NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. DESCRIPTION OF BUSINESS AND BASIS FOR PRESENTATION
Yelp Inc. was incorporated in Delaware on September 3, 2004. Except where specifically noted or the context otherwise requires, the use of terms such as the "Company" and "Yelp" in these Notes to Condensed Consolidated Financial Statements refers to Yelp Inc. and its subsidiaries.
Yelp is a trusted local resource for consumers and a partner in success for businesses of all sizes. Consumers trust Yelp for its extensive ratings and reviews of businesses across a broad range of categories, while businesses advertise on Yelp to reach its large audience of purchase-oriented and generally affluent consumers.
Basis of Presentation
The accompanying interim condensed consolidated financial statements are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and the applicable rules and regulations of the U.S. Securities and Exchange Commission ("SEC") regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements contained in the Annual Report.
The unaudited condensed consolidated balance sheet as of December 31, 2020 included herein was derived from the audited consolidated financial statements as of that date, but does not include all disclosures required by GAAP, including certain notes to the financial statements. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements, except as set forth under "Recently Adopted Accounting Pronouncements" below.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments of a normally recurring nature necessary for the fair presentation of the interim periods presented.
Principles of Consolidation
These unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated upon consolidation.
Use of Estimates
The preparation of the Company’s unaudited interim condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of income and expenses during the reporting period. These estimates are based on information available as of the date of the condensed consolidated financial statements; therefore, actual results could differ from management’s estimates.
In early March 2020, COVID-19 was declared a global pandemic by the World Health Organization. Governments around the world, including in the United States, have implemented extensive measures in an effort to control the spread of COVID-19, including travel restrictions, limitations on business activity, quarantines and shelter-in-place orders. Due to the COVID-19 pandemic and the uncertainty of the extent of the impacts, certain estimates and assumptions have required and may continue to require increased judgment and carry a higher degree of variability and volatility than they did prior to the pandemic. As events continue to evolve and additional information becomes available, these estimates may materially change in future periods.
Significant Accounting Policies
There have been no material changes to the Company's significant accounting policies from those described in the Annual Report.
Recently Adopted Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes" ("ASU 2019-12"), which simplifies the accounting for income taxes by removing certain exceptions to the general principles for recording income taxes, while also simplifying certain recognition and allocation approaches to accounting for income taxes. The Company adopted ASU 2019-12 on January 1, 2021, and the adoption did not have a material impact on its consolidated financial statements.
2. CASH, CASH EQUIVALENTS AND RESTRICTED CASH
Cash, cash equivalents and restricted cash as of March 31, 2021 and December 31, 2020 consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2021
|
|
December 31,
2020
|
Cash
|
$
|
78,429
|
|
|
$
|
85,750
|
|
Cash equivalents
|
510,163
|
|
|
510,125
|
|
Total cash and cash equivalents
|
$
|
588,592
|
|
|
$
|
595,875
|
|
Restricted cash
|
689
|
|
|
665
|
|
Total cash, cash equivalents and restricted cash
|
$
|
589,281
|
|
|
$
|
596,540
|
|
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company’s investments in money market accounts are recorded as cash equivalents at fair value on the condensed consolidated balance sheets.
The accounting guidance for fair value measurements prioritizes the inputs used in measuring fair value in the following hierarchy:
Level 1—Observable inputs, such as quoted prices in active markets,
Level 2—Inputs other than quoted prices in active markets that are observable either directly or indirectly, or
Level 3—Unobservable inputs in which there are little or no market data, which require the Company to develop its own assumptions.
This hierarchy requires the Company to use observable market data, when available, to minimize the use of unobservable inputs when determining fair value. The Company’s money market funds are classified within Level 1 of the fair value hierarchy because they are valued using quoted prices in active markets. The Company's certificates of deposit are classified within Level 2 of the fair value hierarchy because they have been valued using inputs other than quoted prices in active markets that are observable directly or indirectly.
The following table represents the fair value of the Company’s financial instruments, including those measured at fair value on a recurring basis, as of March 31, 2021 and December 31, 2020 (in thousands):
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|
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|
|
|
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|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
$
|
510,163
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
510,163
|
|
|
$
|
510,125
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
510,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
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|
|
|
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|
|
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|
|
Other investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
—
|
|
|
10,009
|
|
|
—
|
|
|
10,009
|
|
|
—
|
|
|
10,933
|
|
|
—
|
|
|
10,933
|
|
Total cash equivalents and other investments
|
$
|
510,163
|
|
|
$
|
10,009
|
|
|
$
|
—
|
|
|
$
|
520,172
|
|
|
$
|
510,125
|
|
|
$
|
10,933
|
|
|
$
|
—
|
|
|
$
|
521,058
|
|
The certificates of deposit are reflected in prepaid expenses and other current assets on the condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020.
