UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
_______________________________
FORM 10-Q
_______________________________
(Mark
One)
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x
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QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the quarterly
period ended March 31, 2012
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OR
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c
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TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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Commission File Number:
333-178030
_______________________________
YELP INC.
(Exact Name of Registrant as Specified in Its Charter)
_______________________________
Delaware
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20-1854266
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(State or Other Jurisdiction of
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(I.R.S. Employer
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Incorporation or Organization)
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Identification No.)
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706 Mission Street
,
San Francisco, CA
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94103
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(Address of Principal Executive
Offices)
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(Zip
Code)
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(415)
908-3801
(Registrants Telephone Number, Including Area
Code)
_______________________________
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes
o
No
x
Indicate by checkmark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter
time period that the registrant was required to submit and post such files). Yes
x
No
o
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See definition of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated
filer
o
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Accelerated filer
o
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Non-accelerated filer
x
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Smaller reporting
company
o
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(Do not check if a smaller reporting
company)
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Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
o
No
x
As of April 30, 2012, there
were 8,222,500 shares of the Registrants Class A common stock outstanding
and 52,917,957 shares of the Registrants Class B common stock outstanding.
Yelp Inc.
FORM 10-Q
Table of Contents
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Page
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PART I. FINANCIAL INFORMATION
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Item 1.
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Financial Statements (Unaudited)
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1
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Condensed Consolidated Balance Sheets as of March 31, 2012 and
December 31, 2011
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1
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Condensed Consolidated Statements of Operations for the Three
Months Ended March 31, 2012 and 2011
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2
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Condensed Consolidated Statements of Comprehensive Loss for the
Three Months Ended March 31, 2012 and 2011
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3
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Condensed Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 2012 and 2011
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4
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Notes to
Condensed Consolidated Financial Statements
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6
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Item 2.
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Managements Discussion and Analysis of Financial Condition and
Results of Operations
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13
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Item 3.
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Quantitative and Qualitative Disclosures About Market
Risk
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22
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Item 4.
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Controls and Procedures
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22
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PART II. OTHER INFORMATION
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Item 1.
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Legal Proceedings
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23
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Item 1A.
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Risk
Factors
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23
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Item 2.
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Unregistered Sales of Equity Securities and Use of
Proceeds
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36
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Item 5.
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Other Information
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37
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Item 6.
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Exhibits
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38
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Signatures
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40
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL
STATEMENTS
YELP INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(in thousands, except share and per share data)
(Unaudited)
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March 31,
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December 31,
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2012
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2011
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ASSETS
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Current assets:
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Cash
and cash equivalents
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$
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130,737
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$
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21,736
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Accounts receivable (net of
allowance for doubtful accounts of $200 and $210
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at March 31, 2012 and December
31, 2011, respectively)
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7,179
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8,257
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Prepaid
expenses and other current assets
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2,508
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1,733
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Total current assets
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140,424
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31,726
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Property, equipment and software,
net
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10,649
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9,881
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Restricted cash
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1,497
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365
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Other assets
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517
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1,849
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Total assets
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$
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153,087
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$
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43,821
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Liabilities, redeemable convertible
preferred stock and stockholders equity (deficit)
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Current liabilities:
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Accounts payable
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$
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3,441
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$
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2,973
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Accrued liabilities
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8,030
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7,685
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Deferred revenue
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999
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2,072
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Total current liabilities
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12,470
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12,730
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Long term liabilities
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3
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3
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Total
liabilities
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$
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12,473
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$
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12,733
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Commitments and contingencies (Note
7)
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Redeemable convertible preferred stock (Note
8)
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55,435
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Stockholders equity (deficit)
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Common stock, $0.000001 par
value500,000,000 shares authorized;
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61,131,598 and 16,956,409
shares issued and outstanding
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at March 31, 2012 and December
31, 2011, respectively
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Additional paid-in capital
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191,448
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16,625
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Accumulated other
comprehensive income (loss)
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242
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271
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Accumulated deficit
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(51,076
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)
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(41,243
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)
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Total stockholders equity (deficit)
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140,614
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(24,347
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)
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Total liabilities, redeemable convertible
preferred stock and stockholders equity (deficit)
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$
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153,087
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$
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43,821
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See notes to condensed
consolidated financial statements
1
YELP INC.
CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS
(In thousands, except for per share data)
(Unaudited)
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Three Months Ended
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March
31,
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2012
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2011
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Net revenue
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$
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27,385
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$
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16,500
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Costs and expenses:
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Cost of
revenue (exclusive of depreciation and amortization shown separately
below)
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2,126
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1,276
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Sales and marketing
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18,770
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11,271
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Product
development
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4,140
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2,319
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General and
administrative
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10,729
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3,617
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Depreciation and amortization
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1,361
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819
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Total costs and expenses
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37,126
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19,302
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Loss from operations
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(9,741
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)
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(2,802
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)
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Other income (expense), net
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(30
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)
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108
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Loss before income taxes
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(9,771
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)
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(2,694
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Provision for income taxes
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(31
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)
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(12
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Net loss
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(9,802
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(2,706
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Accretion of redeemable convertible preferred stock
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(31
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(47
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)
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Net loss attributable to common
stockholders (Class A and B)
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$
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(9,833
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$
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(2,753
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Net loss per share attributable to common
stockholders
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Basic
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$
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(0.31
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$
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(0.19
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Diluted
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$
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(0.31
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$
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(0.19
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Weighted-average shares used to compute net
loss per share attributable to common stockholders
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(Class A and B)
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Basic
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31,263
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14,553
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Diluted
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31,263
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14,553
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See notes to condensed
consolidated financial statements.
2
YELP INC.
CONDENSED CONSOLIDATED STATEMENTS
OF COMPREHENSIVE LOSS
(in thousands)
(Unaudited)
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Three Months Ended
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March
31,
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2012
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2011
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Net loss
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$
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(9,802
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$
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(2,706
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)
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Other comprehensive income (loss):
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Foreign
currency translation adjustments
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(30
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(124
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)
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Other comprehensive income (loss)
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(30
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)
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(124
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)
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Comprehensive loss
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$
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(9,832
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$
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(2,830
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)
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See notes to condensed
consolidated financial statements.
3
YELP INC.
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
(in thousands)
(Unaudited)
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Three Months Ended
March 31,
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2012
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2011
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OPERATING ACTIVITIES:
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Net loss
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$
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(9,802
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)
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$
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(2,706
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)
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Adjustments to reconcile net loss to net cash provided by (used
in)
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operating activities:
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Depreciation and amortization
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1,361
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819
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Provision for doubtful accounts
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(10
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)
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(65
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)
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Stock-based compensation
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7,429
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1,103
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Loss on disposal of assets and web-site development costs
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1
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5
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Changes in operating assets and liabilities:
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Accounts receivable
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1,090
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577
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Prepaid expenses and other assets
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(552
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)
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129
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Accounts payable and accrued expenses
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(1,217
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)
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750
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Deferred revenue
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(1,073
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)
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384
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Net cash provided by (used in) operating activities
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(2,773
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)
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996
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INVESTING ACTIVITIES:
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Purchases of property,
equipment, and software
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(367
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)
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(813
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)
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Capitalized website and software development costs
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(612
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)
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(537
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)
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Change in restricted
cash
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(1,112
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)
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Net cash used in investing activities
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(2,091
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)
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(1,350
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)
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FINANCING ACTIVITIES:
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Proceeds from initial public
offering, net of offering costs
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113,407
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Proceeds from issuance of
common stock
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511
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161
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Net cash provided by financing
activities
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113,918
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161
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EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH
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EQUIVALENTS
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(53
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)
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(116
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)
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CHANGE IN CASH AND CASH
EQUIVALENTS
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109,001
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(309
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)
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CASH
AND CASH EQUIVALENTSBeginning of period
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21,736
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27,074
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CASH AND CASH EQUIVALENTSEnd of
period
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$
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130,737
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$
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26,765
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See notes to condensed
consolidated financial statements.
4
YELP INC.
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS (CONTINUED)
(Unaudited)
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Three Months Ended
March 31,
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2012
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2011
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SUPPLEMENTAL DISCLOSURES OF OTHER CASH FLOW INFORMATION:
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Cash paid for income taxes,
net of refunds
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$
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17
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$
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13
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SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING
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ACTIVITIES:
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Purchases of property and
equipment recorded in accounts payable and accruals
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$
|
779
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$
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285
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Capitalized website and software development costs recorded in accounts
payable
and
accruals
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$
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97
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$
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Offering costs not yet
paid
|
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$
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1,150
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$
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Accretion of redeemable
convertible preferred stock
|
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$
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31
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$
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47
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Vesting of early exercised
options
|
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$
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15
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$
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21
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See notes to condensed
consolidated financial statements.
5
YELP INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
1. DESCRIPTION OF BUSINESS AND BASIS OF
PRESENTATION
Yelp Inc. (the
Company, we or our) was incorporated in Delaware on September 3, 2004.
Yelp connects people with great local businesses. Our users have contributed
millions of reviews of almost every type of local business, giving a voice to
consumers and bringing word of mouth online. Businesses, both large and small,
use our platform to engage with consumers at the critical moment when they are
deciding where to spend their money.
Basis of Presentation
The accompanying 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 applicable rules and regulations of
the 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 interim
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements contained in the Companys Prospectus
filed pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the
Securities Act) with the SEC on March 2, 2012 (the Prospectus). The
condensed consolidated balance sheet as of December 31, 2011, included herein
was derived from the audited consolidated financial statements as of that date
but does not include all disclosures required by GAAP, including 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
and, in the opinion of management, include all adjustments (consisting primarily
of normal recurring adjustments) necessary for the fair presentation of the
interim periods presented.
Significant Accounting Policies
There have been no material changes to our significant accounting
policies, as compared to the significant accounting policies described in the
Prospectus as filed on March 2, 2012.
Principles of Consolidation
These condensed consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All intercompany accounts and
transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the Company's consolidated financial statements in
conformity with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the 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 financial
statements; therefore, actual results could differ from management's estimates.
Recently Issued Accounting
Standards
In May 2011, the Financial Accounting Standards Board (FASB) issued
Topic 820Amendments to Achieve Common Fair Value Measurement and Disclosure
Requirements in U.S. GAAP and IFRSs (Topic 820). Topic 820 changes the wording
used to describe many of the requirements in GAAP for measuring fair value and
for disclosing information about fair value measurements to ensure consistency
between GAAP and International Financial Reporting Standards (IFRS). Topic 820
also expands the disclosures for fair value measurements that are estimated
using significant unobservable (Level 3) inputs. Topic 820 is effective for
interim and annual periods beginning after December 15, 2011 and is applied
prospectively. The adoption of this guidance did not have a material impact on
the Companys consolidated financial statements.
In June 2011, the FASB issued Accounting Standards Update No. 2011-05,
Comprehensive Income (Topic 220)Presentation of Comprehensive Income (ASU
2011-05), to require an entity to present the total of comprehensive income,
the components of net income, and the components of other comprehensive income
either in a single continuous statement of comprehensive income or in two
separate but consecutive statements. ASU 2011-05 eliminates the option to
present the components of other comprehensive income as part of the statement of
stockholders' equity. This standard only affected the way the Company presents
the components of comprehensive income and did not affect the Company's
financial position, results of operations or cash flows. In December 2011, the
FASB further amended its guidance to defer changes related to the presentation
of reclassification adjustments indefinitely as a result of concerns raised by
stakeholders that the new presentation requirements would be difficult for
preparers and add unnecessary complexity to financial statements.
6
2. FAIR VALUE OF FINANCIAL
INSTRUMENTS
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 the quoted prices in active markets that are
observable either directly or indirectly, or
Level 3
Unobservable inputs in which there is little or no market data, which
requires the Company to develop its own assumptions.
This hierarchy
requires the Company to use observable market data, when available, and to
minimize the use of unobservable inputs when determining fair value. On a
recurring basis, the Company measures its financial assets at fair value. The
Company's investment instruments are classified within Level 1 of the fair value
hierarchy because they are valued using quoted prices in active
markets.
The following table represents the Company's financial instruments
measured at fair value as of March 31, 2012 and December 31, 2011, (in
thousands):
|
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March 31,
2012
|
|
December 31,
2011
|
|
|
Level 1
|
|
Level
2
|
|
Level
3
|
|
Total
|
|
Level 1
|
|
Level
2
|
|
Level 3
|
|
Total
|
Money market
funds(1)
|
|
$
|
124,629
|
|
|
|
|
|
$
|
124,629
|
|
$
|
19,126
|
|
|
|
|
|
$
|
19,126
|
____________________
|
|
|
|
|
(1)
|
|
Included in cash and cash equivalents on the condensed consolidated
balance sheets.
|
3. CASH AND CASH EQUIVALENTS
Cash and cash
equivalents as of March 31, 2012 and December 31, 2011 consist of the following
(in thousands):
|
|
March 31,
2012
|
|
December 31, 2011
|
Cash and cash equivalents
|
|
|
|
|
|
|
Cash
|
|
$
|
6,108
|
|
$
|
2,610
|
Money
market funds
|
|
|
124,629
|
|
|
19,126
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
$
|
130,737
|
|
$
|
21,736
|
The lease
agreements for the Companys New York and London, England offices require the
Company to maintain a letter of credit issued to the landlords of each facility.
