Angi Inc. (ANGI) Q2 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to Angie's List Second Quarter 2015 Earnings Call. At this time, all participants are in a listen-only mode. Later, there will be a question-and-answer session, and instructions will follow at that time. [Operator Instructions] As a reminder, today’s conference is being recorded. I would now like to turn the conference over to Leslie Arena, Vice President of Investor Relations. Ma’am, you may begin.

Thank you. Good morning and welcome to the Angie’s List Second Quarter 2015 Earnings Conference Call. With me today are Mark Howell, our interim CEO; Angie Hicks, our Chief Marketing Officer; 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 also will refer to adjusted EBITDA, which we define as earnings before interest, income taxes, depreciation and amortization, non-cash stock-based compensation, the litigation settlement adjustment and non-cash long lived asset impairment charges. Adjusted EBITDA is a non-GAAP financial measure, and you can find a reconciliation to the most directly comparable GAAP measure in our second quarter 2015 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 Mark.

Thanks, Leslie and good morning, everyone. I’m pleased to be here on Angie’s List earnings call as I lead the company through this management transition. I’ve had the opportunity to meet many of you over the past few years and I look forward to more opportunities to connect with our analysts and investors going forward. I appreciate the opportunity and the trust that the board has placed in me as interim CEO and I’m also grateful for the support of the senior leadership team. Our primary goal during this interim period is to put the company in the best possible position for the new CEO and we know the most effective way to accomplish that is by continuing to advance the company’s operating plan. Therefore, we will continue to focus on growing revenue, increasing margins and investing for growth, specifically in our product roadmap and technology transformation. My position comes as a result of Bill's decision to step down from his role of CEO earlier than first anticipated. Given the significant increases and demands for Bill’s attention outside of the business, he believed it was the right time to make a change. As CEO search to identify Bill's permanent replacement is being led by a sub-committee of the Board of Directors along with Spencer Stuart, a leading national search firm. The Board is pleased with the process thus far as it has produced a compelling slate of candidates. I like to take a moment to acknowledge Bill and his contributions to Angie's List. He and Angie build this Company on the belief that we could improve the quality of interactions between members and service providers. Now 20 years later that belief has turned Angie's List into one of the most recognized and valuable brands in the U.S. and we're determined to continue to execute on this vision. Before we move into the details on the second quarter, I'd like to address two broader topics, first a brief overview of our strategic intend, and then an outline of key short-term focus areas. Our strategic intend is to dramatically improve the local service experience for both consumers and service professionals. And at the core of that strategy is service provider advertising and member subscriptions. In addition, e-commerce is a strategic incremental and rapidly expanding addition to our portfolio. We are focused on growing these revenue streams through three unique but related products, Search, Shop and SnapFix. Search is the foundation of which Angie's List was build creating the best possible match for members and service providers. Tens of millions of searches are conducted on Angie's List on an annual basis; we differentiate ourselves through a combination of proprietary search algorithms, category expertise, rich content, and valuable data assets. Our unique tools, services and content help to bring members and service providers together as we provide members with access to reviews on more than a million service providers. Our Shop platform creates a unique buy it now opportunity for consumers, the Angie's List marketplace enables consumers to browse offers on thousands of popular home repair and maintenance tasks from our top-rated service providers. Scheduling and payment are handled directly on the platform and users enjoy rapid response times and exceptional support. Consumers value the price transparency and convenience while service providers benefit from the prepay jobs they receive from high valued consumers. Each quarter, hundreds of thousands of units are sold on our Shop platform. SnapFix is a new product currently testing in a beta version and available on mobile. SnapFix facilitates custom skews into the Angie's List do-it-for-me product, enabling consumers to submit a job by snapping a photo and submitting a brief description of the task. Angie's List helps from there recommending a high-quality service provider to the consumer, so that service can be scheduled and the engagement managed on the Angie's List platform. Based on early results, SnapFix is extremely appealing to consumers seeking to quickly and conveniently complete their home service projects. Service providers benefit from receiving the best quality, highest converting leads and so far this year, we have received tens of thousands of SnapFix submissions. Through these products and the further realization of our roadmap, we are executing against the strategy to serve both members and non-members with differentiated product offers. So with that as context, I will discuss our near-term priorities which demonstrate greater focus on our core business of improving transactions between members and service providers. Our first priority is revenue growth by capturing all of the dollars that service providers have available to spend with Angie's List. We are taking direct actions to improve sales orientations and account management, including changes in refinements to sales leadership, service offerings, process, and value proposition. These initiatives cover all aspects of our service provider relationships focusing on growing contract value, deepening the engagement of high-quality service providers and specifically, increasing renewal rates which have not performed at expected levels. Last week, we announced the reorganization of our sales leadership team, naming new senior leaders for both sales originations and account management. I'm confident that these seasoned experienced leaders will be positive and impactful. Our second area of focus is our technology transformation which we've talked about over the last few quarters. We are investing in product and technology to drive significant improvements to our website, mobile and business support systems. These investments are positively impacting the Search, Shop and SnapFix experience for both members and consumers, which are critical to our continued growth and competitive position. Our new tech stack is approaching the final phase of construction and is currently live in a test market. On the mobile front, we are preparing to launch our new service provider mobile app designed to facilitate scheduling of services, enable messaging and improve productivity. And the third area of focus is member and consumer engagement, which Angie will talk about in more detail. This extends beyond logins and reviews and represents the holistic embodiment of how members and non-members think of and use Angie’s with tools, services and content. We are inspiring consumers to engage by building products to help them take greater care of their homes. When projects need to get done, we want consumers to go to Angie’s List first. We’re focused on increasing engagement with members between episodic interactions by creating a richer and broader relationship with consumers. Utilizing our tremendous data assets and compelling content, we can inform, empower, and inspire consumers at every step along their homeowner journey. Before Angie and Tom provide detail on the second quarter, let me briefly comment on our results. Service provider contract value and e-commerce inventory growth performed well. In addition, we realized significant recent success in both growth and engagement in our e-commerce marketplace. We are creating more relevant service cues, redesigning the shop experience, and building our merchandising and conversion capabilities, while testing ways to more effectively monetize our rapid growth in e-commerce. While we are pleased with these results, other areas of the business such as total service provider revenue have not performed as well. The priorities that I just outlined have been implemented to specifically drive better performance in our core business and we expect to see near-term impact revenue as we execute on these priorities. As I said earlier, our primary goal is to put the Company in the best possible position for the new CEO. And therefore, we are refocusing on effective execution in our core business while continuing to innovate through our investments in products and technology. And with that I’ll past the call to Angie.

