sequentially without doing a whole lot. You know, just in covering other e-commerce means. Why wasn’t that more pronounced? Great quarter guys. Bill Oesterle – Co-Founder and CEO: We get seasonality – there’s a negative seasonality impact from three to four in our service categories. We see it across the rest of the business and it’s no different in e-commerce. So that’s the declining season in the business. But, you know, we saw a year-over-year lift and we expect to see a ramp up from Q1 to Q2 this year. So the majority of that is just seasonal. Secondarily you asked about the Squire relationship, and so the Squire – we’re obviously very excited about that. It is a fundamentally important step and a multi-pronged approach that we have. It represents our enabling service providers to collect payment and collect feedback from the members. But that is just one step in enabling them mobily. There are a number of them in the process of closing the transaction loop, and we have effort underway in all of the other ones. So, the Squire partnership is critically important, but it is only one single piece of the story. Matt [inaudible] – Stifel: Great, thanks guys.

Our next question comes from the line of Shawn Milne, with Janney Capital Markets. Your line is open. Shawn Milne – Janney Capital Markets: Thank you very much, and thanks for taking my questions. Bill could you – it looks like in terms of your guidance in the first quarter are very healthy in terms of revenue, any color on – is it just very strong start to some of the marketing programs, or may be more of a lift from service provider [inaudible] if there’s any color around that. And then secondly, I just wanted to go back to your prior comments, it’s something you and I have talked a lot in terms of closing the loop and trying to potentially increase the take rate. But as you work with Squire and you begin that process, what are some of the outputs that you’re expecting from that? Obviously assuming [inaudible] rates to the data to understand, you know, what’s been transpiring between the members and service providers. You know, understanding the feedback from that data, and would you expect that there was a better pricing algorithm for that, would you expect that that’s a better – potentially a better way to acquire service providers? I’m just trying to get a thought process on, you know, some of the output from closing that loop. Thanks. Bill Oesterle – Co-Founder and CEO: Yeah, Shawn. So, the first part of your question – well let me take it in reverse order actually. Closing the e-commerce – or closing the loop for our e-commerce product, has the ability to impact the entire eco system. So, it makes the whole thing better. Because what we’re talking about, you’re sort of – I think you asked the question in terms of “We’ll could you improve the take rates”? That’s actually the output for us. What we’re attempting to do is make a better market place. To build a better experience universally for both sides. And that will manifest itself in terms of output in lower customer acquisition. Better household renewal rates. Better modernization on the member side. Better – longer contract life on the service provider side. Higher contract renewal. I mean, this is a process that if executed well, makes everything work better. And what we’re seeing as we get into this process is that it is ripe for improvement. And so, this is one of the things that’s becoming so fascinating as we’re beginning to reduce the process to science. And we see it. We see those outputs when we execute a good e-commerce transaction; we’re much more likely to retain the member because of their customer experience. That in a nutshell is the whole opportunity for us. Shawn Milne – Janney Capital Markets: Yeah. Bill Oesterle – Co-Founder and CEO: Oh, quick point on the first part of your question with respect to revenue. The thing that I might point to – we got kind of everything working. Angie’s got the marketing side working, and Mike (Rutts) has the service provider side working. It’s just, you know, we’re getting good broad based growth, and its good originations, good renewal. I will point to one thing that I think is particularly – if you take a look at our backlog, our revenue backlog – Bob if you’ll remind me… Bob Millard – CFO: $82 million. Bill Oesterle – Co-Founder and CEO: We’ve got $82 million in revenue backlog, so that’s already pre-booked – you know, in this business we get a nice view into the future, and our revenue backlog as it stands today, it looks pretty good. Shawn Milne – Janney Capital Markets: Right, thank you. And just one quick follow-up Bob. I know you sort of reiterated your liquidity position, I wanted to just go through that again and the change in the compensation structure and that positive impact on working capital. Can you maybe go through that one more time? Bob Millard – CFO: Yeah. As we talked last quarter, as we transition to the new compensation plan, there will be favorable cash ramifications. But we’ll also have negative expense recognition from expense recognition standpoint during this transition period. So, as I said in my scrip, expense wise first quarter is about 1.5 million impact to selling expense. But on the cash side in the first quarter it’s about $2 million of favorable cash from the change to the new plan. Bill Oesterle – Co-Founder and CEO: And Shawn, I want to emphasize because – while the change in the compensation plan will assist us with cash, it really assists us in our ability to grow the sales force. That’s where – what is helping us with the liquidity is the fact that the business is just working well. That the renewal revenue is coming back and its high margin revenue. And that just – we have a flywheel of renewal revenue and we added math to the flywheel this last year, and that will just translate into margins, and margin– and cash flexibility next year. Shawn Milne – Janney Capital Markets: Great. Thank you very much and congrats.