The letters of credit are subject to renewal annually until the lease expires.
At March 31, 2012 and December 31, 2011, the Company had a letter of credit of
$1.5 million and $0.4 million, respectively, related to such leases.
4. PROPERTY, EQUIPMENT AND SOFTWARE
Property,
equipment and software as of March 31, 2012 and December 31, 2011 consist of the
following (in thousands):
|
|
March 31,
2012
|
|
|
December 31,
2011
|
|
Computer equipment
|
|
$
|
4,962
|
|
|
$
|
4,519
|
|
Software
|
|
|
323
|
|
|
|
382
|
|
Capitalized website and internal-use
software development costs
|
|
|
6,349
|
|
|
|
5,612
|
|
Furniture and fixtures
|
|
|
1,918
|
|
|
|
1,842
|
|
Leasehold improvements
|
|
|
3,088
|
|
|
|
2,702
|
|
Telecommunication
|
|
|
1,222
|
|
|
|
1,187
|
|
|
Total
|
|
|
17,862
|
|
|
|
16,244
|
|
Less
accumulated depreciation
|
|
|
(7,213
|
)
|
|
|
(6,363
|
)
|
|
Net property, equipment and
software
|
|
$
|
10,649
|
|
|
$
|
9,881
|
|
7
Depreciation expense for the three months ended March 31, 2012 and 2011
was approximately $0.8 million and $0.5 million, respectively.
5. ACCRUED LIABILITIES
Accrued liabilities as of March 31, 2012
and December 31, 2011 consist of the following (in thousands):
|
March 31,
2012
|
|
December 31,
2011
|
Accrued vacation and employee related
expenses
|
$
|
2,191
|
|
$
|
1,905
|
Exercise of unvested stock options
|
|
46
|
|
|
61
|
Accrued bonus and commissions
|
|
1,113
|
|
|
947
|
Deferred rent
|
|
1,439
|
|
|
1,198
|
Merchant revenue share liability
|
|
203
|
|
|
314
|
Legal settlement accrual
|
|
1,250
|
|
|
1,250
|
Other accrued expenses
|
|
1,788
|
|
|
2,010
|
|
Total
|
$
|
8,030
|
|
$
|
7,685
|
6. OTHER INCOME (EXPENSE),
NET
Other income (expense), net for the three
months ended March 31, 2012 and 2011 consist of the following (in thousands):
|
Three Months Ended
|
|
|
March
31,
|
|
|
2012
|
|
|
2011
|
|
Interest income
|
$
|
5
|
|
|
$
|
5
|
|
Transaction gain (loss) on foreign exchange
|
|
(21
|
)
|
|
|
108
|
|
Other non-operating income (loss),
net
|
|
(14
|
)
|
|
|
(5
|
)
|
|
Other
income (expense), net
|
$
|
30
|
|
|
$
|
108
|
|
7. COMMITMENTS AND
CONTINGENCIES
Office Facility
Lease
The Company leases its
office facilities under operating lease agreements that expire from 2012-2017.
The terms of the lease agreements provides for rental payments on a graduated
basis. The Company recognizes rent expense on a straight-line basis over the
lease period. In March 2012, the Company entered into a non-cancelable operating
lease agreement to lease office space located in London, England. The
future minimum lease payments under the lease totaled approximately $5.3 million
as of March 31, 2012.
Rental expense was $0.8 million and $0.5
million for the three months ended March 31, 2012 and 2011, respectively.
Legal
Proceedings
The Company is
subject to legal proceedings arising in the ordinary course of business.
Although occasional adverse decisions or settlements may occur, management
believes that the final disposition of such matters will not have a material
adverse effect on the Company's business, financial position, results of
operations or cash flows.
In February and March 2010, the Company
was sued in two putative class actions on behalf of local businesses asserting
various causes of action based on claims that the Company manipulated the
ratings and reviews on its platform to coerce local businesses to buy its
advertising products. These cases were subsequently consolidated in an action
asserting claims for violation of the California Business & Professions
Code, extortion and attempted extortion based on the conduct they allege and
seeking monetary relief in an unspecified amount and injunctive relief. In
October 2011, the court dismissed this action with prejudice. The plaintiffs
have appealed to the U.S. Court of Appeals for the Ninth Circuit, but the appeal
has not yet been heard. Due to the preliminary nature of this potential appeal,
the Company is unable to reasonably estimate either the probability of incurring
a loss or an estimated range of such loss, if any, from an appeal.
In March 2011, the Company was sued in an
action on behalf of certain current and former employees asserting claims for
violations of the federal Fair Labor Standards Act, the California Labor Code
and the California Business & Professions Code and seeking monetary relief
in an unspecified amount. In September 2011, the Company agreed to settle this
matter for payments in an aggregate amount of up to $1.3 million. The settlement
is currently awaiting court approval. Under the applicable authoritative
literature, this amount, which represents management's best estimate of the
amount that will ultimately be paid, was accrued for as a loss contingency in
the three month period ended March 31, 2010, as the alleged violations occurred
prior to the 2010 fiscal year.
8
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, among other
things, to indemnify them against certain liabilities that may arise by reason
of their status or service as directors, officers or employees.
8. STOCKHOLDERS EQUITY
(DEFICIT)
Initial Public Offering
In
March 2012, the Company completed its initial public offering of its Class A
common stock to the public (IPO) whereby 8,172,500 shares of Class A common
stock sold by the Company (inclusive of 1,072,500 shares of common stock from
the full exercise of the overallotment option of shares granted to the
underwriters) and 50,000 shares of Class A common stock sold by the selling
shareholder, The Yelp Foundation. The public offering price of the shares sold
in the offering was $15.00 per share. The Company did not receive any proceeds
from the sales of shares by the selling stockholder. The total gross proceeds
from the offering to the Company were $122.6 million. After deducting
underwriters discounts and commissions and offering expenses, the aggregate net
proceeds received by the Company totaled approximately $111.4 million.
Immediately prior to the closing of the IPO, all shares of the Companys
outstanding redeemable convertible preferred stock automatically converted into
35,816,772 shares of Class B common stock. As a result, following the IPO, the
Company has two classes of authorized common stock: Class A common stock and
Class B common stock.
The following table presents the shares
authorized and issued and outstanding as of the periods presented (in thousands,
except share data):
|
|
March 31,
2012
|
|
December 31,
2011
|
|
|
Shares
|
|
Shares
|
|
Shares
|
|
Shares
|
|
Liquidation
|
|
|
Authorized
|
|
Issued and
|
|
Authorized
|
|
Issued and
|
|
Preference
|
|
|
|
|
Outstanding
|
|
|
|
Outstanding
|
|
|
|
Redeemable convertible preferred stock:
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable convertible preferred stock,
|
|
|
|
|
|
|
|
|
|
|
|
Series A, $0.000001 par value
|
|
|
|
|
|
40,000,000
|
|
40,000,000
|
|
$
|
1,000
|
Redeemable convertible
preferred stock,
|
|
|
|
|
|
|
|
|
|
|
|
Series B, $0.000001 par value
|
|
|
|
|
|
44,802,870
|
|
44,802,870
|
|
$
|
5,000
|
Redeemable convertible
preferred stock,
|
|
|
|
|
|
|
|
|
|
|
|
Series C, $0.000001 par value
|
|
|
|
|
|
32,288,630
|
|
32,288,630
|
|
$
|
10,042
|
Redeemable convertible
preferred stock,
|
|
|
|
|
|
|
|
|
|
|
|
Series D, $0.000001 par value
|
|
|
|
|
|
14,531,460
|
|
14,531,460
|
|
$
|
14,996
|
Redeemable convertible
preferred stock,
|
|
|
|
|
|
|
|
|
|
|
|
Series E, $0.000001 par value
|
|
|
|
|
|
11,644,155
|
|
11,644,155
|
|
$
|
25,000
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock, $0.000001 par value
|
|
200,000,000
|
|
8,222,500
|
|
|
|
|
|
|
|
Class B common stock, $0.000001 par
value
|
|
100,000,000
|
|
52,909,098
|
|
|
|
|
|
|
|
Common stock, $0.000001 par value
|
|
200,000,000
|
|
|
|
280,000,000
|
|
16,956,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undesignated Preferred Stock
|
|
10,000,000
|
|
|
|
|
|
|
|
|
|
Equity
Incentive
Plans
The Company has three equity incentive
plans: the Amended and Restated 2005 Equity Incentive Plan (the 2005 Plan),
the 2011 Equity Incentive Plan (the 2011 Plan) and the 2012 Equity Incentive
Plan (the 2012 Plan). In July 2011, the Company terminated the 2005 Plan and
provided that no further stock awards were to be granted under the 2005 Plan and adapted the 2011 Plan as a continuation of and successor to the 2005 Plan. Upon the IPO, all shares that were reserved under the 2011
Plan but not issued were assumed by the 2012 Plan and no further shares will be
granted pursuant to the 2011 Plan. All outstanding stock awards under the 2005 and 2011 Plans will continue to be governed by their existing terms. Under the 2012 Plan, the Company has the
ability to issue incentive stock options (ISOs), nonstatutory stock options
(NSOs), stock appreciation rights, restricted stock, restricted stock units
(RSUs), performance units and/or performance shares. Additionally, the 2012
Plan provides for the grant of performance cash awards to employees, directors
and consultants. The ISOs and NSOs will be granted at a price per share not less
than the fair value at date of grant. Options granted to date generally vest
over a four-year period with 25% vesting at the end of one year and the
remaining vest monthly thereafter. Options granted generally are exercisable up
to 10 years. Restricted stock awards generally vest over a four-year period with
25% vesting at the end of one year and the remaining vest quarterly
thereafter.
9
Restricted Stock
Awards
The Company began granting restricted
stock awards (RSAs) to its employees in July 2011. In March 2012, the Company
began granting restricted stock units (RSUs). The cost of the RSAs and RSUs is
determined using the fair value of the Companys common stock on the date of
grant. RSAs and RSUs typically vest and become exercisable annually, based on a
four year total vesting term. Stock-based compensation expense is amortized on a
straight-line basis over the requisite service period.
The
Company granted 1,250 RSAs and 2,500 RSUs during the three months ended March
31, 2012. The Company recorded stock-based compensation expense related to RSAs
and RSUs of approximately $94,000 for the three months ended March 31, 2012. As
of March 31, 2012, the Company had approximately $1.3 million of unrecognized
stock-based compensation expense, net of estimated forfeitures, related to
restricted stock awards which will be recognized over the remaining weighted
average vesting period of approximately 3.35 years.
A summary of stock option activity for
the three months ended March 31, 2012, is as follows:
|
Options
Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Weight-
|
|
Remaining
|
|
|
|
Number of
|
|
|
Average
|
|
Contractual
|
|
Aggregate
|
|
Shares
|
|
|
Exercise
Price
|
|
Term (in
years)
|
|
Intrinsic
Value
|
Outstanding December 2011
|
9,303,989
|
|
|
$
|
5.48
|
|
7.76
|
|
$
|
55,043,295
|
Granted
|
828,162
|
|
|
|
14.06
|
|
|
|
|
|
Exercised
|
(184,657
|
)
|
|
|
2.77
|
|
|
|
|
|
Canceled
|
(120,467
|
)
|
|
|
9.53
|
|
|
|
|
|
Outstanding March 31, 2012
|
9,827,027
|
|
|
$
|
6.21
|
|
7.70
|
|
$
|
203,239,623
|
Options vested and expected to vest as of March 31, 2012
|
9,467,094
|
|
|
$
|
6.11
|
|
7.65
|
|
$
|
196,756,578
|
Options vested and exercisable as of March
31, 2012
|
4,705,606
|
|
|
$
|
3.99
|
|
6.59
|
|
$
|
107,781,473
|
Aggregate intrinsic value represents the
difference between the Companys closing stock price of $26.89 on March 30, 2012
and the exercise price of outstanding, in-the-money options. The total intrinsic
value of options exercised was approximately $1.7 million and $1.0 million for
the three months ended March 31, 2012 and 2011, respectively. The
weighted-average grant date fair value of options granted was $8.24 and $4.14
for the three months ended March 31, 2012 and 2011, respectively.
As of March 31, 2012, total unrecognized
compensation costs, adjusted for estimated forfeitures, related to nonvested
stock options was approximately $23.4 million, which is expected to be
recognized over the next 2.99 years
Employee Stock Purchase
Plan
Concurrent with the effectiveness of the
Companys registration statement on Form S-1 on March 2, 2012, the Companys
2012 Employee Stock Purchase Plan (the ESPP) became effective. The ESPP allows
eligible employees to purchase shares of the Companys Class A common stock at a
discount through payroll deductions of up to 15% of their eligible compensation,
subject to any plan limitations. At the end of each offering period, employees
are able to purchase shares at 85% of the lower of the fair market value of the
Companys Class A common stock on the first trading day of the offering period
or on the last day of the offering period. There were no shares purchased by
employees under the Companys ESPP for the three months ended March 31, 2012 and
2011, respectively.