4. MARKETABLE SECURITIES
In March 2020, the Company changed its investment strategy in response to uncertainties resulting from the COVID-19 pandemic to allow for more flexibility in preserving liquidity, which led to the transfer of $300.2 million of amortized cost of its investment portfolio from a held-to-maturity classification to available-for-sale. As a result of this transfer, in March 2020, the Company reversed the allowance for credit loss that had been previously recorded upon adoption of Accounting Standards Update No. 2016-13, "Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," and measured the securities at fair value as of the transfer date by recording an immaterial allowance for credit loss to other income, net and the remaining adjustment as an immaterial unrealized loss recorded to other comprehensive income.
Following this transfer, during the three months ended March 31, 2020, the Company sold certain agency bonds that were classified as available-for-sale short- and long-term marketable securities for proceeds of $135.2 million. The Company reinvested the proceeds from the sales, along with $65.0 million from maturities and redemptions of marketable securities, into money market funds. The remaining short- and long-term marketable securities were sold during the three months ended June 30, 2020 for proceeds of $118.2 million. The proceeds, along with $8.0 million from maturities and redemptions, were also reinvested into money market funds. The Company recorded an immaterial net realized gain to other income, net as a result of the sales within the first six months of 2020.
5. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets as of March 31, 2021 and December 31, 2020 consisted of the following (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2021
|
|
December 31,
2020
|
Prepaid expenses
|
$
|
10,343
|
|
|
$
|
10,438
|
|
Certificates of deposit
|
10,000
|
|
|
10,930
|
|
Other current assets
|
5,661
|
|
|
7,082
|
|
Total prepaid expenses and other current assets
|
$
|
26,004
|
|
|
$
|
28,450
|
|
Prepaid expenses include an immaterial amount of capitalized implementation costs incurred related to cloud computing arrangements that are service contracts. There was no amortization expense recognized for the capitalized cloud computing implementation costs for the three months ended March 31, 2021. Other current assets primarily consist of deferred costs related to unsettled share repurchases and income tax receivables.
6. PROPERTY, EQUIPMENT AND SOFTWARE, NET
Property, equipment and software, net as of March 31, 2021 and December 31, 2020 consisted of the following (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
March 31,
2021
|
|
December 31,
2020
|
Capitalized website and internal-use software development costs
|
$
|
179,720
|
|
|
$
|
171,831
|
|
Leasehold improvements
|
84,364
|
|
|
88,687
|
|
Computer equipment
|
45,725
|
|
|
46,581
|
|
Furniture and fixtures
|
17,894
|
|
|
18,339
|
|
Telecommunication
|
4,974
|
|
|
4,951
|
|
Software
|
1,717
|
|
|
1,717
|
|
Total
|
334,394
|
|
|
332,106
|
|
Less accumulated depreciation
|
(236,390)
|
|
|
(230,388)
|
|
Property, equipment and software, net
|
$
|
98,004
|
|
|
$
|
101,718
|
|
Depreciation expense was $12.4 million and $11.7 million for the three months ended March 31, 2021 and 2020, respectively.
7. GOODWILL AND INTANGIBLE ASSETS
The Company’s goodwill is the result of its acquisitions of other businesses, and represents the excess of purchase consideration over the fair value of assets acquired and liabilities assumed. The Company performed its annual goodwill impairment analysis as of August 31, 2020 and concluded that goodwill was not impaired, as the fair value of the reporting unit exceeded its carrying value.
The changes in carrying amount of goodwill during the three months ended March 31, 2021 were as follows (in thousands):
|
|
|
|
|
|
Balance as of December 31, 2020
|
$
|
109,261
|
|
Effect of currency translation
|
(2,347)
|
|
Balance as of March 31, 2021
|
$
|
106,914
|
|
Intangible assets that were not fully amortized as of March 31, 2021 and December 31, 2020 consisted of the following (dollars in thousands):
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|
|
March 31, 2021
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Weighted Average Remaining Life
|
Business relationships
|
$
|
9,918
|
|
|
$
|
(4,057)
|
|
|
$
|
5,861
|
|
|
7.6
|
years
|
Developed technology
|
7,709
|
|
|
(6,542)
|
|
|
1,167
|
|
|
1.0
|
years
|
Licensing agreements
|
6,129
|
|
|
(376)
|
|
|
5,753
|
|
|
8.9
|
years
|
|
|
|
|
|
|
|
|
|
Domains and data licenses
|
2,869
|
|
|
(2,844)
|
|
|
25
|
|
|
2.2
|
years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
26,625
|
|
|
$
|
(13,819)
|
|
|
$
|
12,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Weighted Average Remaining Life
|
Business relationships
|
$
|
9,918
|
|
|
$
|
(3,814)
|
|
|
$
|
6,104
|
|
|
7.8
|
years
|
Developed technology
|
7,709
|
|
|
(6,238)
|
|
|
1,471
|
|
|
1.2
|
years
|
Licensing agreements
|
6,129
|
|
|
(215)
|
|
|
5,914
|
|
|
9.2
|
years
|
|
|
|
|
|
|
|
|
|
Domain and data licenses
|
2,869
|
|
|
(2,837)
|
|
|
32
|
|
|
2.2
|
years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
26,625
|
|
|
$
|
(13,104)
|
|
|
$
|
13,521
|
|
|
|
|
Amortization expense was $0.7 million in each of the three months ended March 31, 2021 and 2020.