Thank you. Our next question comes from the line of Jason Helfstein with Oppenheimer and Company. Your line is open. Jason Helfstein – Oppenheimer: Thanks. You know a few questions. Let’s start just a little more detail on the CPA. I mean, how much of that efficiency improvement in the fourth quarter do you think is sustainable? I mean, yes, we do see, you know, usually see fourth quarter is better from a seasonality standpoint, but you know, 24% decline in CPA is obviously pretty tremendous. I mean, you know, just give us some color as to how much of that efficiency you think we should think about as we move forward. Second question, is there – Bob, is there actually a way to break out how much of the benefit you got in the selling expense from the one-time commission accruals adjustment? And then as we’re thinking about the accounting change going forward, is the right way to think about it take the $1.5 million in the first quarter and then assume effectively that improves on a pro rata monthly basis, so by the fourth quarter, the drag in the quarter is that 1.5? Thanks.

On the CPA question, I mean, there were a lot of things that were working really well in the marketing department. I mean, it’s been some improvements kind of across the board through channels, through you know, improving, you know the website, all the way to improvements in SEO, which really can magnify kind of all the marketing efforts that we’re making. So you know, anticipate that these wins that we’ve experienced continue into next year, kind of how that impacts CPA is really dependent on the spend and it’s dependent on how much we’re spending because it comes down to how the marginal CPA’s improving but as far as those improvements that we’ve laid in, those –I don’t foresee those going away, it’s just dependent on where we take – where the spend goes in the year.

And Jason, but the difficulty that we have in sort of answering that question well is you’re moving the numerator and the denominator and so it’s dependant on the level of spend whether you get the efficiency or not. And so it’s very difficult. We can provide you guidance on what we’re going to spend, but it’s kind of difficult to provide you on what we’re going to spend and how much efficiency that that’s going to bring into this and we sort of find that out once we’re there. Okay, Bob?

Yeah, you talked about the $1.5 million drag on selling expense in that first quarter. You are correct that that drag will reduce as we work through the transition period here throughout the year. Jason Helfstein – Oppenheimer: And then on the selling for the quarter that you highlighted, the one-time commission pooled adjustment, can you give us the amount, how much that was?

That was $1 million. Jason Helfstein – Oppenheimer: It was $1 million benefit. Okay. And then just one last. Member pricing does continue to decline presumably, it has to do with a mix of new markets. I mean, you know, more promotional. How should we think about kind of revenue per member in 2013?

So what you’ve seen over the last several periods is really the impact of our unbundling in our more mature markets. So we’ve unbundled pricing, so you can buy the product by any one of the verticals, so health or classic or bundled. So – and then that unbundling effect was rolling through the renewal base as well, so that’s really what you’ve been seeing over the last – over the last couple of years. So you know, that will continue through the renewal base, but you know, we continually work to optimize the price in the market, so we’ll continue to work on that functionality as well. You know, as we think about younger markets, when it’s appropriate to bring their price up? So that is something we continually work to optimize as we move along.

I’ll also say, there are a number of things that are inside of our revenue per – Angie mentioned in her script, we’ve had a lot of success this year in increasing a percentage of annual sales and annual sales that they’re – they increase your cash, they reduce your ARPU and they increase your churn number, but they decrease your annual renewal percentage because you’re picking up marginal monthlies. Right, they decrease your churn.

Decrease churn.