10
Stock-Based
Compensation
The
following table summarizes the effects of stock-based compensation related to
stock-based awards to employees in the condensed consolidated statements of
operations during the periods presented (in thousands):
|
Three Months
Ended March 31,
|
|
2012
|
|
2011
|
Stock-based compensation effects in loss
before income taxes:
|
|
|
|
|
|
Cost
of revenue
|
$
|
23
|
|
$
|
9
|
Sales and marketing
|
|
1,124
|
|
|
271
|
Product development
|
|
243
|
|
|
147
|
General and administrative
|
|
6,039
|
|
|
676
|
|
|
|
|
|
|
Total
stock-based compensation
|
$
|
7,429
|
|
$
|
1,103
|
During the three months ended March 31, 2012, the Company recognized $5.5
million of stock-based compensation related to the accelerated vesting of stock
options held by two executive officers related to the completion of the IPO,
included in general and administrative expense. During the three months ended
March 31, 2012 and 2011, the Company capitalized $52,000 and $26,000,
respectively, of stock-based compensation as website development
costs.
9. NET LOSS PER
SHARE
Basic and diluted net income (loss) per
share attributable to common stockholders are presented in conformity with the
two-class method required for participating securities. Immediately prior to
the consummation of the Companys initial public offering of its Class A common
stock in March 2012, all outstanding shares of preferred stock and common
stock were converted to Class B common stock. As a result, Class A and Class B
common stock are the only outstanding equity in the Company. The rights of the
holders of Class A and Class B common stock are identical, except with respect
to voting and conversion. Each share of Class A common stock is entitled to one
vote per share and each class of Class B common stock is entitled to 10 votes
per share. Shares of Class B common stock may be converted into Class A common
stock at any time at the option of the stockholder, and are automatically
converted to Class A common stock upon sale or transfer, subject to certain
limited exceptions.
The Companys weighted-average unvested
shares subject to repurchase and settlement in shares of common stock upon
vesting have the non-forfeitable right to receive dividends on an equal basis
with common stock and therefore are considered participating securities that
must be included in the calculation of net income per share using the two-class
method in all presented periods.
The following table presents the
calculation of basic and diluted net loss per share (in thousands, except per
share data):
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
March
31,
|
|
|
2012
|
|
|
2011
|
|
|
Class A
|
|
|
Class B
|
|
|
|
|
|
Net loss
|
$
|
(850
|
)
|
|
$
|
(8,952
|
)
|
|
$
|
(2,706
|
)
|
Add:
accretion of redeemable convertible preferred stock
|
|
(3
|
)
|
|
|
(28
|
)
|
|
|
(47
|
)
|
|
Net loss attributable to common
stockholders
|
$
|
(853
|
)
|
|
$
|
(8,980
|
)
|
|
$
|
(2,753
|
)
|
|
Basic shares:
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares
outstanding
|
|
2,711
|
|
|
|
28,552
|
|
|
|
14,553
|
|
Diluted shares:
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used
to compute diluted net loss per share
|
|
2,711
|
|
|
|
28,552
|
|
|
|
14,553
|
|
Net loss per share attributable to common
stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.31
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
(0.19
|
)
|
|
Diluted
|
$
|
(0.31
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
(0.19
|
)
|
11
The
following weighted-average employee stock options were excluded from the
calculation of diluted net income (loss) per share because their effect would
have been anti-dilutive for the periods presented (in thousands):
|
Three Months
Ended March 31,
|
|
2012
|
|
2011
|
Stock options
|
|
9,827
|
|
9,723
|
Restricted stock units
|
|
3
|
|
|
Restricted stock awards
|
|
170
|
|
|
10. 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 Company does not provide for federal income taxes on the undistributed
earnings of its foreign subsidiaries as such earnings are to be reinvested
indefinitely.
The Company recorded an income tax
provision of $31,000 and $12,000 for the three months ended March 31, 2012 and
2011, respectively, related to foreign income taxes and state minimum taxes. The
primary difference between the effective tax rate and the federal statutory tax
rate relates to the valuation allowances on the Companys net operating losses,
foreign tax rate differences, and non-deductible stock-based compensation
expense. As of March 31, 2012, the Company had a nominal amount of total
unrecognized tax benefits and related interest and penalties
.
11. INFORMATION ABOUT
REVENUE AND GEOGRAPHIC AREAS
The Company considers operating segments
to be components of the Company in which separate financial information is
available that is 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 one business activity and
there are no segment managers who are held accountable for operations, operating
results or plans for levels or components below the consolidated unit level.
Accordingly, the Company has determined that it has a single operating and
reporting segment.
Revenue by geography is based on the
billing address of the customer. The following tables present the Company's
revenue by product line, as well as revenue and long-lived assets by geographic
region for the periods presented (in thousands):
Net
revenue
|
|
Three Months
Ended March 31,
|
|
|
2012
|
|
2011
|
Net revenue by product:
|
|
|
|
|
|
|
Local advertising
|
|
$
|
21,473
|
|
$
|
11,222
|
Brand
advertising
|
|
|
3,994
|
|
|
3,583
|
Other services
|
|
|
1,918
|
|
|
1,695
|
|
Total
|
|
$
|
27,385
|
|
$
|
16,500
|
During the three months ended March 31,
2012 and 2011, a substantial majority of the Company's revenue was generated in
the United States. No individual customer accounted for 10% or more of
consolidated net revenue in either period.
Long-Lived Assets (in
thousands)
|
March 31,
2012
|
|
December 31,
2011
|
United States
|
$
|
10,658
|
|
$
|
11,675
|
All
Other Countries
|
|
507
|
|
|
54
|
|
Total
long-lived assets
|
$
|
11,165
|
|
$
|
11,729
|
12
ITEM 2. MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following
discussion and analysis of our
financial condition and results of operations should be read in conjunction with
our condensed consolidated financial statements and related notes appearing
elsewhere in this Quarterly Report on Form 10-Q and our Prospectus filed
pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the
Securities Act) with the Securities and Exchange Commission (the SEC) on
March 2, 2012 (the Prospectus).
Forward Looking
Information
This Quarterly Report on Form 10-Q
contains forward-looking statements that involve risks and uncertainties, as
well as assumptions that, if they never materialize or prove incorrect, could
cause our results to differ materially from those expressed or implied by such
forward-looking statements. The statements contained in this Quarterly Report on
Form 10-Q that are not purely historical are forward-looking statements within
the meaning of Section 27A of the Securities Act, and Section 21E of the
Securities Exchange Act of 1934, as amended (the Exchange Act).
Forward-looking statements are often identified by the use of words such as, but
not limited to, anticipate, believe, can, continue, could, estimate,
expect, intend, may, plan, project, seek, should, target,
will, would and similar expressions or variations intended to identify
forward-looking statements. These statements are based on the beliefs and
assumptions of our management based on information currently available to
management. Such forward-looking statements are subject to risks, uncertainties
and other important factors that could cause actual results and the timing of
certain events to differ materially from future results expressed or implied by
such forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those identified below, and those
discussed in the section titled Risk Factors included under Part II, Item 1A
below. Furthermore, such forward-looking statements speak only as of the date of
this report. Except as required by law, we undertake no obligation to update any
forward-looking statements to reflect events or circumstances after the date of
such statements.
Company
Overview
Yelp connects people with great local
businesses. Our users have contributed a total of approximately 27.6 million
reviews of almost every type of local business, from restaurants, boutiques and
salons to dentists, mechanics, plumbers and more. These reviews are written by
people using Yelp to share their everyday local business experiences, giving
voice to consumers and bringing "word of mouth" online. The information these
reviews provide is valuable for consumers and businesses alike. Approximately
71.4 million unique visitors used our website, on a monthly average basis, and
our mobile application was used on approximately 6.3 million unique mobile
devices, on a monthly average basis, during the quarter ended March 31, 2012.
Businesses, both small and large, use our platform to engage with consumers at
the critical moment when they are deciding where to spend their money. Our
business revolves around three key constituencies: the contributors who write
reviews, the consumers who read them and the local businesses that they
describe.
As of March 31, 2012, we are active in 49
Yelp markets in the United States and 33 Yelp markets internationally. This
footprint represents a fraction of the potential domestic and international
markets that we are currently targeting for expansion. Our domestic expansion
plans include growth in our existing markets as well as expansion into new
markets, many of which are smaller than our current markets, as we look to
expand our breadth of coverage. Internationally, as we are in the early stages
of establishing our footprint, we are targeting a mix of both large and small
markets. We have not yet made any substantive effort to monetize our
international markets and have not generated significant revenue from these
markets to date.
Our overall philosophy is to invest for
long-term growth as we continue to see growth in our key metrics. We expect to
continue to invest heavily in our sales and marketing efforts to grow
domestically and internationally and in product development to expand our
platform by innovating and introducing new products to our website and mobile
applications. As of March 31 2012, we had 997 employees, which represented an
increase of 49% compared to the same period last year. As a result of our
investment philosophy, we do not expect to be profitable on a U.S. generally
accepted accounting principles (GAAP) basis in 2012.
Critical Accounting
Policies and Estimates
Our consolidated financial statements are
prepared in accordance with GAAP. The preparation of these consolidated
financial statements requires us to make estimates and assumptions that affect
the reported amounts of assets, liabilities, revenue, expenses and related
disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our
estimates are based on historical experience and various other assumptions that
we believe to be reasonable under the circumstances. Our actual results could
differ from these estimates.
We believe that the assumptions and
estimates associated with revenue recognition, website and internal-use software
development costs, income taxes and stock-based compensation have the greatest
potential impact on our consolidated financial statements. Therefore, we
consider these to be our critical accounting policies and estimates.
There have been no material changes to
our critical accounting policies and estimates as compared to the critical
accounting policies and estimates described in the Prospectus.
Key Metrics
We regularly review a number of metrics,
including the following key metrics, to evaluate our business, measure our
performance, identify trends in our business, prepare financial projections and
make strategic decisions.
13
-
Reviews.
Number of reviews represents the cumulative number of reviews submitted
to Yelp since inception, as of the period end, including reviews that were
then being filtered or that had been removed from our platform. In addition to
the text of the review, each review includes a rating of one to five stars. We
include filtered and removed reviews because all of them are either currently
accessible on our platform or were accessible at some point in time, providing
information that may be useful for users to evaluate businesses and individual
reviewers. Because our filtering technology continually reassesses which
reviews to filter based on new information, the filtered or unfiltered
status of reviews may change over time. Reviews that are being filtered or
have been removed do not factor into a businesss overall star rating. By
clicking a link on a reviewed businesss page on our website, users can access
the filtered reviews for the business, as well as the star rating and other
information about reviews that we removed for violation of our terms of
service. As of March 31, 2012, approximately 19.9 million reviews were
available on business profile pages, approximately 5.6 million reviews were
being filtered and approximately 2 million reviews had been removed from our
platform, either by us for violation of our terms of service or by the users
who contributed them.
The
following table presents the number of cumulative reviews as of the periods
presented:
|
March 31,
|
|
2012
|
|
2011
|
|
(in thousands)
|
Reviews
|
27,569
|
|
17,339
|
-
Unique Visitors.
Unique visitors represent the
average number of monthly unique visitors over a given three-month period. We
define monthly unique visitors as the total number of unique visitors who have
visited our website at least once in a given month, and we average the number
of monthly unique visitors in each month of a given three-month period to
calculate average monthly unique visitors. We track unique visitors based on
the number of visitors with unique cookies who have visited our website using
either a computer or mobile browser, as measured by Google Analytics, a
product that provides digital marketing intelligence. Unique visitors do not
include visitors who access our platform through our mobile app. For the
quarter ended March 31, 2012, our mobile app was used on approximately 6.3
million unique mobile devices on a monthly average basis. Because the number
of unique visitors is based on visitors with unique cookies, an individual who
accesses our website from multiple devices with different cookies will be
counted as multiple unique visitors, and multiple individuals who access our
website from a shared device with a single cookie will be counted as a single
unique visitor.
The following table presents the number of unique visitors (average monthly number) during the periods presented:
|
Three Months
Ended March 31,
|
|
2012
|
|
2011
|
|
(in thousands)
|
Unique Visitors
|
71,448
|
|
46,817
|
-
Claimed Local Business
Locations.
The number of
claimed local business locations represents the cumulative number of business
locations that have been claimed on Yelp worldwide since 2008, as of a given
date. We define a claimed local business location as each business address for
which a business representative visits our website and claims the free
business listing page for the business located at that address.