Thanks, Mark. As we enter the second half of the year, let me provide an update on our results. I’ll begin with our member results, which were solid. We increased total paid households to 3.2 million, adding approximately 290,000 gross new members in the second quarter at an average cost per acquisition of $88, down from $90 a year ago. Member retention was good news for the quarter. First year at average renewal rates in the second quarter each increased 1 point year-over-year, reversing the trend we had experienced in recent periods. This positive momentum reflects several factors, including tier pricing renewals and slight improvements in credit card success rates. Engagement metrics are an area of focus and opportunity. Daily unique visitors the Angie's List site are increasing and we are monetizing more of those visits. Although traditional engagement metrics such as logins and searches have trended lower, we believe the decline is due to lower spend and reduced focus on review collection. Shifting gears to e-commerce. With a marketplace foundation now in place, we are shifting from building to execution. Our increased focus on attracting consumers and members to our Shop and SnapFix products contributed to the highest level of e-commerce engagement ever. We increased inventory 143%, grew unit volume 22% to 205,000 units, and increased gross merchandise value or GMV, which is a value of transactions that take place in our marketplace by 37% in the quarter compared to a year ago. We are also continuing to see a growing percent of members that have purchased e-commerce. SnapFix has attracted tens of thousands of new users to Angie’s List this year, highlighting the convenience and appeal of an easy-to-use on-demand service. We are in a process of developing plans for fulfillment and monetization of the product with the objective of readying it for full market launch next year. While pleased with the uptick in SnapFix submission, the success we have achieved attracting new users to SnapFix had some adverse impact on member acquisition as consumers who may have otherwise become members first, instead participated in SnapFix without membership. As a result, we have tweaked the marketing message to not only attract consumers, but also more clearly highlight the benefits of membership. New television spots [ph] with this update are now in market. In summary, it was a solid quarter. We are attracting new members and consumers to Angie’s List and an increasing number are interacting on our platform. We look forward to providing you with an update on our progress. And now, I will turn the call over to Tom.