Yes, decrease churn. And that’s a – that a dynamic. So I think, Jason, without – you should see a moderating of all of these affects this year because you’re sort of – all the markets are beginning to, you know, the maturity of the market is beginning to work out in terms of pricing and the pricing changes are beginning to moderate. So the impact of these multiple effects on member revenue per member should begin to stabilize this year. You won’t see as much movement as we’ve had historically because they’re just moving to the mean. Jason Helfstein – Oppenheimer: All right, thank you very much for all the detail.

Our next question comes from the line of Kerry Rice with Needham and Company. Your line is open. Kerry Rice – Needham & Co. : Thank you. Most of the questions have been answered that I wanted to ask, but I had some housekeeping questions, three of them, so I think they’re pretty short. You know, related to the compensation expense and the change there and one of your levers for growth is hiring new salespeople, can you talk about maybe, number one, how many salespeople you hired in Q4 and then maybe how many you expect to hire either in Q1 or maybe throughout 2013? And then I noticed there was quite a jump in number of markets in the post 2010 cohort . Can you talk about how many markets you see there? And then, I don’t know, do you provide a breakdown in e-commerce between Store Front and the Big Deal? I’ll stop there.

We don’t provide breakdowns, at least at this point between Big Deal and Store Front and we’re unlikely to until the point that Store Front gets big enough that we have to. Sales reps, we will provide some color in the K. Kerry Rice – Needham & Co. : Okay.

I’ve got the number. Yeah, on this quarter as we were implementing the new compensation plan, we were focused on that implementation, not so much on hiring new reps. So we were relatively flat. We ended the quarter on sales personnel that originated new advertising contracts at 414, that is up 7 from the end of the third quarter. Kerry Rice – Needham & Co. : Okay. And can you provide any insight kind of as you think about the Q1 guidance, the kind of hiring there?

Normally we don’t… Kerry Rice – Needham & Co. : It can be kind of rough framework. We don’t need specific numbers.

We are going to continue hiring throughout this next year, but we have not provided any real guidance going forward on what those numbers are going to be. Kerry Rice – Needham & Co. : Okay. And then maybe markets that kind of fit into the post-2010 cohort?

So the post 2010 cohort, you know, we continue to add markets as we kind of break them out. They’re pretty small markets so you think about just total population of markets, those are pretty small markets, you know, a couple hundred thousand population and stuff. So kind of when you’re thinking about the potential total addressable market, they’re not representing a big portion there. Does that help? Kerry Rice – Needham & Co. : It does, but – and I guess maybe what I was getting at too is, will you eventually break out another cohort or is this kind of it because these are the smaller markets and you know, is there a couple hundred of those markets so we kind of expect that just to continue to add to that cohort?

Yeah, we debated that exact topic internally and have gone back and forth and have come down on the side of, you know, because they represent a small addressable market then we’ve left them together. But it has been a debate internally and it probably will continue to be one. Kerry Rice – Needham & Co. : Okay, thank you so much. Great quarter.

Our next question comes from the line of Jeff Houston with Barrington Research. Your line is open.

Hi. Thanks for taking my questions. To begin with, regarding the mix of renewal advertising contracts in the quarter, is it getting close to 50% now and where should we think about that improving to in the first quarter and as we move through the full year 2013?

We have not provided that percentage in the past but what you – we did originate a lot of contracts this last year and those contracts are flipping over to the renewed state. You should see that renewed balance, the amount of renewed balance, that percentage increasing over the next several quarters. But we do not provide that exact percentage.

And again, this is one of those cases where, you know, you’re moving the numerator. Success for us would be that we’re able to increase the amount of new ads originated, which would mean the percentage. You’re moving the numerator and denominator of the percentage. So part of the reason we don’t provide any guidance there is because there – we’re constantly driving both numbers. So we hope that – we hope that we exceed – or we originate a tremendous number in new ads this next year.

Got it. That makes sense. Separately, regarding the available cash balance of the 68 million, was that as of the end of December or is that currently as of today?

December.

Okay, and could you provide what it is now and then separately along those lines, you do you still plan to not let it drop below 16 million or so?

Yeah, we do not – we’re just talking about the end of December, not talking about where we are today. And we’re comfortable with what we said on the third quarter call.

Got it, got it. Last question for me, with the change in sales compensation, has there been any change in turnover with your sales force or do they more less view it as being paid the same but just in a different way?