The following table presents the number of cumulative claimed local business locations as of the periods presented:
|
March 31,
|
|
2012
|
|
2011
|
|
(in thousands)
|
Claimed Local Business Locations
|
700
|
|
380
|
-
Active Local Business
Accounts.
The number of active
local business accounts represents the number of active local business
accounts from which we recognized revenue in a given three-month period. We
treat business accounts that have the same payment and/or user information as
a single business account.
The following table presents the number of active local business accounts from which we recognized revenue in the given three month periods presented:
|
Three Months
Ended March 31,
|
|
2012
|
|
2011
|
|
(in thousands)
|
Active Local Business Accounts
|
27
|
|
13
|
-
Adjusted EBITDA.
Adjusted EBITDA is a non-GAAP
financial measure that we calculate as net income (loss), adjusted to exclude:
provision (benefit) for income taxes, other income (expense), net, interest
income, depreciation and amortization and stock-based compensation. We believe
that adjusted EBITDA provides useful information to investors in understanding
and evaluating our operating results in the same manner as our management and
board of directors. This non-GAAP information is not necessarily comparable to
non-GAAP information of other companies. Non-GAAP information should not be
viewed as a substitute for, or superior to, net income (loss) prepared in
accordance with GAAP as a measure of our profitability or liquidity. Users of
this financial information should consider the types of events and
transactions for which adjustments have been made. The following is a
reconciliation of adjusted EBITDA to net income (loss) below for the periods
indicated.
|
Three Months
Ended March 31,
|
|
|
2012
|
|
|
2011
|
|
|
(in thousands)
|
|
Reconciliation of Adjusted
EBITDA:
|
|
|
|
|
|
|
Net loss
|
(9,802
|
)
|
|
(2,706
|
)
|
Provision for income
taxes
|
31
|
|
|
12
|
|
Other income (expense),
net
|
30
|
|
|
(108
|
)
|
Depreciation and
amortization
|
1,361
|
|
|
819
|
|
Stock-based
compensation
|
7,429
|
|
|
1,103
|
|
Adjusted EBITDA
|
(951
|
)
|
|
(880
|
)
|
14
Adjusted
EBITDA
To
provide investors with additional information regarding our financial results,
we have disclosed in the table above and elsewhere in this Quarterly Report on
Form 10-Q adjusted EBITDA, a non-GAAP financial measure. We have provided a
reconciliation above of adjusted EBITDA to net loss, the most directly
comparable GAAP financial measure.
We
have included adjusted EBITDA in this Quarterly Report on Form 10-Q because it
is a key measure used by our management and board of directors to understand and
evaluate our core operating performance and trends, to prepare and approve our
annual budget and to develop short- and long-term operational plans. In
particular, the exclusion of certain expenses in calculating adjusted EBITDA can
provide a useful measure for period-to-period comparisons of our core business.
Accordingly, we believe that adjusted EBITDA provides useful information in
understanding and evaluating our operating results in the same manner as our
management and board of directors.
Adjusted EBITDA has limitations as an
analytical tool, and you should not consider it in isolation or as a substitute
for analysis of our results as reported under GAAP. Some of these limitations
are:
-
although depreciation and amortization are
non-cash charges, the assets being depreciated and amortized may have to be
replaced in the future, and adjusted EBITDA does not reflect cash capital
expenditure requirements for such replacements or for new capital expenditure
requirements;
-
adjusted EBITDA does not
reflect changes in, or cash requirements for, our working capital needs;
-
adjusted EBITDA does not consider the
potentially dilutive impact of equity-based compensation;
-
adjusted EBITDA does not reflect tax payments
that may represent a reduction in cash available to us; and
-
other companies, including
companies in our industry, may calculate adjusted EBITDA differently, which
reduces its usefulness as a comparative measure.
Because of these limitations, you should
consider adjusted EBITDA alongside other financial performance measures,
including various cash flow metrics, net income (loss) and our other GAAP
results.
Results of
Operations
The following tables set forth our
results of operations for the periods presented as a percentage of net revenue
for those periods (certain items may not foot due to rounding). The
period-to-period comparison of financial results is not necessarily indicative
of future results.
|
Three Months
Ended March 31,
|
|
|
2012
|
|
|
2011
|
|
|
(as a percentage of net
revenue)
|
|
Consolidated Statements of Operations
Data:
|
|
|
|
|
|
Net
revenue by product
|
|
|
|
|
|
Local
advertising
|
78
|
%
|
|
68
|
%
|
Brand advertising
|
15
|
|
|
22
|
|
Other
services
|
7
|
|
|
10
|
|
|
Total net revenue
|
100
|
%
|
|
100
|
%
|
|
Costs and expenses:
|
|
|
|
|
|
Cost of revenue (exclusive of
depreciation and amortization shown separately below)
|
8
|
%
|
|
8
|
%
|
Sales
and marketing
|
69
|
|
|
68
|
|
Product development
|
15
|
|
|
14
|
|
General
and administrative
|
39
|
|
|
22
|
|
Depreciation and
amortization
|
5
|
|
|
5
|
|
|
Total costs and expenses
|
136
|
|
|
117
|
|
|
Loss from operations
|
(36
|
)
|
|
(17
|
)
|
Other income (expense), net
|
|
|
|
1
|
|
|
Loss before income taxes
|
(36
|
)
|
|
(16
|
)
|
Provision for income taxes
|
|
|
|
|
|
|
Net loss
|
(36
|
)%
|
|
(16
|
)%
|
15
Three Months Ended March
31, 2012 and 2011
Net Revenue
We
generate revenue from local advertising, brand advertising and other services,
including Yelp Deals and partner arrangements. The following provides a
description of our revenue by product.
Local Advertising
. We generate revenue from local advertising
programs, including enhanced profile pages and performance and impression-based
advertising in search results and elsewhere on our website.
Brand Advertising
. We generate revenue from brand advertising
through the sale of display advertisements (both graphic and text) on our
website, including advertisements from leading national brands in the
automobile, financial services, logistics, consumer goods and health and fitness
industries.
Other Services.
We generate other revenue through the sale of Yelp
Deals, monetization of remnant advertising inventory through third-party ad
networks and various partner arrangements related to reservations. Yelp Deals
allow merchants to promote themselves and offer discounted goods and services on
a real-time basis to consumers directly on our website and mobile app and via
email. Recently, we have focused on Yelp Deals displayed on our website and
mobile app to target intent-driven consumers who are searching for a specific
product or service on our platform. We have seen an increase in revenue from
Yelp Deals based on this approach and expect that trend to continue as we
develop Yelp Deals that focus on direct fulfillment and scale our service
offerings. Accordingly, we have deemphasized and expect to continue to
deemphasize Yelp Deals that are emailed to our users in favor of Yelp Deals that
are displayed on our website and mobile app. We do not expect this de-emphasis to
have a material impact on our financial condition or growth. We earn a fee on
Yelp Deals for acting as an agent in these transactions, which we record on a
net basis and include in revenue upon a consumer's purchase of the deal. We also
generate a small portion of our revenue through revenue-sharing arrangements
with partner companies. Currently, our revenue-sharing partner arrangements
provide for the ability for consumers to make reservations on OpenTable and
Orbitz through Yelp.
|
|
|
|
|
|
|
|
|
2011 to
|
|
|
|
|
|
|
|
|
|
|
2012 %
|
|
|
Three Months
Ended March 31,
|
|
|
Change
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
Net revenue by product:
|
|
|
|
|
|
|
|
|
|
|
Local advertising
|
$
|
21,473
|
|
|
$
|
11,222
|
|
|
91
|
%
|
Brand
advertising
|
|
3,994
|
|
|
|
3,583
|
|
|
11
|
|
Other services
|
|
1,918
|
|
|
|
1,695
|
|
|
13
|
|
|
Total
|
$
|
27,385
|
|
|
$
|
16,500
|
|
|
66
|
%
|
|
Percentage of net revenue by
product:
|
|
|
|
|
|
|
|
|
|
|
Local advertising
|
|
78
|
%
|
|
|
68
|
%
|
|
|
|
Brand
advertising
|
|
15
|
|
|
|
22
|
|
|
|
|
Other services
|
|
7
|
|
|
|
10
|
|
|
|
|
|
Total
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
Total
net revenue increased $10.9 million, or 66%, in the three months ended March 31,
2012, compared to the three months ended March 31, 2011. Our local advertising
revenue increased $10.3 million, or 91%, primarily due to a significant increase
in the number of customers purchasing local advertising plans as we expanded our
sales force to reach more local businesses. Our brand advertising revenue
increased $0.4 million, or 11%, primarily due to an increase in the average
spend per brand advertiser driven primarily by increased advertising impressions
per brand advertiser. In addition, our other services revenue increased $0.2
million, or 13%, primarily due to an increase in revenue from the sale of Yelp
Deals and remnant advertising inventory and from added partnership arrangements,
offset by a decrease in the emphasis of email deals.
Cost of Revenue
Our cost of revenue consists primarily of
credit card processing fees, web hosting, internet services costs, and salaries,
benefits and stock-based compensation for our infrastructure teams related to
operating our website, as well as creative design for brand advertising and
video production expenses. We currently expect cost of revenue to increase on an
absolute basis and remain relatively flat as a percentage of revenue in the near
term as, consistent with our investment philosophy we continue to expand data
center capacity and headcount associated with supporting our website and mobile.
|
|
|
|
|
|
|
|
|
|
2011 to
|
|
|
|
|
|
|
|
|
|
|
|
2012 %
|
|
|
|
Three Months
Ended March 31,
|
|
|
Change
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
Cost of revenue
|
|
$
|
2,126
|
|
|
$
|
1,276
|
|
|
67
|
%
|
Percentage of net revenue
|
|
|
8
|
%
|
|
|
8
|
%
|
|
|
|
16
In
the three months ended March 31, 2012, cost of revenue increased $0.9 million,
or 67%, compared to the three months ended March 31, 2011. This increase was
primarily attributable to an increase of $0.4 million in outside hosting and
internet service fees, which are necessary to support the increase in visitors
to our website and transactions completed on our website. In addition, expenses
related to creative design for brand advertising customers, increased $0.1
million and video expenses related to slide shows for local customers increased
by $0.1 million. Merchant fees related to credit card transactions for local
advertising also increased $0.1 million, and we added personnel to support our
website infrastructure resulting in an increase of $0.1 million.
Sales and Marketing
Our
sales and marketing expenses primarily consist of salaries, benefits,
stock-based compensation, travel expense and incentive compensation for our
sales and marketing employees. In addition, sales and marketing expenses include
business acquisition marketing, community management, branding and advertising
costs, as well as allocated facilities and other supporting overhead costs. We
spend almost no sales and marketing expenses to acquire traffic to our website
or mobile app. Our Community Managers are responsible for growing and fostering
local communities, and coordinating events to raise awareness of our brand. We
expect our sales and marketing costs, including community management costs, to
increase as we continue to expand into new domestic and international markets
and within existing markets. For the three months ended March 31, 2012, we spent
$2.4 million related to our international sales and marketing operations
compared to $0.9 million for the three months ended March 31, 2011.
|
|
|
|
|
|
|
|
|
|
2011 to
|
|
|
|
|
|
|
|
|
|
|
|
2012 %
|
|
|
|
Three Months
Ended March 31,
|
|
|
Change
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
Sales and marketing
|
|
$
|
18,770
|
|
|
$
|
11,271
|
|
|
67
|
%
|
Percentage of net revenue
|
|
|
69
|
%
|
|
|
68
|
%
|
|
|
|
In the three months ended March 31, 2012,
sales and marketing expenses increased $7.5 million, or 67%, compared to the
three months ended March 31, 2011. The increase was primarily attributable to an
increase in headcount and related expenses of $6.4 million, including an
increase in stock-based compensation of $0.9 million, as we expanded our sales
organization to take advantage of the market opportunity created by increased
recognition of the value of our platform and increased use of our free online
business accounts. As a result of our increase in net revenue, our commission
expenses also increased $1.1 million. In addition, we experienced an increase in
facilities and related allocations of $0.6 million and domestic and
international marketing and advertising costs of $0.4 million.
Product Development
Our product development expenses
primarily consist of salaries, benefits and stock-based compensation for our
engineers and product management and information technology personnel. In
addition, product development expenses include outside services and consulting,
allocated facilities and other supporting overhead costs. We believe that
continued investment in features, software development tools and code
modification is important to attaining our strategic objectives, and, as such,
we expect product development expense to increase on an absolute basis but not
necessarily increase as a percentage of revenue in the near term, consistent
with our investment philosophy.
17
|
|
|
|
|
|
|
|
|
|
2011 to
|
|
|
|
|
|
|
|
|
|
|
|
2012 %
|
|
|
|
Three Months
Ended March 31,
|
|
|
Change
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
Product development
|
|
$
|
4,140
|
|
|
$
|
2,319
|
|
|
79
|
%
|
Percentage of net revenue
|
|
|
15
|
%
|
|
|
14
|
%
|
|
|
|
In the three
months ended March 31, 2012, product development expenses increased $1.8
million, or 79%, compared to the three months ended March 31, 2011. The increase
was primarily attributable to an increase in headcount and related expenses of
$1.6 million, including an increase in stock-based compensation of $0.1 million,
as we continued to invest in adding features and functionality to our website
and mobile app. In addition, we experienced an increase in facilities and
related allocations of $0.1 million.