As of March 31, 2021, estimated future amortization expenses were as follows (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
Remainder of 2021
|
|
$
|
2,133
|
|
2022
|
|
1,676
|
|
2023
|
|
1,359
|
|
2024
|
|
1,353
|
|
2025
|
|
1,353
|
|
2026
|
|
1,353
|
|
Thereafter
|
|
3,579
|
|
Total amortization
|
|
$
|
12,806
|
|
8. LEASES
The components of lease cost, net, for the three months ended March 31, 2021 and 2020 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2021
|
|
2020
|
|
|
|
|
Operating lease cost
|
$
|
13,763
|
|
|
$
|
13,811
|
|
|
|
|
|
Short-term lease cost (12 months or less)
|
137
|
|
|
360
|
|
|
|
|
|
Sublease income
|
(1,628)
|
|
|
(1,960)
|
|
|
|
|
|
Total lease cost, net
|
$
|
12,272
|
|
|
$
|
12,211
|
|
|
|
|
|
The Company's leases and subleases do not include any variable lease payments, residual value guarantees, related-party leases, or restrictions or covenants that would limit or prevent the Company from exercising its right to obtain substantially all of the economic benefits from use of the respective assets during the lease term.
Supplemental cash flow information related to leases for the three months ended March 31, 2021 and 2020 was as follows (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2021
|
|
2020
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
Operating cash flows from operating leases
|
$
|
9,590
|
|
|
$
|
10,108
|
|
As of March 31, 2021, maturities of lease liabilities were as follows (in thousands):
|
|
|
|
|
|
|
|
Remainder of 2021
|
$
|
42,729
|
|
2022
|
48,665
|
|
2023
|
45,778
|
|
2024
|
43,011
|
|
2025
|
22,444
|
|
2026
|
7,488
|
|
Thereafter
|
17,031
|
|
Total minimum lease payments
|
227,146
|
|
Less imputed interest
|
(29,344)
|
|
Present value of lease liabilities
|
$
|
197,802
|
|
As of March 31, 2021 and December 31, 2020, the weighted-average remaining lease terms and weighted-average discount rates were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2021
|
|
December 31,
2020
|
Weighted-average remaining lease term (years) — operating leases
|
4.9
|
|
5.1
|
Weighted-average discount rate — operating leases
|
5.9 %
|
|
6.0
|
%
|
In October 2020, the Company entered into a lease agreement for an office facility in Toronto, Canada for which the lease term is expected to commence in August 2021 and expire in 2031. The Company expects to classify this as an operating lease and, as of March 31, 2021, expected to recognize operating lease cost of approximately $9.5 million over the life of the lease.