We’ve got – whenever you have a – whenever you have a transition like that, you’re going to have the rest that – it’s kind of what it was designed to do. So you know, we had – we had to get through it in the quarter. As far as we can tell so far, we’ve come through it really, really well and the sales force is performing. So you know, it’s always a little bit tumultuous but on the whole we’ve come through it just fine.

All right, thank you.

(Operator Instructions). Our next question comes from the line of Sameet Sinha with B. Riley and Company. Your line is open. Sameet Sinha – B. Riley & Co. : Yes, thank you very much. I have a couple of questions here. So could you talk to – I might have missed this, I was juggling a few calls. Were you able to finance the purchase of the headquarters or did you have to pay cash for that? Secondly, going to and logging into the Angie’s List site and I’m immediately put into the e-commerce, showing a lot of e-commerce deals. Is that a change across the board or you’re just testing it? And third, can you talk about pricing power that you have and how do you see that – do you see year-over-year comps getting tough there or do you think you have more room to grow pricing? Thank you.

I’ll handle the financing. We did not finance the headquarters facility. We’re comfortable with our total liquidity position and how we’re going forward in 2013. We’ve certainly being making changes. It’s a little difficult to assess whether you’re part of – we have – we do have – we have a variety of tests running out in the marketplace. So without sort of seeing the screen and – it would be hard to tell if you’re in one or not, it’s very possible you are because we’re – we have a variety of presentations that we’re playing with on the e-commerce side these days. Pricing leverage, this is one thing that I think is – I’m assuming you’re talking on the service provider side. Yeah, on the service provider side, this is one thing I think – we have a tremendous – we’ve invested over the last several years a tremendous amount of dollars and energy into pricing sophistication. And our pricing algorithms all stack up really with almost anybody’s. We price very specifically by service provider, by category and increasingly this year, by household. That’s giving us a tremendous amount of both price discrimination and price leverage because if you can price down to the individual household, effectively you’re creating a targeted platform that no one else – that there are very limited opportunities to recreate anywhere else. So we certainly see plenty of additional opportunity to increase pricing.

Our next question comes from the line of Darren Aftahi with Northland Securities. Your line is open. Darren Aftahi – Northland Capital Markets: Hey, guys, thanks for taking my questions, just three. First, could we get an update if anything on the scheduling product, kind of timing of that? And then I've got two follow-ups.

Yeah, so scheduling, we have a variety of tools in the field right now. So to some extent, we have scheduling products that are out there that are being used. And they will be iterating rapidly. So it's unlikely for us to – this process will not be well enough a grand unveiling of scheduling. In fact, much of our e-commerce will be if it's working right highly iterative. We're affecting following the – we originate the transaction and then begin to follow it. And you can – our entire e-commerce effort can be summed up as an effort to follow more and more of the transactions further and further through the system. And so we're scheduling for a lot of things these days. And our goal is to schedule for increasing percentages of those. And then keep moving through the system. Darren Aftahi – Northland Capital Markets: Fair enough, and then on the competitive landscape, it seems like some of your largest competitors kind of had some struggles with rebranding, et cetera. Can you talk a little bit about the competitive landscape if you're seeing kind of a tailwind from that? It looks like 1Q guidance was fairly strong. And then who do you actually see as competition beyond maybe niche players?

Yeah, I'm going to say our fairly standard historical answer here I think continues to be true, which is this is a giant market space. And we're competing with traditional forms of the old local service economy and promotional tools inside of that. And from that standpoint, it is a green landscape. I mean there is all sorts of open space. And so really, nothing in our results or our projections have anything to do with anybody that you would view as a potential direct competitor. That's really just our execution in virgin territory. The players that are out there are the usual ones. I think you were referencing their rebranding with the old service magic. And we've been operating in markets with service magic for 15 years. So we just don’t run into them that much. We don’t run into Yelp that much. We don’t run into Google that much. We are sort of operating in this very large market space that is ripe for development. Darren Aftahi – Northland Capital Markets: Great, and last one, I think in the past, you've talked a little bit about international expansion. But is that something that may be a 2013 event maybe perhaps in English speaking countries?