General and Administrative
Our general and administrative expenses primarily consist of salaries,
benefits and stock-based compensation for our executive, finance, user
operations, legal, human resources and other administrative employees. In
addition, general and administrative expenses include outside consulting, legal
and accounting services, and facilities and other supporting overhead costs not
allocated to other departments. We expect that our general and administrative
expenses will increase on an absolute basis but not necessarily increase as a
percentage of revenue in the near term, as we continue to expand our business
and incur additional expenses associated with being a publicly traded company.
|
|
|
|
|
|
|
|
|
|
2011 to
|
|
|
|
|
|
|
|
|
|
|
|
2012 %
|
|
|
|
Year Ended
March 31,
|
|
|
Change
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
General and administrative
|
|
$
|
10,729
|
|
|
$
|
3,617
|
|
|
197
|
%
|
Percentage of net revenue
|
|
|
39
|
%
|
|
|
22
|
%
|
|
|
|
In the three months ended March 31, 2012, general and administrative
expenses increased $7.1 million, or 197%, compared to the three months ended
March 31, 2011. The increase was primarily attributable to an increase in
headcount and related expenses of $6.5 million, including an increase in
stock-based compensation expense of $5.5 million related to primarily the
acceleration in connection with the closing of the IPO of stock options held by
two executives, as well as grants made during the quarter. Additionally, we
invested in our systems and support for the growth of the business through the
use of outside consultants, which contributed to the increase by $0.5 million.
These increases were offset by a decrease in legal fees of $0.3
million.
Depreciation and Amortization
Depreciation and amortization expenses primarily consist of depreciation
on computer equipment, software, leasehold improvements, capitalized website and
internal software development costs and amortization of purchased intangibles.
We expect that depreciation and amortization expenses will increase on an
absolute basis as we continue to expand our technology infrastructure and will
remain relatively flat as a percentage of revenue in the near term.
|
|
|
|
|
|
|
|
|
|
2011 to
|
|
|
|
|
|
|
|
|
|
|
|
2012 %
|
|
|
|
Three Months
Ended March 31,
|
|
|
Change
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
Depreciation and amortization
|
|
$
|
1,361
|
|
|
$
|
819
|
|
|
66
|
%
|
Percentage of net revenue
|
|
|
5
|
%
|
|
|
5
|
%
|
|
|
|
In the three months ended March 31, 2012, depreciation and amortization
expense increased $0.5 million, or 66%, compared to the three months ended March
31, 2011. The increase was primarily the result of our investments in expanding
our technology infrastructure and capital assets to support our increase in
headcount across the organization. Depreciation and amortization related to our
fixed assets and capitalized website and internal use software development costs
increased $0.3 million and $0.2 million, respectively.
18
Other Income (Expense), Net
Other income (expense), net consists primarily of the interest income
earned on our cash and cash equivalents and foreign exchange gains and losses.
|
|
Three Months
Ended March 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(dollars in thousands)
|
|
Interest income
|
|
$
|
5
|
|
|
$
|
5
|
|
Transaction gains (losses) on foreign exchange
|
|
|
(21
|
)
|
|
|
108
|
|
Other non-operating income (loss),
net
|
|
|
(14
|
)
|
|
|
(5
|
)
|
|
Total
other income (expense), net
|
|
$
|
(30
|
)
|
|
$
|
108
|
|
In the three
months ended March 31, 2012, other income (expense), net decreased $0.1 million
compared to the three months ended March 31, 2011. The decrease was largely
driven by an unfavorable change in foreign currency exchange rates, primarily
the British Pound, which contributed to transaction losses on foreign exchange
in the three months ended March 31, 2012 compared to a gain in 2011.
19
Provision for Income Taxes
Provision for
income taxes consists of federal and state income taxes in the United States and
income taxes in certain foreign jurisdictions, deferred income taxes reflecting
the net tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for
income tax purposes, and the realization of net operating loss carryforwards.
|
|
Three Months
Ended March 31,
|
|
|
2012
|
|
2011
|
|
|
(in thousands)
|
Provision for income taxes
|
|
$
|
31
|
|
$
|
12
|
Liquidity and Capital
Resources
The following table summarizes our cash
flows for the periods presented.
|
|
Three Months
Ended March 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(in thousands)
|
Condensed Consolidated Statements of Cash
Flows Data:
|
|
|
|
|
|
|
|
|
|
Purchases of property and
equipment
|
|
$
|
367
|
|
|
$
|
813
|
|
Depreciation and amortization
|
|
|
1,361
|
|
|
|
819
|
|
Cash flows provided by (used in) operating
activities
|
|
|
(2,773
|
)
|
|
|
996
|
|
Cash
flows used in investing activities
|
|
|
(2,091
|
)
|
|
|
(1,350
|
)
|
Cash flows provided by financing
activities
|
|
|
113,918
|
|
|
|
161
|
|
As of March 31, 2012, we had cash and cash equivalents of $130.7 million.
Cash and cash equivalents consist of cash and money market accounts. Cash held
internationally as of March 31, 2012 was immaterial. We did not have any
short-term or long-term investments. Additionally, we do not have any
outstanding bank loans or credit facilities in place.
Amounts deposited with third party financial institutions exceed the
Federal Deposit Insurance Corporation and Securities Investor Protection
Corporation (SIPC), insurance limits, as applicable. These cash, cash
equivalents and short-term investment balances could be impacted if the
underlying financial institutions fail or are subjected to other adverse
conditions in the financial markets. To date we have experienced no loss or lack
of access to our cash, cash equivalents or short-term investments; however, we
can provide no assurances that access to our invested cash, cash equivalents and
short-term investments will not be impacted by adverse conditions in the
financial markets.
Operating Activities
We used $2.8 million of cash in operating activities in the three months
ended March 31, 2012, primarily resulting from our net loss of $9.8 million,
offset by non-cash depreciation and amortization of $1.4 million and non-cash
stock-based compensation of $7.4 million. In addition, operating assets and
liabilities changed by $1.8 million, primarily due to the timing of payments to
vendors and an increase in collections on our accounts receivable during the
quarter.
We generated $1.0 million of cash in operating activities in the three
months ended March 31, 2011, primarily resulting from our net loss of $2.7
million, offset by non-cash depreciation and amortization of $0.8 million and
non-cash stock-based compensation of $1.1 million. In addition, operating assets
and liabilities changed by $1.8 million, primarily due to the timing of payments
to vendors and an increase in billings and collections.
Investing Activities
Our primary investing activities have consisted of purchases of property
and equipment to support the build out of our data centers, and the purchase of
technology hardware to support our growth in headcount and software to support
website development, website operations and our corporate infrastructure.
Purchases of property and equipment may vary from period to period due to the
timing of the expansion of our operations and website and internal-use software
and development.
We used $2.1 million of cash in investing activities during the three
months ended March 31, 2012. Cash used in investing activities primarily related
to an increase in restricted cash of $1.1 million in connection with a new lease
executed during the quarter, as well as expenditures related to website
development of $0.6 million and purchases of property, equipment and software of
$0.4 million to support our growth in the business. We expect to continue to
invest in property and equipment and development of software for the remainder
of 2012 and thereafter.
We used $1.4 million of cash in investing activities in the three months
ended March 31, 2011. Cash used in investing activities primarily related to
expenditures for property and equipment of $0.8 million support our growth in
headcount and expenditures for website development of $0.5
million.
20
Financing
Activities
In March 2012, we received $122.6 million in proceeds from our IPO.
During the quarter ended March 31, 2012, we incurred $9.2 million related to
offering costs in connection with the IPO, including underwriter commission and
discounts associated with the transaction. With the exception of the IPO, our
recent financing activities have consisted primarily of net proceeds from the
issuance of common stock related to the exercise of stock options.
Off Balance Sheet
Arrangements
We did not have any off balance sheet arrangements in 2011 or the first
three months of 2012.
Contractual Obligations
We lease our facilities in San Francisco, California under operating
leases that expire in 2013. We lease other facilities around the world, the
longest of which expires in 2017. In March 2012, we entered into a
non-cancelable operating lease agreement to lease office space located in
London, England. The future minimum lease payments under the lease totaled
approximately $5.3 million as of March 31, 2012. We do not have any debt or
material capital lease obligations, and all of our property, equipment and
software have been purchased with cash. We have no material long-term purchase
obligations outstanding with any vendors or third parties. Our future minimum
payments under non-cancelable operating leases for equipment and office
facilities are as follows as of March 31, 2012:
|
|
Payments Due
by Period
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
More Than
|
|
|
Total
|
|
1
Year
|
|
1 - 3
Years
|
|
3 - 5
Years
|
|
5
Years
|
|
|
(in thousands)
|
Operating lease obligations
|
|
$
|
18,693
|
|
$
|
4,901
|
|
$
|
7,962
|
|
$
|
5,549
|
|
$
|
281
|
The contractual commitment amounts in the table above are associated with
agreements that are enforceable and legally binding. Obligations under contracts
that we can cancel without a significant penalty are not included in the table
above.
21
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
We have
operations both within the United States and internationally, and we are exposed
to market risks in the ordinary course of our business. These risks include
primarily interest rate, foreign exchange risks and inflation.
Interest Rate Fluctuation
Risk
Our cash and cash equivalents consist of cash and money market funds. We
do not have any long-term borrowings.
The primary objective of our investment activities is to preserve
principal while maximizing income without significantly increasing risk. Because
our cash and cash equivalents have a relatively short maturity, our portfolio's
fair value is relatively insensitive to interest rate changes. During the three
months ending March 31, 2012, we determined that the nominal difference in basis
points for investing our cash and cash equivalents in longer-term investments
did not warrant a change in our investment strategy. In future periods, we will
continue to evaluate our investment policy in order to ensure that we continue
to meet our overall objectives. We believe a hypothetical 10% increase in
interest rates as of March 31, 2012 would have an immaterial impact on our
investment portfolio.
Foreign Currency Exchange
Risk
We have foreign currency risks related to our revenue and operating
expenses denominated in currencies other than the U.S. dollar, principally the
British pound sterling and the euro. The volatility of exchange rates depends on
many factors that we cannot forecast with reliable accuracy. Although we have
experienced and will continue to experience fluctuations in our net income
(loss) as a result of transaction gains (losses) related to revaluing certain
cash balances, trade accounts receivable balances and intercompany balances that
are denominated in currencies other than the U.S. dollar, we believe such a
change will not have a material impact on our results of operations. In the
event our foreign sales and expenses increase, our operating results may be more
greatly affected by fluctuations in the exchange rates of the currencies in
which we do business. At this time we do not, but we may in the future, enter
into derivatives or other financial instruments in an attempt to hedge our
foreign currency exchange risk. It is difficult to predict the impact hedging
activities would have on our results of operations.
Inflation Risk
We do not believe that inflation has had a material effect on our
business, financial condition or results of operations. If our costs were to
become subject to significant inflationary pressures, we may not be able to
fully offset such higher costs through price increases. Our inability or failure
to do so could harm our business, financial condition and results of operations.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and
Procedures
Our management, with the participation of our Chief Executive Officer and
our Chief Financial Officer, evaluated the effectiveness of our disclosure
controls and procedures as of March 31, 2012. The term disclosure controls and
procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act,
means controls and other procedures of a company that are designed to ensure
that information required to be disclosed by a company in the reports that it
files or submits under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the SECs rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by a
company in the reports that it files or submits under the Exchange Act is
accumulated and communicated to the companys management, including its
principal executive and principal financial officers, as appropriate to allow
timely decisions regarding required disclosure. Based on the evaluation of our
disclosure controls and procedures as of March 31, 2012, our Chief Executive
Officer and Chief Financial Officer concluded that, as of such date, our
disclosure controls and procedures were effective.
Changes in Internal Control over
Financial Reporting
There was no change in our internal control over financial reporting
identified in connection with the evaluation required by Rule 13a-15(d) and
15d-15(d) of the Exchange Act that occurred during the period covered by this
Quarterly Report on Form 10-Q that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness
of Controls
Our management, including our Chief Executive Officer and Chief Financial
Officer, believes that our disclosure controls and procedures and internal
control over financial reporting are designed to provide reasonable assurance of
achieving their objectives and are effective at the reasonable assurance level.
However, our management does not expect that our disclosure controls and
procedures or our internal control over financial reporting will prevent all
errors and all fraud. A control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, have been detected. These inherent limitations include the realities that
judgments in decision making can be faulty, and that breakdowns can occur
because of a simple error or mistake. Additionally, controls can be circumvented
by the individual acts of some persons, by collusion of two or more people or by
management override of the controls. The design of any system of controls also
is based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions; over time, controls may
become inadequate because of changes in conditions, or the degree of compliance
with policies or procedures may deteriorate. Because of the inherent limitations
in a cost-effective control system, misstatements due to error or fraud may
occur and not be detected.