Thanks, Angie, good morning. As we discussed over the past several quarters, we are focused on three key financial objectives: growing revenue, investing in growth and expanding margin. In the second quarter, we continued to make progress against each of these agendas. Total revenue for the quarter increased 11% from the year ago quarter to approximately $87 million. Second quarter membership revenue decreased 9% from the year ago quarter reflecting the impact associated with the move to tiered pricing, which occurred in the second quarter of last year. As a reminder, member ARPU is expected to be a drag on year-over-year ARPU through next year before we expect to return to normalize member revenue growth rates over the longer term. Total service provider revenue, which includes advertising and e-commerce revenue, increased 17% from the year ago quarter. This growth includes a negative impact from lower take rates on e-commerce transaction as we focused on growing service provider participation in e-commerce. Total service provider contract value grew 19% year-over-year, and the number of engaged SPs was roughly flat sequentially at 54,000. Today, slightly more than one-third of service providers participate in e-commerce, up from one-fifth a year ago. As more SPs participate in e-commerce, we would expect the contract value to continue to grow. Service provider contract value backlog ended the second quarter at $159 million, up 15% from the year ago quarter. As a reminder, the backlog consists of that portion of the contract value that has not yet been recognized as revenue. While backlog fell sequentially due to a number of factors, including seasonality and lower sales origination headcount, we expect third quarter backlog to increase from the second quarter. Before moving to our expenses, I would like to take a moment to talk about pricing in both our member and service provider areas. As we have discussed many times, we regularly test and evaluate different member price points as we look to optimize our membership tiers and value proposition. We expect to continue to assess the impact of varying prices on membership additions in the coming quarters. Now, on the service provider side, while we continue to make progress growing our marketplace, we are evaluating opportunities to optimize take rates. Our existing approach, which bundles advertising and subscription presents near-term opportunity for value creation by increasing take rates. We are taking a hard look at elasticity, service provider willingness to participate in e-commerce and transaction margins to assess opportunities to improve the revenue contribution for SPs. Turning to our expenses. We significantly reduced marketing from 46% of revenue a year ago to 29%. Recall that last year, our second quarter marketing spend was significantly above our typical range as we tested the impact of pulling more marketing investment into the first half of the year. Selling expense increased approximately $2 million compared to the second quarter of 2014, but declined nearly 200 basis points as a percent of revenue reflecting improved leverage and efficiency. We ended the quarter with a total of 1,026 people in our sales organization with 746 responsible for originations and 280 responsible for renewals. G&A increased from a year ago, primarily due to an increase in personnel costs, including hiring in strategic areas such as marketing and corporate functions and an increase in allocation of benefits to G&A, and as well as one-time items including a charge related to our decision not to pursue our previously announced real estate expansion plan. These increases were partially offset by lower bad debt and other items. Operating margin in the second quarter improved 14 percentage points compared to a year ago. Our operating loss for the quarter was $8 million, an improvement from an operating loss of $18 million a year ago. Adjusted EBITDA non-GAAP financial measure was a loss of $3 million for the quarter, an improvement from an adjusted EBITDA loss of approximately $15 million in the year ago period. Moving to the balance sheet and cash flow. We ended the quarter with $70 million in cash, cash equivalents and investments. Cash provided from operations during the second quarter was $2 million, down from $3 million in the year ago quarter. Let me take a moment to provide an update on the status of our campus development plans and the impact to our financials. As we discussed last quarter, we were through our proposal for the Ford building from city and state consideration. Under current assumptions regarding cost and timing, we are no longer considering the Ford building as part of our plans in the near term. Associated with this decision, we have recorded a non-cash long-lived asset impairment charge to G&A. It negatively impacted net income, but had no effect on adjusted EBITDA. The CapEx savings after netting out incentives will largely be offset by additional investment in our technology platforms. While we are evaluating alternative locations, we have no immediate need to decide on a few facility as our current building space provides us with ample capacity for the next 18 to 14 months. Before moving to Q&A, I want to share our perspective on how the economics of our business have evolved and how we see that continuing in the future. We continue to generate solid revenue growth, despite headwinds from tier membership pricing, lower e-commerce take rates and FP renewals. Our margins have improved dramatically over the past several years. Since 2012 operating margins had improved from negative 33% to negative 1% for the first half of this year and we delivered a nearly $15 million positive swing in operating income. Looking ahead, we remain very focused on delivering operating efficiencies through scale and expense management. And with that, we will move on to Q&A and operator, please open the line for questions.