9. OTHER NON-CURRENT ASSETS
Other non-current assets as of March 31, 2021 and December 31, 2020 consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2021
|
|
December 31,
2020
|
Deferred tax assets
|
$
|
33,654
|
|
|
$
|
31,163
|
|
Deferred contract costs
|
14,490
|
|
|
14,522
|
|
Other non-current assets
|
3,508
|
|
|
3,163
|
|
Total other non-current assets
|
$
|
51,652
|
|
|
$
|
48,848
|
|
Deferred contract costs as of March 31, 2021 and December 31, 2020, and changes in deferred contract costs during the three months ended March 31, 2021, were as follows (in thousands):
|
|
|
|
|
|
|
Three Months Ended
March 31, 2021
|
Balance, beginning of period
|
$
|
14,522
|
|
Add: costs deferred on new contracts
|
3,349
|
|
Less: amortization recorded in sales and marketing expenses
|
(3,381)
|
|
Balance, end of period
|
$
|
14,490
|
|
10. CONTRACT BALANCES
The changes in the allowance for doubtful accounts during the three months ended March 31, 2021 and 2020 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2021
|
|
2020
|
Balance, beginning of period
|
$
|
11,559
|
|
|
$
|
7,686
|
|
Add: provision for doubtful accounts
|
3,289
|
|
|
15,933
|
|
Less: write-offs, net of recoveries
|
(5,168)
|
|
|
(9,031)
|
|
Balance, end of period
|
$
|
9,680
|
|
|
$
|
14,588
|
|
The net decrease in the allowance for doubtful accounts in the three months ended March 31, 2021 was primarily a result of a reduction in expected customer delinquencies compared to December 31, 2020, as collection rates continued to improve. The net increase in the allowance for doubtful accounts in the three months ended March 31, 2020 primarily related to an anticipated increase in customer delinquencies due to the COVID-19 pandemic. In calculating the allowance for doubtful accounts as of March 31, 2021 and March 31, 2020, the Company considered expectations of probable credit losses, and with respect to the 2020 period, probable credit losses associated with the COVID-19 pandemic, based on observed trends to date in cancellations, observed changes to date in the credit risk of specific customers, the impact of anticipated closures and bankruptcies using forecasted economic indicators in addition to historical experience and loss patterns during periods of macroeconomic uncertainty.
Contract liabilities consist of deferred revenue, which is recorded on the condensed consolidated balance sheets when the Company has received consideration, or has the right to receive consideration, in advance of transferring the performance obligations under the contract to the customer.
The changes in deferred revenue during the three months ended March 31, 2021 were as follows (in thousands):
|
|
|
|
|
|
|
Three Months Ended
March 31, 2021
|
Balance, beginning of period
|
$
|
4,109
|
|
Less: recognition of deferred revenue from beginning balance
|
(2,293)
|
|
Add: net increase in current period contract liabilities
|
3,379
|
|
Balance, end of period
|
$
|
5,195
|
|
The majority of the deferred revenue balance as of March 31, 2021 is expected to be recognized as revenue in the subsequent three-month period ending June 30, 2021. No other contract assets or liabilities are recorded on the Company's condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020.
11. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities as of March 31, 2021 and December 31, 2020 consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2021
|
|
December 31,
2020
|
Accounts payable
|
$
|
5,255
|
|
|
$
|
8,853
|
|
Employee-related liabilities
|
68,514
|
|
|
57,684
|
|
Accrued sales and marketing expenses
|
6,079
|
|
|
2,137
|
|
Taxes payable
|
1,302
|
|
|
975
|
|
Accrued cost of revenue
|
6,507
|
|
|
8,269
|
|
|
|
|
|
Other accrued liabilities
|
9,635
|
|
|
9,842
|
|
Total accounts payable and accrued liabilities
|
$
|
97,292
|
|
|
$
|
87,760
|
|
12. COMMITMENTS AND CONTINGENCIES
Legal Proceedings—In January 2018, a putative class action lawsuit alleging violations of the federal securities laws was filed in the U.S. District Court for the Northern District of California, naming as defendants the Company and certain of its officers. The complaint, which the plaintiff amended on June 25, 2018, alleges violations of the Exchange Act by the Company and its officers for allegedly making materially false and misleading statements regarding its business and operations on February 9, 2017. The plaintiff seeks unspecified monetary damages and other relief. On August 2, 2018, the Company and the other defendants filed a motion to dismiss the amended complaint, which the court granted in part and denied in part on November 27, 2018. On October 22, 2019, the Court approved a stipulation to certify a class in this action. The case remains pending. The Company is unable to reasonably estimate either the probability of incurring a loss or an estimated range of such loss, if any, from the lawsuit.
The Company is subject to other legal proceedings arising in the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty, the Company currently does not believe that the final outcome of any of these other matters will have a material effect on the Company’s business, financial position, results of operations or cash flows.
Indemnification Agreements—In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of breach of such agreements, services to be provided by the Company or from intellectual property infringement claims made by third parties.
In addition, the Company has entered into indemnification agreements with directors and certain officers and employees that will require the Company to, among other things, indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees.
While the outcome of claims cannot be predicted with certainty, the Company does not believe that the outcome of any claims under the indemnification arrangements will have a material effect on the Company’s business, financial position, results of operations or cash flows.
Revolving Credit Facility—The Company is a party to a Credit Agreement with Wells Fargo Bank, National Association (the "Credit Agreement"), which provides for a three-year, $75.0 million senior unsecured revolving credit facility including a letter of credit sub-limit of $25.0 million. As of March 31, 2021, the Company had $21.5 million of letters of credit under the sub-limit related to lease agreements for certain office locations, which are required to be maintained and issued to the landlords of each facility, and $53.5 million remained available under the revolving credit facility as of this date. The Company was in compliance with all covenants associated with the credit facility and there were no loans outstanding under the Credit Agreement as of March 31, 2021. For additional information on the terms of the Credit Agreement, including fees payable by the Company, a minimum liquidity covenant, events of default and other limitations, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources" included under Part II, Item 7 in our Annual Report.