22
PART II. OTHER INFORMATION
ITEM 1. LEGAL
PROCEEDINGS
In February and
March 2010, the Company was sued in two putative class actions on behalf of
local businesses asserting various causes of action based on claims that the
Company manipulated the ratings and reviews on its platform to coerce local
businesses to buy its advertising products. These cases were subsequently
consolidated in an action asserting claims for violation of the California
Business & Professions Code, extortion and attempted extortion based on the
conduct they allege and seeking monetary relief in an unspecified amount and
injunctive relief. In October 2011, the court dismissed this action with
prejudice. The plaintiffs have appealed to the U.S. court of Appeals for the
Ninth Circuit, but the appeal has not yet been heard. Due to the preliminary
nature of this potential appeal, the Company is unable to reasonably estimate
either the probability of incurring a loss or an estimated range of such loss,
if any, from an appeal.
In March 2011, the Company was sued in an action on behalf of certain
current and former employees asserting claims for violations of the federal Fair
Labor Standards Act, the California Labor Code and the California Business &
Professions Code and seeking monetary relief in an unspecified amount. In
September 2011, the Company agreed to settle this matter for payments in an
aggregate amount of up to $1.3 million. The settlement is currently awaiting
court approval.
The Company is subject to legal proceedings arising in the ordinary
course of business. Although the results of litigation and claims cannot be
predicted with certainty, we currently believe that the final outcome of these
matters will not have a material adverse effect on the Company's business,
financial position, results of operations or cash flows.
ITEM 1A. RISK FACTORS
Our operations and financial results are subject to various risks and
uncertainties, including those described below, which could adversely affect our
business, financial condition, results of operations, cash flows, and the
trading price of our Class A common stock. You should carefully consider the
risks and uncertainties described below before making an investment decision.
Additional risks not presently known to us or that we currently believe are
immaterial may also significantly impair our business operations.
Risks Related to Our Business and
Industry
We have a short operating history in
an evolving industry, which makes it difficult to evaluate our future prospects
and may increase the risk that we will not be successful.
We have a short operating history in an evolving industry that may not
develop as expected, if at all. This short operating history makes it difficult
to assess our future prospects. You should consider our business and prospects
in light of the risks and difficulties we may encounter in this rapidly evolving
industry. These risks and difficulties include our ability to, among other
things:
-
increase
the number of users of our website and mobile app, the number of reviews and
other content on our platform and our revenue;
-
continue
to earn and preserve a reputation for providing meaningful and reliable
reviews of local businesses;
-
effectively monetize our mobile app as usage continues
to migrate toward mobile devices;
-
manage,
measure and demonstrate the effectiveness of our advertising solutions and
attract and retain new advertising clients, many of which may only have
limited or no online advertising experience;
-
successfully compete with existing and future providers
of other forms of offline and online advertising;
-
successfully compete with other companies that are
currently in, or may in the future enter, the business of providing
information regarding local businesses;
-
successfully expand our business in new and existing
markets, both domestic and international;
-
successfully develop and deploy new features and
products;
-
avoid
interruptions or disruptions in our service or slower than expected load
times;
-
develop a
scalable, high-performance technology infrastructure that can efficiently and
reliably handle increased usage globally, as well as the deployment of new
features and products;
-
hire,
integrate and retain talented sales and other
personnel;
-
effectively manage rapid growth in our sales force,
personnel and operations; and
-
effectively partner with other companies.
23
If the demand for
information regarding local businesses does not develop as we expect, or if we
fail to address the needs of this demand, our business will be harmed. We may
not be able to successfully address these risks and difficulties or others,
including those described elsewhere in these risk factors. Failure to adequately
address these risks and difficulties could harm our business and cause our
operating results to suffer.
We have incurred significant
operating losses in the past, and we may not be able to generate sufficient
revenue to achieve or maintain profitability, particularly given our significant
ongoing sales and marketing expenses. Our recent growth rate will likely not be
sustainable, and a failure to maintain an adequate growth rate will adversely
affect our results of operations and business.
Since our inception, we have incurred significant operating losses, and,
as of March 31, 2012, we had an accumulated deficit of approximately $51.1
million. Although our revenues have grown rapidly, increasing from $12.1 million
in 2008, to $83.3 million in 2011, we expect that our revenue growth rate will
decline in the future as a result of a variety of factors, including the
maturation of our business and the gradual decline in the number of major
geographic markets, especially within the United States, to which we have not
already expanded, and you should not rely on the revenue growth of any prior
quarterly or annual period as an indication of our future performance. We also
expect our costs to increase in future periods as we continue to expend
substantial financial resources on:
-
sales and
marketing;
-
product
and feature development;
-
our
technology infrastructure;
-
domestic
and international expansion efforts;
-
strategic
opportunities, including commercial relationships and acquisitions;
and
-
general administration, including legal and
accounting expenses related to being a public
company.
These investments may not result in increased revenue or growth in our
business. If we are unable to maintain adequate revenue growth and to manage our
expenses, we may continue to incur significant losses in the future and may not
be able to achieve or maintain profitability.
We rely on traffic to our website
from search engines like Google, Yahoo! and Bing, some of which offer products
and services that compete directly with our solutions. If our website fails to
rank prominently in unpaid search results, traffic to our website could decline
and our business would be adversely affected.
Our success depends in part on our ability to attract users through
unpaid Internet search results on search engines like Google, Yahoo! and Bing.
The number of users we attract to our website from search engines is due in
large part to how and where our website ranks in unpaid search results. These
rankings can be affected by a number of factors, many of which are not in our
direct control, and they may change frequently. For example, a search engine may
change its ranking algorithms, methodologies or design layouts. As a result,
links to our website may not be prominent enough to drive traffic to our
website, and we may not know how or otherwise be in a position to influence the
results. In some instances, search engine companies may change these rankings in
order to promote their own competing products or services or the products or
services of one or more of our competitors. Our website has experienced
fluctuations in search result rankings in the past, and we anticipate
fluctuations in the future. Any reduction in the number of users directed to our
website could adversely impact our business and results of
operations.
Google in particular is the most significant source of traffic to our
website accounting for more than half of the visits to our website from Internet
searches during the quarter ended March 31, 2012. Our success depends on our
ability to maintain a prominent presence in search results for queries regarding
local businesses on Google. Google has removed links to our website from
portions of its web search product and has promoted its own competing products,
including Googles local products, in its search results. Given the large volume
of traffic to our website and the importance of the placement and display of
results of a users search, similar actions in the future could have a
substantial negative effect on our business and results of operations.
If we fail to generate and maintain
sufficient high quality content from our users, we will be unable to provide
consumers with the information they are looking for, which could negatively
impact our traffic and revenue.
Our success depends on our ability to provide consumers with the
information they seek, which in turn depends on the quantity and quality of the
content provided by our users. For example, we may be unable to provide
consumers with the information they seek if our users do not contribute content
that is helpful and reliable, or if they remove content they previously
submitted. Similarly, we may be unable to provide consumers with the information
they seek if our users are unwilling to contribute content because of concerns
that they may be harassed or sued by the businesses they review, instances of
which have occurred in the past and may occur again in the future. In addition,
we may not be able to provide users the information they seek if the information
on our platform is not up-to-date. We do not phase out or remove dated reviews,
and consumers may view older reviews as less relevant, helpful or reliable. If
our platform does not provide current information about local businesses or
users perceive reviews on our platform as less relevant, our brand and our
business could be harmed.
If we are unable to provide consumers with the information they seek, or
if they can find equivalent content on other services, they may stop or reduce
their use of our platform, and traffic to our website and on our mobile app will
decline. If our user traffic declines, our advertisers may stop or reduce the
amount of advertising on our platform and our business could be harmed.
24
Our business may be harmed if users
view our platform as primarily limited to reviews of restaurants and shopping
experiences.
Our user traffic
could be adversely affected if consumers perceive the utility of our platform to
be limited to finding businesses in the restaurant and shopping categories,
which together accounted for approximately 45% of the businesses that have been
reviewed on our platform and 62% of our cumulative reviews through March 31,
2012. We believe that this concentration of reviews is primarily due to the
frequency with which individuals visit specific businesses or engage in certain
activities versus others. For example, an individual may eat at a restaurant
three times in one week or go shopping once a week, but the same individual is
unlikely to visit a mechanic, get a haircut or use a home or local service with
the same frequency. However, if the high concentration of reviews in the
restaurant and shopping categories generates a perception that our platform is
primarily limited to these categories, traffic may decline and advertising
customers may be less likely to perceive value from using our services, which
could harm our business.
If our technology filters helpful
content or fails to filter unhelpful content, consumers and businesses alike may
stop or reduce their use of our platform and products, and our business could
suffer.
While we have designed our technology to filter content that we believe
may be offensive, biased, unreliable or otherwise unhelpful, we cannot guarantee
that our efforts will be effective or adequate. In addition, some consumers and
businesses have expressed concern that our technology inappropriately filters
legitimate reviews, which may cause them to stop or reduce their use of our
platform or our advertising solutions. If the performance of our filter proves
inadequate or ineffective, our reputation and brand may be harmed, users may
stop using our products and our business and results of operations could be
adversely affected.
Our business depends on a strong
brand, and any failure to maintain, protect and enhance our brand would hurt our
ability to retain or expand our base of users and advertisers, or our ability to
increase the frequency with which they use our solutions.
We have developed a strong brand that we believe has contributed
significantly to the success of our business. Maintaining, protecting and
enhancing the Yelp brand is critical to expanding our base of users and
advertisers and increasing the frequency with which they use our solutions, and
will depend largely on our ability to maintain consumer trust in our solutions
and in the quality and integrity of the user content and other information found
on our website and mobile app, which we may not do successfully. If we do not
successfully maintain a strong brand, our business could be harmed.
For example, consumers may believe that the reviews, photos and other
content contributed by our Community Managers or other employees are influenced
by our advertising relationships or are otherwise biased. Although we take steps
to prevent this from occurring by, for example, displaying an ambassador badge
on the account profile pages for each of our Community Managers identifying them
as Yelp employees and explaining their role on our platform, the designation
does not appear on the page for each review contributed by the Community Manager
and we may not be successful in our efforts to maintain consumer trust. As a
result, our brand and our business could be harmed.
Our trademarks are an important element of our brand. We have faced in
the past, and may face in the future, oppositions from third parties to our
applications to register key trademarks in foreign jurisdictions in which we
expect to expand our presence. If we are unsuccessful in defending against these
oppositions, our trademark applications may be denied. Whether or not our
trademark registration applications are denied, third parties may claim that our
trademarks infringe their rights. As a result, we could be forced to pay
significant settlement costs or cease the use of these trademarks and associated
elements of our brand in those or other jurisdictions. Doing so could harm our
brand or brand recognition and adversely affect our business, financial
condition and results of operation.
Negative publicity could adversely
affect our reputation and brand.
Negative publicity about our company, including our technology, sales
practices, personnel or customer service, could diminish confidence in and the
use of our products. The media has previously reported allegations that we
manipulate our reviews, rankings and ratings in favor of our advertisers and
against non-advertisers. In order to demonstrate that our filtering process
applies in a nondiscriminatory manner to both advertisers and non-advertisers,
we have made all filtered reviews accessible on our platform. We have also
allowed businesses to publicly comment on negative reviews so that they can
provide their response. Nevertheless, our reputation and brand, the traffic to
our website and mobile app and our business may suffer if negative publicity
about our company persists or if users otherwise perceive that content on our
website and mobile app is manipulated or biased. In addition, our website and
mobile app serve as a platform for expression by our users, and third parties or
the public at large may attribute the political or other sentiments expressed by
users on our platform to us, which could harm our reputation.
If we fail to maintain and expand
our base of advertisers, our revenue and our business will be harmed.
For the quarter ended March 31, 2012, substantially all of our revenue
was generated by the sale of advertising products. Our ability to grow our
business depends on our ability to maintain and expand our advertiser base. To
do so, we must convince prospective advertisers of the benefits of our products,
including those who may not be familiar with our products (such as those in new
markets). In addition, we have incurred significant costs to attract current and
future advertisers and expect to incur significant additional costs for the
foreseeable future. We may face greater challenges as we continue to expand our
advertiser base in businesses outside the restaurant and shopping categories,
which together accounted for approximately 45% of the businesses that have been
reviewed on our platform and 62% of our cumulative reviews through March 31,
2012, especially if these businesses believe that consumers perceive the utility
of our platform to be limited to finding businesses in the restaurant and
shopping categories. We must also convince existing and prospective advertisers
alike that our advertising products work to their benefit. Many of these
businesses are more accustomed to using more traditional methods of advertising,
such as newspapers or print yellow pages directories. Failure to maintain and
expand the advertiser base could harm our business.