Thank you. [Operator Instructions] Our first question comes from Jason Helfstein of Oppenheimer. You may begin.

Thanks. Can you dig in a bit more both kind of qualitatively into kind of what's happening with service providers? So to the extent that you are seeing higher service provider churn, how much of that -- if they are leaving you to go somewhere else, where do you thing they are going? Are they going to a competitor, a direct competitor or I don't know, suddenly finding Google? So does that -- then in some cases, is there effectively involuntary churn where you are effectively a service provider, he is going away who is spending very little, because clearly we are seeing improvement in effectively backlog for sales reps, so effectively you are driving productivity, but give us some more color on, if service providers are leaving, and you don't want them to leave, where are they going and why? And then, do you think long term we need to see more of a move to performance effectively pricing versus subscription pricing, so more on a pay per click or some type of metric like that as opposed to kind of fixed subscription pricing? And obviously the e-commerce partially plays into that, but that's potentially like a third life. So just more commentary there would be helpful. And then if you have a metric on the number of non-members, you talked about kind of growing both members and non-members. Is there a number you want to share with us, the number of non-members and kind of how much that grew year-over-year sequentially then?

Okay, I will take the first question as it relates to SP churn. For us, service provider participation is really driven by data sufficiency and the coverage that we need based on the geo techs [ph] and coverage. So we think not just in terms of churn, but in terms of retention and coverage. And we obviously are addressing vacancy rates based on site traffic to make sure that we've got the appropriate coverage in the place where our members need service provider coverage. I think because there is vacancy rate as we expand into broader geographies and categories, there is an opportunity to increase, but on a very relative basis. As it relates to pricing, I think one of the clear themes of this call is, we believe there are increased opportunities for monetization, we've experienced or we’ve experimented with subscription pricing and adjusting take rates, but because of the increased traffic that we've seen on the site, the increased number of searches, the higher conversion rates and proliferation of inventory, we want to ensure that we find the optimal way to monetize the value of that traffic in those transactions.

Okay, but I mean did you address why -- if you're losing service providers that let’s say you don’t want to, because where are they going like are they going to a competitor or are they going to group or are they not marketing?

Right, we have not seen kind of the direct impact of competitors entering the space. I think the vastness of the space and the opportunity in our position in the space hasn't put us in a position where we’re there. You had mentioned the fact that we've got kind of involuntary churn because of our focus on the best service providers and the requirements for A and B ratings. A lot of that churn is driven by service providers who are falling off.

And then do you have a metric you can share on the number of non-members using the site and kind of growth? And just lastly any comment on the prior guidance. Are you reiterating it or are you not – doe it not stand any more as far as the full-year guidance?

On the non-member activity, we haven't given specific metrics on that activity. We have commented that traffic is up. We are driving commerce outside the Paywall and we’re happy with that performance, but we haven't given specifics on the growth. I mean, it’s still a relatively small number compared to the activity we see inside the Paywall.