13. STOCKHOLDERS’ EQUITY
The following table presents the number of shares authorized and issued as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
Shares Authorized
|
|
Shares Issued
|
|
Shares Authorized
|
|
Shares Issued
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
Common stock, $0.000001 par value
|
200,000,000
|
|
|
75,153,089
|
|
|
200,000,000
|
|
|
75,371,368
|
|
Undesignated preferred stock
|
10,000,000
|
|
|
—
|
|
|
10,000,000
|
|
|
—
|
|
Stock Repurchase Program
In July 2017, the Company’s board of directors authorized a stock repurchase program under which the Company was authorized to repurchase up to $200.0 million of its outstanding common stock. The Company's board of directors authorized the Company to repurchase up to an additional $250.0 million of its outstanding common stock in each of November 2018, February 2019 and January 2020, bringing the total amount of authorized repurchases to $950.0 million as of March 31, 2021, $195.1 million of which remained available as of March 31, 2021. The Company may purchase shares at management’s discretion in the open market, in privately negotiated transactions, in transactions structured through investment banking institutions, or a combination of the foregoing.
During the three months ended March 31, 2021, the Company repurchased on the open market 1,401,000 shares for an aggregate purchase price of $49.5 million and retired 1,412,188 shares. As of March 31, 2021, the Company had a treasury stock balance of 87,830 shares, which were excluded from its outstanding share count as of such date and subsequently retired in April 2021.
The Company did not repurchase any shares during the three months ended March 31, 2020.
Equity Incentive Plans
Stock Options
Stock options are granted at a price per share not less than the fair value of a share of the Company’s common stock on the grant date. Options generally vest over a four-year period, on one of two schedules: (a) 25% vesting at the end of one year and the remaining shares vesting monthly thereafter or (b) ratably on a monthly basis. Options granted are generally exercisable for contractual terms of up to 10 years. The Company issues new shares when stock options are exercised.
A summary of stock option activity for the three months ended March 31, 2021 is as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted-Average Exercise Price
|
|
Weighted-Average Remaining Contractual Term (in years)
|
|
Aggregate Intrinsic Value (in thousands)
|
Outstanding at December 31, 2020
|
4,622,828
|
|
|
$
|
29.89
|
|
|
4.7
|
|
$
|
30,451
|
|
|
|
|
|
|
|
|
|
Exercised
|
(525,194)
|
|
|
11.52
|
|
|
|
|
|
Canceled
|
(9,046)
|
|
|
52.14
|
|
|
|
|
|
Outstanding at March 31, 2021
|
4,088,588
|
|
|
$
|
32.20
|
|
|
4.9
|
|
$
|
35,920
|
|
Options vested and exercisable at March 31, 2021
|
3,608,168
|
|
|
$
|
31.63
|
|
|
4.6
|
|
$
|
34,224
|
|
Aggregate intrinsic value represents the difference between the closing price of the Company’s common stock as quoted on the New York Stock Exchange on a given date and the exercise price of outstanding, in-the-money options. The total intrinsic value of options exercised was approximately $11.1 million and $4.2 million for the three months ended March 31, 2021 and 2020, respectively.
There were no options granted during the three months ended March 31, 2021. The weighted-average grant date fair value of options granted during the three months ended March 31, 2020 was $11.13 per share.
As of March 31, 2021, total unrecognized compensation costs related to nonvested stock options were approximately $7.5 million, which the Company expects to recognize over a weighted-average time period of 1.8 years.
RSUs
RSUs generally vest over a four-year period, on one of two schedules: (a) 25% vesting at the end of one year and the remaining vesting quarterly thereafter or (b) ratably on a quarterly basis.
RSUs also include performance-based restricted stock units ("PRSUs"), which are subject to both a time-based vesting schedule and either (a) a market condition or (b) the achievement of performance goals. The time-based vesting schedule is quarterly over four years (the "Time-Based Vesting Schedule"). For PRSUs subject to a market condition, the Company recognizes expense from the date of grant. For PRSUs subject to performance goals, the Company recognizes expense when it is probable that the performance condition will be achieved.