25
Our advertisers do not typically have long-term obligations to purchase
our products. In addition, we rely heavily on advertising spend by small and
medium-sized local businesses, which have historically experienced high failure
rates and often have limited advertising budgets. As a result, we may experience
attrition in our advertisers in the ordinary course of business resulting from
several factors, including losses to competitors, lower priced competitors,
perceptions that our advertising solutions are unnecessary or ineffective,
declining advertising budgets, closures and bankruptcies. We must continually
add new advertisers both to replace advertisers who choose not to renew their
advertising or who go out of business, or otherwise fail to fulfill their
advertising contracts with us, and to grow our business. Our advertisers
decisions to renew depend on a number of factors, including the degree of
satisfaction with our products and their ability to continue their operations
and spending levels. The ratings and reviews that businesses receive from our
users may also affect advertising decisions by current and prospective
advertisers. For instance, favorable ratings and reviews, on the one hand, could
be perceived as obviating the need to advertise, and unfavorable ratings and
reviews, on the other, could discourage businesses from advertising to an
audience they perceive as hostile or cause them to form a negative opinion of
our products and user base which could discourage them from doing business with
us. If our advertisers increase their rates of non-renewal or if we experience
significant advertiser attrition or contract breach, or if we are unable to
attract new advertisers in numbers greater than the number of advertisers that
we lose, our client base will decrease and our business, financial condition and
results of operations would be harmed.
If we fail to expand effectively
into new markets, both domestically and abroad, our revenue and our business
will be harmed.
We intend to
expand our operations into new markets, both domestically and abroad. We may
incur losses or otherwise fail to enter new markets successfully. Our expansion
into new markets places us in competitive environments with which we are
unfamiliar and involves various risks, including the need to invest significant
resources and the possibility that returns on such investments will not be
achieved for several years, or at all. In attempting to establish a presence in
new markets, we expect, as we have in the past, to incur significant expenses
and face various other challenges, such as expanding our sales force and
community management personnel to cover those new markets. Our current and any
future expansion plans will require significant resources and management
attention. Furthermore, we have already entered many of the largest markets in
the United States and further expansion in smaller markets may not yield similar
results or sustain our growth.
Our international operations involve
additional risks, and our exposure to these risks will increase as we expand
internationally.
We have started to expand our operations internationally. We expect to
expand our international operations significantly by accessing new markets
abroad and expanding our offerings in new languages. Our platform is now
available in English and several other languages. However, we may have
difficulty modifying our technology and content for use in non-English-speaking
markets or fostering new communities in non-English-speaking markets. Our
ability to manage our business and conduct our operations internationally
requires considerable management attention and resources, and is subject to the
particular challenges of supporting a rapidly growing business in an environment
of multiple languages, cultures, customs, legal systems, alternative dispute
systems, regulatory systems and commercial infrastructures. Furthermore, in most
international markets, we would not be the first entrant, and our competitors
may be better positioned than we are to succeed. Expanding internationally may
subject us to risks that we have either not faced before or increase our
exposure to risks that we currently face, including risks associated with:
-
recruiting and retaining qualified,
multi-lingual employees, including sales personnel;
-
increased competition from local
websites and guides and potential preferences by local populations for local
providers;
-
compliance with applicable foreign
laws and regulations, including different privacy, censorship and liability
standards and regulations and different intellectual property laws;
-
providing solutions in different languages for different cultures, which
may require that we modify our solutions and features to ensure that they are
culturally relevant in different countries;
-
the enforceability of our intellectual
property rights;
-
credit risk and higher levels of
payment fraud;
-
compliance with anti-bribery laws,
including compliance with the Foreign Corrupt Practices Act and the U.K.
Bribery Act;
-
currency exchange rate
fluctuations;
-
foreign exchange controls that might
prevent us from repatriating cash earned outside the United States;
-
political and economic instability in
some countries;
-
double taxation of our international
earnings and potentially adverse tax consequences due to changes in the tax
laws of the United States or the foreign jurisdictions in which we operate;
and
-
higher costs of doing business
internationally.
26
Many people use smartphones and
other mobile devices to access information about local businesses. If we are not
successful in developing solutions that generate revenue from our mobile
application, or those solutions are not widely adopted, our results of
operations and business could be adversely affected.
The number of
people who access information about local businesses through mobile devices,
including smartphones and handheld tablets or computers, has increased
dramatically in the past few years and is expected to increase. Because we do
not currently deliver advertising on our mobile app, we have not materially
monetized our mobile app to date. As a result, we may not be able to generate
meaningful revenue from our mobile app for the foreseeable future. If consumers
use our mobile app at the expense of our website, our advertisers may stop or
reduce advertising on our website, and they may be unable to advertise on our
mobile app unless we develop effective mobile advertising solutions that are
compelling to them. Similarly, we may be unable to attract new advertisers
unless we develop effective mobile advertising solutions. At the same time, it
is important that any mobile advertising solutions that we develop do not
adversely affect our users experience, even if they might result in increased
short-term monetization. We have limited experience with mobile advertising. If
we fail to develop effective advertising solutions, if our solutions alienate
our user base, or if our solutions are not widely adopted or are insufficiently
profitable, our business may suffer.
Additionally, as new mobile devices and platforms are released, it is
difficult to predict the problems we may encounter in developing products for
these alternative devices and platforms, and we may need to devote significant
resources to the creation, support, and maintenance of such products. In
addition, if we experience difficulties in the future in integrating our mobile
app into mobile devices or if problems arise with our relationships with
providers of mobile operating systems or mobile application download stores,
such as those of Apple or Google, if our applications receive unfavorable
treatment compared to the promotion and placement of competing applications,
such as the order of our products in the Apple AppStore, or if we face increased
costs to distribute our mobile app, our future growth and our results of
operations could suffer.
We expect to face increased
competition in the market.
The market for information regarding local businesses and advertising is
intensely competitive and rapidly changing. With the emergence of new
technologies and market entrants, competition is likely to intensify in the
future. Our competitors include, among others, offline media companies and
service providers; newspaper, television, and other media companies, Internet
search engines, such as Google, Yahoo! and Bing; and various other online
service providers. Our competitors may enjoy competitive advantages, such as
greater name recognition, longer operating histories, substantially greater
market share, large existing user bases and substantially greater financial,
technical and other resources. These companies may use these advantages to offer
products similar to ours at a lower price, develop different products to compete
with our current solutions and respond more quickly and effectively than we do
to new or changing opportunities, technologies, standards or client
requirements. In particular, major Internet companies, such as Google, Facebook,
Yahoo! and Microsoft may be more successful than us in developing and marketing
online advertising offerings directly to local businesses and many of our
advertisers and potential advertisers may choose to purchase online advertising
services from these competitors and may reduce their purchases of our products.
In addition, many of our current and potential competitors have established
marketing relationships with and access to larger client bases. As the market
for local online advertising increases, new competitors, business models and
solutions are likely to emerge. We also compete with these companies for the
attention of contributors and consumers, and may experience decreases in both if
our competitors offer more compelling environments. For all of these reasons, we
may be unable to maintain or grow the number of people who use our website and
mobile app and the number of businesses that use our advertising solutions and
we may face pressure to reduce the price of our advertising solutions, in which
case our business, results of operations and financial condition will be harmed.
The traffic to our website and
mobile application may decline and our business may suffer if other companies
copy information from our platform and publish or aggregate it with other
information for their own benefit.
From time to time, other companies copy information from our platform,
through website scraping, robots or other means, and publish or aggregate it
with other information for their own benefit. For example, in parts of 2010 and
2011, Google incorporated content from our website into its own local product
without our permission. Googles users, as a result, may not have visited our
website because they found the information they sought on Google. In September
2011, our Chief Executive Officer testified before the U.S. Senate Committee on
the Judiciary, Subcommittee on Antitrust, Competition Policy and Consumer Rights
regarding Googles practices in this regard. While we do not believe that Google
is still incorporating our content within its local products, we have no
assurance that Google or other companies will not copy, publish or aggregate
content from our platform in the future.
When third parties copy, publish, or aggregate content from our platform,
it makes them more competitive and decreases the likelihood that consumers will
visit our website or use our mobile app to find the information they seek, which
could negatively affect our business, results of operations and financial
condition. We may not be able to detect such third-party conduct in a timely
manner and, even if we could, we may not be able to prevent it. In some cases,
particularly in the case of websites operating outside of the United States, our
available remedies may be inadequate to protect us against such practices. In
addition, we may be required to expend significant financial or other resources
to successfully enforce our rights.
The impact of worldwide economic
conditions, including the resulting effect on advertising spending by local
businesses, may adversely affect our business, operating results and financial
condition.
Our performance is subject to worldwide economic conditions and their
impact on levels of advertising spend by small and medium-sized businesses,
which may be disproportionately affected by economic downturns. To the extent
that the current economic slowdown continues, or worldwide economic conditions
materially deteriorate, our existing and potential advertising clients may no
longer consider investment in our advertising solutions a necessity, or may
elect to reduce advertising budgets. Historically, economic downturns have
resulted in overall reductions in advertising spending. In particular, web-based
advertising solutions may be viewed by some of our existing and potential
advertising clients as a lower priority and could cause advertisers to reduce
the amounts they spend on advertising, terminate their use of our solutions or
default on their payment obligations to us. In addition, economic conditions may
adversely impact levels of consumer spending, which could adversely impact the
numbers of consumers visiting our website and mobile app. Consumer purchases of
discretionary items generally decline during recessionary periods and other
periods in which disposable income is adversely affected. If spending at many of
the local businesses reviewed on our website or mobile app declines, businesses
may be less likely to use our advertising products, which could have a material
adverse effect on our financial condition and results of operations.
27
We face potential liability and
expense for legal claims based on the content on our platform.
We face potential
liability and expense for legal claims relating to the information that we
publish on our website and mobile app, including claims for defamation, libel,
negligence and copyright or trademark infringement, among others. For example,
businesses in the past have claimed, and may in the future claim, that we are
responsible for defamatory reviews posted by our users. We expect claims like
these to continue, and potentially increase in proportion to the amount of
content on our platform. These claims could divert management time and attention
away from our business and result in significant costs to investigate and
defend, regardless of the merits of the claims. In some instances, we may elect
or be compelled to remove content or may be forced to pay substantial damages if
we are unsuccessful in our efforts to defend against these claims. If we elect
or are compelled to remove valuable content from our website or mobile app, our
platform may become less useful to consumers and our traffic may decline, which
could have a negative impact on our business and financial performance.
Our business could suffer if the
jurisdictions in which we operate change the way in which they regulate the
Internet, including regulations relating to user-generated content and privacy.
Our business, including our ability to operate and expand
internationally, could be adversely affected if legislation or regulations are
adopted, interpreted or implemented in a manner that is inconsistent with our
current business practices and that requires changes to these practices or the
design of our platform, products or features. For example, if legislation is
passed that limits the immunities afforded to websites that publish
user-generated content, we may be compelled to remove content from our platform
that we would otherwise publish, restrict the types of businesses that our users
can review or further verify the identity of our users, among other changes.
Similarly, legislation could be passed that limits our ability to use or store
information about our users. The Federal Trade Commission (FTC) already
expects companies like ours to comply with guidelines issued under the Federal
Trade Commission Act that govern the collection, use and storage of consumer
information, establishing principles relating to notice, consent, access and
data integrity and security. Our practices are designed to comply with these
guidelines as described in our published privacy policy. For example, we
disclose that we collect a range of information about our users, such as their
names, email addresses, search histories and activity on our platform. We also
use and store such information primarily to personalize the experience on our
platform, provide customer support and display relevant advertising. While we do
not sell or share personally identifiable information with third parties for
direct marketing purposes, we do have relationships with third parties that may
allow them access to user information for other purposes. For example, when we
outsource functions such as technical and customer support, tracking and
reporting, quality assurance and payment processing to other companies, we make
user information available to those companies to the extent necessary for them
to provide the outsourced services. We believe our policies and practices comply
with the FTC privacy guidelines and other applicable laws and regulations.
However, if our belief proves incorrect, or if these guidelines, laws or
regulations or their interpretation change or new legislation or regulations are
enacted, we may be compelled to provide additional disclosures to our users,
obtain additional consents from our users before collecting or using their
information or implement new safeguards to help our users manage our use of
their information, among other changes.
Legislative changes such as the examples above have already been proposed
both domestically and abroad, including recent proposals by the European
Commission. Changes like these could increase our administrative costs and make
it more difficult for consumers to use our platform, resulting in less traffic
and revenue. Similarly, changes like these could make it more difficult for us
to provide effective advertising tools to businesses on our platform, resulting
in fewer advertisers and less revenue. In any of the cases above, our business
could suffer.
If we fail to manage our growth
effectively, our brand, results of operations and business could be harmed.
We have experienced rapid growth in our headcount and operations, which
places substantial demands on management and our operational infrastructure.