And so Jason, this is Tom. I can address the question on the guidance. So as we laid out back when we first issued the guidance back on our Q4 call, so our policy moving into 2015 was to issue annual guidance once a year and really not to update the guidance unless there is a material change in expectations or a specific event that would cause us to want to communicate on the topic of guidance. I’ll refer you to our 8-K last week where we did comment on guidance. So hopefully that kind of helps you.

Okay, alright.

Next question, operator.

Our next question comes from Lloyd Walmsley with Deutsche Bank. You may begin.

Yes. I know you guys are now kind of lumping e-commerce and with the service provider advertising revenue, but can you give us a sense for kind of the approximate breakdown of the revenue in that segment, coming from new kind of year one service providers, what is that growing, how does the sales force efficiency look? And then – and what kind of renewal rates, dollar renewal rates or unit renewal rates are you seeing, any color you can provide there would be helpful?

Yeah, this is Tom. So on the traditional ad sales originations, we actually did see good year-over-year pickup in productivity on a per head basis, so we’re pretty pleased actually with the performance. The overall scale of the organization as you can tell from the numbers we share is down. So I think it's fair to say that we feel like we've got the productivity in a place where we’re happy that there is an opportunity to perhaps return to some scale in that organization. So that's at the origination site. On the renewal side, as I think Mark said in his prepared remarks, we've not been pleased with the renewal performance and the account management team. So I think a lot of the actions that Mark and his leadership team in this room are executing against in the very near term is to improve performance there, both on an operating renewal basis as well as on a total revenue basis. So that's a real focus area for the teams in the near-term.

Okay, thanks.

Next question, operator.

Our next question comes from Peter Stabler with Wells Fargo Securities. You may begin.

Hi. This is Steve, filling in for Peter. Just had a question related to consumer marketing? As you guys continue to kind of pivot from a lead gen type platform to more of a commerce and transaction driven one. Can you share kind of how the messaging to consumers might be evolving or just curious in terms of consumer awareness, consumer branding and so? Thanks.

Cho, this is Angie. On the messaging, we are introduce the concept that people can shop for free, but membership has more benefits and when we rolled up a creative earlier in the year, it leaned more to kind of the focus on that SnapFix in particular, which was available for free to consumers during that beta test. As we have made some iterations to the creative here over the last few weeks, we’re really making sure that we are driving home that membership element, because it’s a real added benefit from being a member. I want to make sure that we are sharing those value propositions to the consumer. So our goal is to drive both.

And I don’t think we should discount the importance of the lead gen aspects of the Angie’s List – Angie’s product offering, tens of millions of searches in the quality of the data assets and relevancy of our matching is critically valuable. So I view the transaction based in the search base, lead gen base is being complementary and not mutually exclusive.

Great. Thank you for the color.

Next question.

Our next question is from Todd Van Fleet with First Analysis. You may begin.

Hi, good morning guys. As we think about the activity that you guys were engaging in to get more consumers outside of the paywall engaged with the platform, what are the metrics that I kind of – I like to focus on here is the service provider revenue per paid member that you guys report each quarter. And I guess, if you were becoming more successful of getting that participation from non-members be outside the paywall, but I would -- I guess, I would expect to see that metrics in order to trend up pretty nicely, particularly in your more mature cohorts where you have a critical mass of service providers. So for example, Q2 of this year, service provider revenue per paid member in the pre-2003 cohort ticked down to about 109. I am just trying to get some sense from you guys as to when will – what metrics will start to show kind of success in the strategy of getting more members – I’m sorry, more consumers that are not members, you know those folks beyond the paywall engage in the business and where we see that evidence in the business?

Todd, I will touch on the ARPU trends and Angie can touch on kind of the non-member strategies. As we talked through the last couple of quarters, the move to much lower take rates in our – it was our e-commerce business or marketplace has been a headwind to growth in SP line and you do see that manifest in the SP ARPU and I think as we look at it, the trend will be a little bit different if you were to kind of exclude those – that sort of pricing activity that reduction in average price on our store front offers to SPs. So we agree with you that that SP ARPU is among the most critical metrics in our business and we are very, very focused on – as Mark has mentioned on the core business of service provider advertising and membership growth, that combination when working -- kind of mutually reinforcing when working in tandem, is very powerful, and I think our results over the last four or five years evidence that. So our intent in the second half of this year is really to re-double our efforts on advocating in that core, which will ultimately manifest in improving trends in SP ARPU.