The shares underlying each PRSU award subject to a market condition will be eligible to vest only if the average closing price of the Company's common stock equals or exceeds $45.3125 over any 60-day trading period during the four years following the grant date of February 7, 2019. If this market condition is met, the shares underlying each PRSU award will vest according to the Time-Based Vesting Schedule. Any shares subject to the PRSUs that have met the Time-Based Vesting Schedule at the time the market condition is achieved will fully vest as of such date; thereafter, any remaining nonvested shares subject to the PRSUs will continue vesting solely according to the Time-Based Vesting Schedule, subject to the applicable employee's continued service as of each such vesting date.
For PRSUs subject to performance goals, a percentage of the target number of shares, ranging from zero to 200%, will become eligible to vest based on the Company's level of achievement of certain financial targets, subject to the Time-Based Vesting Schedule. The shares subject to performance goals become eligible to vest once the achievement against the financial targets is known, which will be no later than March of the following year. On the quarterly vest date immediately following such determination (or a vest date otherwise specified in the agreement), the eligible shares, if any, will vest to the extent that the employee has met the Time-Based Vesting Schedule as of such date. Thereafter, the eligible shares will continue to vest in accordance with the Time-Based Vesting Schedule, subject to the applicable employee's continued service as of each such vesting date. The Company performed an analysis as of March 31, 2021 to assess the probability of achievement of the PRSU financial targets and, as a result, recorded compensation costs in the three months ended March 31, 2021 for the PRSUs that it expected to vest.
As the PRSU activity during the three months ended March 31, 2021 was not material, it is presented together with the RSU activity in the table below. A summary of RSU and PRSU activity for the three months ended March 31, 2021 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted-Average Grant Date Fair Value
|
Nonvested at December 31, 2020
|
9,757,787
|
|
|
$
|
29.22
|
|
Granted
|
4,267,758
|
|
|
35.82
|
|
Vested(1)
|
(1,121,213)
|
|
|
32.73
|
|
Canceled
|
(705,463)
|
|
|
31.68
|
|
Nonvested at March 31, 2021
|
12,198,869
|
|
|
$
|
31.06
|
|
(1) Includes 451,223 shares that vested but were not issued due to net share settlement for payment of employee taxes.
The aggregate fair value as of the vest date of RSUs that vested during the three months ended March 31, 2021 and 2020 was $42.1 million and $29.1 million, respectively. As of March 31, 2021, the Company had approximately $367.7 million of unrecognized stock-based compensation expense related to RSUs, which it expects to recognize over the remaining weighted-average vesting period of approximately 2.9 years.
Employee Stock Purchase Plan
The Employee Stock Purchase Plan ("ESPP") allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions of up to 15% of their eligible compensation, subject to any plan limitations, during designated offering periods. At the end of each offering period, employees are able to purchase shares at 85% of the fair market value of the Company’s common stock on the last day of the offering period, based on the closing sales price of the Company's common stock as quoted on the New York Stock Exchange on such date.
There were no shares purchased by employees under the ESPP in the three months ended March 31, 2021 and 2020. The Company recognized stock-based compensation expense related to the ESPP of $0.8 million in each of the three months ended March 31, 2021 and 2020.
Stock-Based Compensation
The following table summarizes the effects of stock-based compensation expense related to stock-based awards in the condensed consolidated statements of operations during the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2021
|
|
2020
|
|
|
|
|
Cost of revenue
|
$
|
1,108
|
|
|
$
|
1,043
|
|
|
|
|
|
Sales and marketing
|
8,397
|
|
|
7,696
|
|
|
|
|
|
Product development
|
20,753
|
|
|
17,755
|
|
|
|
|
|
General and administrative
|
8,987
|
|
|
5,256
|
|
|
|
|
|
Total stock-based compensation recorded to loss before income taxes
|
39,245
|
|
|
31,750
|
|
|
|
|
|
Benefit from income taxes
|
(10,065)
|
|
|
(12,557)
|
|
|
|
|
|
Total stock-based compensation recorded to net loss
|
$
|
29,180
|
|
|
$
|
19,193
|
|
|
|
|
|
The Company capitalized $2.8 million and $2.3 million of stock-based compensation expense as website development costs in the three months ended March 31, 2021 and 2020, respectively.