Yeah, we've got activities underway there and to some degree. Again, we're not really very good about grand unveilings of things. We just kind of start working on them. And then low and behold, they show up. And that's how I would characterize a number of things that we're working on these days, the international being one of them. Darren Aftahi – Northland Capital Markets: Great, thanks, nice quarter.

Our next question comes from the line of Tony Ursillo of Loomis Sayles. Your line is open. Tony Ursillo – Loomis Sayles: Hi, thanks. Nice looking quarter. I just have two brief things. Angie, so the absolute CPA obviously is a low number. Do you know the marginal CPA? I'm guessing that's still a number that's well below the lifetime value of a customer. So I guess the pointed question would be even with the efficiencies you're getting, why not ramp marketing expense even heavier in the near term?

I think I'm going to answer that. So there's an absolute – we do operate in a world of limited resource. Even though large, it is limited. And we've got things developing on the – effectively the leverage that we're getting out of the marketing area right now historically would have been immediately reinvested into the marketing area. If you think of that as you're saving cost somewhere, we would just plow it back in and drive the marginal CPA back up again and just increase the growth rate. Now we have these very interesting things happening from a technology and product standpoint that are worthy of investments for us. And they are transformational for the model if we happen to get them right. And so the success that our team has had in leveraging the marketing dollars, we're going to harvest some of that success because effectively, we are still driving very nice growth in the business. And we're going to – we've acquired this great technology team. We've been building it out. And we're going to go attempt to execute some things there because that puts a multiplier on the whole system. And so if we had unlimited resource, then there's no question. We would be doing what you prescribe. But in a world of rational limits, we have to make tradeoffs internally. And that's how we're going to allocate this coming year. Tony Ursillo – Loomis Sayles: Okay, that makes sense. The other thing I just wanted to throw out was at the bottom of your cohort chart, you've got a study that indicates that your target market in terms of number of households increased 2 million or about 7%. And I'm pretty sure that population growth in household formation did now grow that fast in 2012. So just interested in what sort of factors resulted in the determination that your market is that much larger.

We do an outside study for that. So it's based on home ownership, age of the consumer, and then also income. And the income in the house on the home ownership were the drivers of that change. Tony Ursillo – Loomis Sayles: Okay, thanks.

We can guess on that one. I think the economy is just getting better. And so a little bit, so that's our guess, but that's a guess. Tony Ursillo – Loomis Sayles: Sounds good. Nice work this quarter.

Our next question comes from the line of Gavin Ritchie with Rockwood Investment Partners. Your line is open. Gavin Ritchie – Rockwood Investment Partners: Hi, most of my questions have been answered. But real quickly on the service provider mobile apps, can you talk about if there's going to be any way to directly monetize the app or if it's just going to be a service provided to them to get them to be customers?

There will certainly be ways to monetize. And so while we're going to provide – we have sometimes described what we're attempting to do is build a marketplace where we are both the mayor and the sheriff. And we will provide rules and tools. If you abide by the rules and you adopt the tools, then it's a wonderful marketplace for you. And unquestionably, this is one of those – the service providers are adopting the tools and improving performance and taking care of our members better. They will reap the benefits of more business. And in the process of that, we think that we have multiple opportunities to monetize. Gavin Ritchie – Rockwood Investment Partners: And then Square in the future, will you be able to monetize any of those fees?

Yeah, our relationship with Square is such that we receive a portion of those fees so there's a direct monetization opportunity there. Gavin Ritchie – Rockwood Investment Partners. : Thank you.

I'm not showing any further questions at this time. I'd like to turn the call back over to Mr. Bill Oesterle for closing remarks.

Thank you, Katie. Well thank you everybody. I will remind you. This quarter to some degree was a bit of an output for us. So we all have enjoyed the opportunity to produce some positive adjusted EBITDA and positive net income. But it's useful for us to remind ourselves and us to remind everybody that that's a product of activity that took place in the second and third quarter. And we have make hay when the sun shines. And it shines in the second and third quarter. And so there is inherent seasonality to the business. And we are fast approaching the planting and growing season. And so please keep that in mind as we're moving forward into the year. When we have a second quarter that's as good as the second quarter we had this year, it results in a fourth quarter that's like this one. So we're going to be attempting to not only replicate it, but surpass it. So thank you all for your time. I look forward to talking to you individually.

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