And – go ahead, Todd.

Go ahead, Todd.

No, I am sorry. Go ahead, Angie.

You know, obviously kind of additional traffic that we can drive from consumers outside the paywall will impact that activity that we can then go monetize. So as I mentioned earlier, while the commerce outside the paywall is a small percentage of the total, it’s growing and we would expect that over time that that will become a player.

As well as – I mean, I will also add SnapFix, although it’s still in beta, we are still kind of iterating on the business model there, Todd, so I don’t think we’ve quite figured out the right way to monetize those transactions that coming to the SnapFix channel. We will figure that out and ultimately that could provide a further boom to SP ARPU over the longer term.

And then if I could ask a follow-up on the service provider side then, so, you talked about some change in leadership on both originations and renewals and I’m just thinking about the general process, which seems to be I would think kind of a trial and error process. You tried some things with different service providers to keep them in the fold on a same thing on a renewal basis. So, I’m trying to get a sense is to how basically you think we might be able to see some recovery or some improvements in service provider retention? Is it the matter of -- is it a matter of there were some ideas that were floated, that were rejected by the prior leadership but maybe now you’re going to get some -- you’re going to try with new leadership. I’m just trying to get my mind around the actual process, trial and error process, that occurs and what new leadership in those key roles will bring in terms of the Company is seeing a nice rebound in service provider retention.

I think it relates on the origination side. It’s really a large outbound sales force and leveraging the analytics of the business and understanding where the most valuable real estate can be pushed in a lead generation sense and moving from historically, which has been a one-to-one cell to be in a more process analytics leveraging technology cell with greater coverage. And so, it’s a completely different style of leadership focused around pushing our most valuable inventory. Completely different in that on the account management side, it’s purely relationship management. It’s entered into a relationship with a service provider with constant communication and constantly reiterating the return that are receiving in a very consultative fashion, helping them realize kind of their business objectives whether it’s leads or transactions, coverage, hyperlocal marketing and managing that relationship throughout the entire year. So, it doesn’t become a renewal issue, it becomes a continuity issue.

Thanks.

Next question please.

Our next question is from Rohit Kulkarni with RBC. You may begin.

Great, thanks. Two questions please. I know bunch of questions are around how do we track the success or engagement or lack of success of what you are doing outside of the Paywall. In the past, you’ve talked about x percent of service providers are only e-commerce or you’ve talked about breaking down service provider revenue into e-commerce and advertising or it has shown up in -- or you’ve talked about how CPAs have been trending if you were to take into account engagement outside of the Paywall. Is there anything else that you can point towards what happened in Q2 as to -- so that we get more confidence about whether your strategy of kind of lowering and lowering your Paywall is working? And second I have a question about CPAs for the second half.

I think one way to view the activity outside the Paywall is the significant increase in units in e-commerce, which is exposed outside the Paywall. I think that could be a leading indicator.

And the GMV as well, 37% year-over-year. So, I think we’d say we’re fairly pleased with that performance.

Yeah. I think the question then, we’re still perfecting kind of the language around the balance between kind of consumer-driven and membership-driven, which is some of the testing we’ve done recently to make sure that we’ve got a nice balance between those two. I mean we did experienced in the second quarter that it’s not fixed, was actually -- the media reporting behind, it’s not fixed, was actually taking away from membership and so, we want to make sure that we are kind of getting the most out of that as soon as we can and make sure that we got that message just right.

Okay. And then the follow-up on CPAs as comps get very tough in the back half of this year. Any change in how you’re thinking about marketing spend over the next six months or so as you started on this probably 12 months in -- any new learnings that you would want to kind of adapt how you are thinking about marketing spend for the next six months?