14. OTHER INCOME, NET
Other income, net for the three months ended March 31, 2021 and 2020 consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2021
|
|
2020
|
|
|
|
|
Interest (expense) income, net
|
$
|
(18)
|
|
|
$
|
2,106
|
|
|
|
|
|
Transaction gain (loss) on foreign exchange
|
257
|
|
|
(68)
|
|
|
|
|
|
Other non-operating income, net
|
466
|
|
|
345
|
|
|
|
|
|
Other income, net
|
$
|
705
|
|
|
$
|
2,383
|
|
|
|
|
|
15. INCOME TAXES
The Company is subject to income tax in the United States as well as other tax jurisdictions in which it conducts business. Earnings from non-U.S. activities are subject to local country income tax. The benefit from income taxes for the three months ended March 31, 2021 was $2.1 million, which was due to $1.8 million of U.S. federal, state and foreign income tax expense, offset by $3.9 million of net discrete tax benefit primarily related to stock-based compensation. The benefit from income taxes for the three months ended March 31, 2020 was $9.4 million, which was due to $9.6 million of U.S. federal, state and foreign income tax benefit, offset by $0.2 million of net discrete tax expense.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was signed into law. The CARES Act includes, among other items, provisions relating to refundable payroll tax credits, deferral of the employer portion of certain payroll taxes, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property.
The CARES Act allows losses incurred in 2018, 2019 and 2020 to be carried back to each of the five preceding tax years and to offset 100% of regular taxable income. Additionally, the CARES Act accelerates the Company’s ability to receive refunds of alternative minimum tax credits generated in prior tax years.
Accounting for income taxes for interim periods generally requires the provision for income taxes to be determined by applying an estimate of the annual effective tax rate for the full fiscal year to income or loss before income taxes, excluding unusual or infrequently occurring discrete items ("Ordinary" income), for the reporting period. For the three months ended March 31, 2021, the difference between the effective tax rate and the federal statutory tax rate primarily related to tax credits, offset by non-deductible expenses. For the three months ended March 31, 2020, the difference between the effective tax rate and the federal statutory tax rate primarily related to net operating loss provisions adopted under the CARES Act and tax credits.
As of March 31, 2021, the total amount of gross unrecognized tax benefits was $50.5 million, $22.0 million of which was subject to a full valuation allowance and would not affect the Company’s effective tax rate if recognized. In the three months ended March 31, 2021, the Company recorded an immaterial amount of interest and penalties.
As of March 31, 2021, the Company estimated that it had accumulated undistributed earnings generated by its foreign subsidiaries of approximately $6.9 million. Any taxes due with respect to such earnings or the excess of the amount for financial reporting over the tax basis of the Company's foreign investments would generally be limited to foreign and state taxes. The Company has not recognized a deferred tax liability related to un-remitted foreign earnings, as it intends to indefinitely reinvest these earnings, and expects future U.S. cash generation to be sufficient to meet future U.S. cash needs.
In addition, the Company is subject to the continuous examination of its income tax returns by the Internal Revenue Service and other tax authorities. The Company’s federal and state income tax returns for tax years subsequent to 2003 remain open to examination. In the Company’s foreign jurisdictions — Canada, Germany, Ireland and the United Kingdom — the tax years subsequent to 2015 remain open to examination. The Company regularly assesses the likelihood of adverse outcomes resulting from examinations to determine the adequacy of its provision for income taxes and monitors the progress of ongoing discussions with tax authorities and the impact, if any, of the expected expiration of the statute of limitations in various taxing jurisdictions. The Company believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company’s tax audits are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs. As of March 31, 2021, although the timing of the resolution or closure of audits is not certain, the Company believes it is reasonably possible that its unrecognized tax benefits could be reduced by $6.3 million over the next 12 months.
16. NET LOSS PER SHARE
Basic net loss per share is computed using the weighted-average number of outstanding shares of common stock during the period. Diluted net loss per share is computed using the weighted-average number of outstanding shares of common stock and, when dilutive, potential shares of common stock outstanding during the period. Potential common shares consist of the incremental shares of common stock issuable upon the exercise of stock options, shares issuable upon the vesting of RSUs (including PRSUs) and, to a lesser extent, purchase rights related to the ESPP.
The following table presents the calculation of basic and diluted net loss per share for the periods presented (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2021
|
|
2020
|
|
|
|
|
Basic net loss per share:
|
|
|
|
|
|
|
|
Net loss
|
$
|
(5,796)
|
|
|
$
|
(15,503)
|
|
|
|
|
|
Shares used in computation:
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
75,245
|
|
|
71,548
|
|
|
|
|
|
Basic net loss per share attributable to common stockholders
|
$
|
(0.08)
|
|
|
$
|
(0.22)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2021
|
|
2020
|
|
|
|
|
Diluted net loss per share:
|
|
|
|
|
|
|
|
Net loss
|
$
|
(5,796)
|
|
|
$
|
(15,503)
|
|
|
|
|
|
Shares used in computation:
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
75,245
|
|
|
71,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net loss per share attributable to common stockholders
|
$
|
(0.08)
|
|
|
$
|
(0.22)
|
|
|
|
|
|
The following stock-based instruments were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive for the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2021
|
|
2020
|
|
|
|
|
Stock options
|
4,089
|
|
|
6,019
|
|
|
|
|
|
RSUs
|
12,199
|
|
|
9,027
|
|
|
|
|
|
ESPP
|
213
|
|
|
243
|
|
|
|
|
|
17. INFORMATION ABOUT REVENUE AND GEOGRAPHIC AREAS
The Company considers operating segments to be components of the Company for which separate financial information is available and evaluated regularly by the Company’s chief operating decision maker in deciding how to allocate resources and in assessing performance. The chief operating decision maker for the Company is the chief executive officer. The chief executive officer reviews financial information presented on a consolidated basis, accompanied by information about revenue by product line and geographic region for purposes of allocating resources and evaluating financial performance.