Sure. So, when we think about marketing spend, it’s always managed in the real time. So, I think kind of a couple of points that either we’ve talked about to give you kind of some insight into spend for the year as we expect it to decrease as a percent of revenue, but remember that last year we had front loaded the spend into Q2 in particular. So, this year is more of a bell-shaped curve, so you're going to expect the tail will behave slightly differently this year than it had last year.

Okay, okay, thanks a lot guys.

Next question operator.

Our next question is from Paul Bieber with Bank of America Merrill Lynch, you may begin.

Good morning and thanks for taking my questions. Given the increasing importance to e-commerce, what is your latest thinking on the paywall and long-term, is the paywall still viable for the strategy? And then Angie, can you just repeat the e-commerce metrics that you provided, I think I didn't catch them all?

Sure.

I think as it relates to the payroll question, within the product roadmap we're trying to clearly differentiate those products and services which are exposed to all consumers and a highly differentiated very valuable membership opportunity and it impacts itself on both sides, so we have SnapFix today, we have our Shop experience which is open to consumers but our valuable data assets and a lot of our content as reserve for members and that's a premium. It's also important to remember that on behalf of the service providers, this membership provides an incredibly valuable qualification, the quality of the leads and the conversation rates for service providers when working with Angie's List members and ticket prices are much higher and so it's not just our value of membership to the consumer but as importantly it's the value of our membership to our participating service providers.

The metrics we shared on commerce was that, inventory is up 143%, the unit volume was up 22% year-over-year up to 205,000 and GMV was up 37%, and the percent of service providers participating in commerce was up to 30%.

Slightly above the 30%.

Slightly above the 30%, up from 20%.

Okay thank you.

Next question operator.

Our next question is from Blake Harper with Topeka Capital, you may begin.

Yeah, thanks for taking my questions. I wanted to ask you about the take rates and you mentioned that the lower take rate had driven some growth in transactions but brought down some of the revenue, I just want to understand what's the balance there that you have or how much leverage do you have there to lower the take rate and where do you think about being able to lower the take rate further to drive transactions and what's kind of the balance you have there. And then, what are some of the other I guess levers that you have there, besides the take rate to drive some of the transaction revenue growth, thanks.

Yeah, it's a good question Blake. I think that, when we look back on the decision to reduce take rates last year, I would conclude, we’ve been wildly successful there, we've really grown the total number of SKUs or kind of services or purchasable unit in our marketplace. So we've been very, very successful, the inventory number that Angie just shared year-over-year in Q2 was 143%, so we more than doubled just in Q2 alone versus the year ago and that number has been pretty much in that same range for the last several quarters. So we've been very successful in kind of proliferating inventory, where as you can see the delta between that and whatever it was 22% unit growth is a pretty, it’s a gulf, so we definitely are very focused on kind of the front-end of the marketplace and Angie and her team are really focused on the shop experience as well as the product organization. But I think when we look at and kind of the way that the SP revenue line has trended, in particular the e-commerce revenue line, we've not been satisfied with kind of our participation in that e-commerce growth that we’ve seen 37% GNV growth, we've seen this massive increase in inventory, but we just haven't seen our own kind of results trend commensurately. So, I don't think that as we sit here right now, we know exactly where the balance will be struck or there is no plans to further decrease take rates. Our plan would be to actually introduce higher take rates and in fact, we're in the process of doing that right now on new offers and so we would expect to see kind of better performance on SP revenue side as a result.

I think it's important, we don't believe it's the lower take rates that's driving this accelerating growth in commerce. We think it's our shop platform redesign, leadership within an -- expertise within merchandising. We've gotten much smarter about our SKUs in terms of relevance based on search activity and based on sell-through. So we think it's both things which are actually driving the proliferation of commerce and our focus now is how to better monetize that.

Okay, thanks a lot, guys.

[Operator Instructions] Our next question is from Kerry Rice with Needham. You may begin.

Thank you. Angie, can you talk a little bit more about kind of the strategy on the marketing spend. Last year, as you highlighted, you spent early in the year and you got a nice tailwind. It seems like you are doing it a little bit differently this year. Why is that? What prompted you to change that spending and if you are doing kind of more of bell-shaped curve, it seems like we should have a little bit higher or maybe just like flat spending with Q2 that may be the past, the CPA goes up next quarter. Is that kind of fair to think of it that way?

So, I would expect that from a trend perspective, we will look similar to years where we've had a bell-shaped curve in the spend. Like last year we did bring the spend down considerably in Q3, so you benefitted from that kind of abruptness there. Kind of behind the logic of what we are doing, traditionally we’ve spent around the bell-shaped curve, because you want to make sure that you've got the dollars in play kind of throughout the year to make sure you are just getting your best marginal CPA. So we continue to experiment to make sure we've got that just right. I mean last year in Q2, it was also an experiment of not only pulling spend forward in the year, but also just testing a higher spend absolute level.

Is there any concern with, you’ve spent about $10 million more in Q2 of last year, you also had about 100,000 more gross ads. Is there any worry about that we are going to see maybe a bigger dip in gross ads in the second half of the year here and so member growth is going to drop a little bit faster in the second half than maybe the growth rates in the second half of 2014?

I think when you think about the growth spend, I mean, it's really going to be dependent on the dollars that we put to play in the second half of the year and how they performed. I mean, there is some impact from the tail, but there is a lot of impact from what the real time in that period spend is as well and that's performance.

Okay, just one last question. You've previously talked about some of the partnerships All State, Shaw Industries, can you give us an update on any new partnerships or how those partnerships are progressing.

We don't have any new partnerships to announce now, but we obviously have a lot of those relationships in the pipeline. National accounts and strategic accounts is a key growth strategy. Being able to partner with other tier-1 complementary brands on both bundling and distribution are core to the growth strategy.

It is fair to say that all the partnerships we've announced to-date are progressing well.

Thank you. Next question, operator.

Our next question is from Darren Aftahi with Northland Securities. You may begin.

Morning, guys. Thanks for taking the questions. Just a couple if I may. Angie, you talked about inventory on commerce growing 143%. Can you talk about the linearity I guess of the SKUs across all of your markets and then what are you seeing in terms of kind of non-member, whether it would be SnapFix in beta or marketplace showing actually signing up for membership subsequent to transaction or maybe not engaging in a transaction? Thanks.

Sure. So, I think the first question was in regard to inventory and how it's spread kind of across the business. I mean, there, historically we had a focus on driving inventory where we have advertisers, we are really spending time right now looking for where we have the best opportunity for placing that inventory in a very smart fashion, where we see the most traffic coming to the site in regard to a particular search and where we might have hauls and then making sure we've got the right offering on that spot, hey, we know this type of offer sells fast for this category. So the merchandising team is spending a good deal of time on that exact point just to make sure we’ve got the right offer and for the right person at the right time. I think your other question was in regard to membership in connection with commerce outside the Paywall and Netflix, So, as I mentioned in the script, we had people that were using the SnapFix product in the second quarter, where probably -- many of them might have been doing that in lieu of buying a membership. When it comes to commerce outside the Paywall in the form of Shop, we've historically seen very high percentage of those people that buy our commerce offering, also buy a membership at the same time.

Great, thank you.

Next question, operator.

Our next question is from Kevin Kopelman with Cowen and Company. You may begin.

Hi. This is Andrew Marok on for Kevin. Just a clarification question on the guidance. Given your commentary, it implies a tick-up in revenue growth in the back half. So do you expect to be able to still hit the revenue guidance, given the slowdown in growth in Q2 and if so are you seeing any accelerations in growth in July so far? Thank you.

Kevin, I really can't comment on that, I mean, other than what I said already on the guidance question, we made a comment on our guidance last week. Obviously, we've got a number of initiatives underway to continue to improve back half revenue performance and Mark laid out some details on that, but I'm not going to get into kind of any interim performance on any of that today. We’ll wait to talk about that in the next quarter's call.

Okay, thank you.

Okay. With that being our last question, we’ll conclude our call today. Thank you for your participation and we look forward to speaking with many of you in the future.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day.