The Company has determined that it has a single operating and reporting segment. When the Company communicates results externally, it disaggregates net revenue into major product lines and primary geographical markets, which is based on the billing address of the customer. The disaggregation of revenue by major product lines is based on the type of service provided and also aligns with the timing of revenue recognition for each. To reflect the Company's strategic focus on creating differentiated experiences for its Services categories and Restaurants, Retail & Other categories, the Company further disaggregates advertising revenue to reflect these two high-level category groupings. The Services categories consist of the following businesses: home, local, auto, professional, pets, events, real estate and financial services. The Restaurants, Retail & Other categories consist of the following businesses: restaurants, shopping, beauty & fitness, health and other.
Net Revenue
The following table presents the Company’s net revenue by major product line (and by category for advertising revenue) for the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2021
|
|
2020
|
|
|
|
|
Net revenue by product:
|
|
|
|
|
|
|
|
Advertising revenue by category:
|
|
|
|
|
|
|
|
Services
|
$
|
140,687
|
|
|
$
|
133,082
|
|
|
|
|
|
Restaurants, Retail & Other
|
81,300
|
|
|
107,011
|
|
|
|
|
|
Advertising
|
221,987
|
|
|
240,093
|
|
|
|
|
|
Transactions
|
3,804
|
|
|
2,639
|
|
|
|
|
|
Other
|
6,305
|
|
|
7,169
|
|
|
|
|
|
Total net revenue
|
$
|
232,096
|
|
|
$
|
249,901
|
|
|
|
|
|
During the three months ended March 31, 2021 and 2020, no individual customer accounted for 10% or more of consolidated net revenue.
As a result of the COVID-19 pandemic, the Company considered whether there was any impact to the manner in which revenue is recognized, in particular with respect to the collectability criteria for recognizing revenue from contracts with customers. The Company did not change the manner in which it recognizes revenue as a result of that assessment.
During the three months ended March 31, 2021 and 2020, the Company offered a number of relief incentives totaling $2.2 million and $4.6 million, respectively, to advertising and other revenue customers most impacted by the COVID-19 pandemic. These incentives were primarily in the form of waived advertising fees and waived subscription fees. The Company accounted for these incentives as price concessions and reduced net revenue recognized in the three months ended March 31, 2021 and 2020 accordingly.
The following table presents the Company’s net revenue by major geographic region for the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2021
|
|
2020
|
|
|
|
|
United States
|
$
|
229,995
|
|
|
$
|
246,527
|
|
|
|
|
|
All other countries
|
2,101
|
|
|
3,374
|
|
|
|
|
|
Total net revenue
|
$
|
232,096
|
|
|
$
|
249,901
|
|
|
|
|
|
Long-Lived Assets
The following table presents the Company’s long-lived assets by major geographic region for the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2021
|
|
December 31,
2020
|
United States
|
$
|
93,965
|
|
|
$
|
97,548
|
|
All other countries
|
4,039
|
|
|
4,170
|
|
Total long-lived assets
|
$
|
98,004
|
|
|
$
|
101,718
|
|
18. RESTRUCTURING
In April 2020, the Company announced a restructuring plan to help manage the near-term financial impacts of the COVID-19 pandemic (the "Restructuring Plan"). In addition to reductions and deferrals in spending, the Restructuring Plan’s cost-cutting measures included workforce reductions affecting approximately 1,000 employees and furloughs affecting approximately 1,100 additional employees, as well as salary reductions and reduced-hour work weeks. In July 2020, the Company announced an additional workforce reduction (separate from the Restructuring Plan) affecting approximately 60 employees.
During the three months ended September 30, 2020, the Company restored reduced salaries and returned many of its furloughed employees.
The Company incurred an immaterial amount of restructuring costs during the three months ended March 31, 2021 and does not expect to incur any material additional restructuring costs. The restructuring costs were recorded as restructuring expenses on the Company's condensed consolidated statements of operations.