Most of our employees have been with us for fewer than two years. We intend to
make substantial investments in our technology, sales and marketing and
community management organizations. As we continue to grow, we must effectively
integrate, develop and motivate a large number of new employees, including
employees in international markets, while maintaining the beneficial aspects of
our company culture. If we do not manage the growth of our business and
operations effectively, the quality of our platform and efficiency of our
operations could suffer, which could harm our brand, results of operations and
business.
We may not timely and effectively
scale and adapt our existing technology and network infrastructure to ensure
that our platform is accessible.
It is important to our success that users in all geographies be able to
access our platform at all times. We have previously experienced, and may
experience in the future, service disruptions, outages and other performance
problems due to a variety of factors, including infrastructure changes, human or
software errors, capacity constraints due to an overwhelming number of users
accessing our platform simultaneously, and denial of service or fraud or
security attacks. In some instances, we may not be able to identify the cause or
causes of these performance problems within an acceptable period of time. It may
become increasingly difficult to maintain and improve the availability of our
platform, especially during peak usage times and as our solutions become more
complex and our user traffic increases. If our platform is unavailable when
users attempt to access it or it does not load as quickly as they expect, users
may seek other services to obtain the information for which they are looking,
and may not return to our platform as often in the future, or at all. This would
negatively impact our ability to attract users and advertisers and increase the
frequency with which they use our website and mobile app. We expect to continue
to make significant investments to maintain and improve the availability of our
platform and to enable rapid releases of new features and products. To the
extent that we do not effectively address capacity constraints, upgrade our
systems as needed and continually develop our technology and network
architecture to accommodate actual and anticipated changes in technology, our
business and operating results may be harmed.
Our disaster recovery program contemplates transitioning our platform and
data to a backup center in the event of a catastrophe, but we have not yet
tested the procedure in full, and the transition procedure may take several days
or more to complete. During this time, our platform may be unavailable in whole
or in part to our users.
28
We are, and may in the future be,
subject to disputes and assertions by third parties that we violate their
rights. These disputes may be costly to defend and could harm our business and
operating results.
We currently
face, and we expect to face from time to time in the future, allegations that we
have violated the rights of third parties, including patent, trademark,
copyright and other intellectual property rights [and the rights of current and
former employees and business owners?]. For example, third parties have sued us
for allegedly violating their patent rights (we are currently a defendant in
seven such suits, all of which involve plaintiffs targeting multiple defendants
in the same or similar suits), an action was filed against us on behalf of
current and former employees claiming that we violated labor and other laws (we
have agreed in principle, subject to court approval, to settle the suit for up
to $1.3 million) and various businesses have sued us alleging that we manipulate
Yelp reviews in order to coerce them and other businesses to pay for Yelp
advertising (one such suit was voluntarily dismissed, and two others were
consolidated and recently dismissed with prejudice, although the plaintiffs are
seeking an appeal).
Other claims against us can be expected to be made in the future. Even if
the claims are without merit, the costs associated with defending these types of
claims may be substantial, both in terms of time, money, and management
distraction. In particular, patent and other intellectual property litigation
may be protracted and expensive, and the results are difficult to predict and
may require us to stop offering certain features, purchase licenses or modify
our products and features while we develop non-infringing substitutes or may
result in significant settlement costs. We do not own any patents, and,
therefore, may be unable to deter competitors or others from pursuing patent or
other intellectual property infringement claims against us.
The results of litigation and claims to which we may be subject cannot be
predicted with certainty. Even if these matters do not result in litigation or
are resolved in our favor or without significant cash settlements, these
matters, and the time and resources necessary to litigate or resolve them, could
harm our business, results of operations and reputation.
Some of our solutions contain open
source software, which may pose particular risks to our proprietary software and
solutions.
We use open source software in our solutions and will use open source
software in the future. From time to time, we may face claims from third parties
claiming ownership of, or demanding release of, the open source software and/or
derivative works that we developed using such software (which could include our
proprietary source code), or otherwise seeking to enforce the terms of the
applicable open source license. These claims could result in litigation and
could require us to purchase a costly license or cease offering the implicated
solutions unless and until we can re-engineer them to avoid infringement. This
re-engineering process could require significant additional research and
development resources. In addition to risks related to license requirements, use
of certain open source software can lead to greater risks than use of
third-party commercial software, as open source licensors generally do not
provide warranties or controls on the origin of software. Any of these risks
could be difficult to eliminate or manage, and, if not addressed, could have a
negative effect on our business and operating results.
We make the consumer experience our
highest priority. Our dedication to making decisions based primarily on the best
interests of consumers may cause us to forgo short-term gains and advertising
revenue.
We base many of our decisions upon the best interests of the consumers
who use our platform. We believe that this approach has been essential to our
success in increasing our user growth rate and the frequency with which
consumers use our platform and has served the long-term interests of our company
and our stockholders. In the past, we have forgone, and we may in the future
forgo, certain expansion or revenue opportunities that we do not believe are in
the best interests of consumers, even if such decisions negatively impact our
results of operations in the short term, and we believe that continued adherence
to this principle will, in the long term, benefit our stockholders. In
particular, our approach of putting our consumers first may negatively impact
our relationships with our existing or prospective advertisers. For example,
unless we believe that a review violates our terms of service, such as reviews
that contain hate speech or bigotry, we allow the review to remain on the
platform, even if the business disputes its accuracy. Certain advertisers may
therefore perceive us as an impediment to their success as a result of negative
reviews and ratings. This practice could result in a loss of advertisers, which
in turn could harm our results of operations.
We rely on third-party service
providers for many aspects of our business, and any failure to maintain these
relationships could harm our business.
We rely on data about local businesses from third parties, including
various yellow pages and other third parties that license such information to
us. We also rely on third parties for other aspects of our business, such as
mapping functionality and administrative software solutions. If these third
parties experience difficulty meeting our requirements or standards, or our
licenses are revoked or not renewed, it could make it difficult for us to
operate some aspects of our business, which could damage our reputation. In
addition, if such third-party service providers were to cease operations,
temporarily or permanently, face financial distress or other business
disruption, increase their fees or if our relationships with these providers
deteriorate, we could suffer increased costs and delays in our ability to
provide consumers and advertisers with content or provide similar services until
an equivalent provider could be found or we could develop replacement technology
or operations. In addition, if we are unsuccessful in choosing or finding
high-quality partners, if we fail to negotiate cost-effective relationships with
them, or if we ineffectively manage these relationships, it could have an
adverse impact on our business and financial performance.
29
We expect a number of factors to
cause our operating results to fluctuate on a quarterly and annual basis, which
may make it difficult to predict our future performance.
Our operating results could vary significantly from quarter to
quarter and year to year because of a variety of factors, many of which are
outside of our control. As a result, comparing our operating results on a
period-to-period basis may not be meaningful. In addition to other risk factors
discussed in this section, factors that may contribute to the variability of our
quarterly and annual results include:
-
our ability to attract new local
business advertisers and retain existing advertisers;
-
our ability to accurately forecast
revenue and appropriately plan our expenses;
-
the
effects of changes in search engine placement and prominence;
-
the
effects of increased competition in our business;
-
our
ability to successfully expand in existing markets, enter new markets and
manage our international expansion;
-
the impact of worldwide economic
conditions, including the resulting effect on consumer spending at local
businesses and the level of advertising spending by local businesses;
-
our ability to protect our intellectual
property;
-
our
ability to maintain an adequate rate of growth and effectively manage that
growth;
-
our
ability to maintain and increase traffic to our website and mobile app;
-
our
ability to keep pace with changes in technology;
-
the
success of our sales and marketing efforts;
-
costs
associated with defending intellectual property infringement and other claims
and related judgments or settlements;
-
changes
in government regulation affecting our business;
-
interruptions in service and any related impact on our reputation;
-
the
attraction and retention of qualified employees and key personnel;
-
our
ability to choose and effectively manage third-party service providers;
-
the
impact of fluctuations in currency exchange rates;
-
our ability to successfully manage any
acquisitions of businesses, solutions or technologies;
-
the
effects of natural or man-made catastrophic events;
-
changes
in consumer behavior with respect to local businesses;
-
the
effectiveness of our internal controls; and
-
changes
in our tax rates or exposure to additional tax liabilities.
Because we recognize most of the
revenue from our advertising products over the term of an agreement, a
significant downturn in our business may not be immediately reflected in our
results of operations.
We recognize
revenue from sales of our advertising products over the terms of the applicable
agreements, which are generally three, six or 12 months. As a result, a
significant portion of the revenue we report in each quarter is generated from
agreements entered into during previous quarters. Consequently, a decline in new
or renewed agreements in any one quarter may not significantly impact our
revenue in that quarter but will negatively affect our revenue in future
quarters. In addition, we may be unable to adjust our fixed costs in response to
reduced revenue. Accordingly, the effect of significant declines in advertising
sales may not be reflected in our short-term results of operations.
We rely on the performance of highly
skilled personnel, and if we are unable to attract, retain and motivate
well-qualified employees, our business could be harmed.
We believe our success has depended, and continues to depend, on the
efforts and talents of our employees, including Jeremy Stoppelman, our Chief
Executive Officer, Geoff Donaker, our Chief Operating Officer, and our software
engineers, marketing professionals and advertising sales staff. Our future
success depends on our continuing ability to attract, develop, motivate and
retain highly qualified and skilled employees. Qualified individuals are in high
demand, and we may incur significant costs to attract them. In addition, the
loss of any of our senior management or key employees could materially adversely
affect our ability to execute our business plan, and we may not be able to find
adequate replacements. All of our officers and other U.S. employees are at-will
employees, which mean they may terminate their employment relationship with us
at any time, and their knowledge of our business and industry would be extremely
difficult to replace. We cannot ensure that we will be able to retain the
services of any members of our senior management or other key employees. If we
do not succeed in attracting well-qualified employees or retaining and
motivating existing employees, our business could be harmed.
30
Failure to protect or enforce our
intellectual property rights could harm our business and results of operations.
We regard the
protection of our trade secrets, copyrights, trademarks and domain names as
critical to our success. In particular, we must maintain, protect and enhance
the Yelp brand. We pursue the registration of our domain names, trademarks,
and service marks in the United States and in certain jurisdictions abroad. We
strive to protect our intellectual property rights by relying on federal, state
and common law rights, as well as contractual restrictions. We typically enter
into confidentiality and invention assignment agreements with our employees and
contractors, and confidentiality agreements with parties with whom we conduct
business in order to limit access to, and disclosure and use of, our proprietary
information. However, these contractual arrangements and the other steps we have
taken to protect our intellectual property may not prevent the misappropriation
or disclosure of our proprietary information nor deter independent development
of similar technologies by others.
Effective trade secret, copyright, trademark and domain name protection
is expensive to develop and maintain, both in terms of initial and ongoing
registration requirements and expenses and the costs of defending our rights. We
are seeking to protect our trademarks and domain names in an increasing number
of jurisdictions, a process that is expensive and may not be successful or which
we may not pursue in every location. Litigation may be necessary to enforce our
intellectual property rights, protect our respective trade secrets or determine
the validity and scope of proprietary rights claimed by others. Any litigation
of this nature, regardless of outcome or merit, could result in substantial
costs and diversion of management and technical resources, any of which could
adversely affect our business and operating results. We may incur significant
costs in enforcing our trademarks against those who attempt to imitate our
Yelp brand. If we fail to maintain, protect and enhance our intellectual
property rights, our business and operating results may be harmed.
We may be unable to continue to use
the domain names that we use in our business, or prevent third parties from
acquiring and using domain names that infringe on, are similar to, or otherwise
decrease the value of our brand or our trademarks or service marks.
We
have registered domain names for our website that we use in our business, such
as Yelp.com. If we lose the ability to use a domain name, whether due to
trademark claims, failure to renew the applicable registration, or any other
cause, we may be forced to market our products under a new domain name, which
could cause us substantial harm, or to incur significant expense in order to
purchase rights to the domain name in question. In addition, our competitors and
others could attempt to capitalize on our brand recognition by using domain
names similar to ours. Domain names similar to ours have been registered in the
United States and elsewhere. We may be unable to prevent third parties from
acquiring and using domain names that infringe on, are similar to, or otherwise
decrease the value of our brand or our trademarks or service marks. Protecting
and enforcing our rights in our domain names may require litigation, which could
result in substantial costs and diversion of managements attention.
If our security measures are
compromised, or if our platform is subject to attacks that degrade or deny the
ability of users to access our content, users may curtail or stop use of our
platform.
Like all online services, our platform is vulnerable to computer viruses,
break-ins, phishing attacks, attempts to overload our servers with
denial-of-service or other attacks and similar disruptions from unauthorized use
of our computer systems, any of which could lead to interruptions, delays, or
website shutdowns, causing loss of critical data or the unauthorized disclosure
or use of personally identifiable or other confidential information. If we
experience compromises to our security that result in performance or
availability problems, the complete shutdown of our website or the loss or
unauthorized disclosure of confidential information, our users or advertisers
may lose trust and confidence in us and decrease their use of our platform or
stop using our platform entirely. Because the techniques used to obtain
unauthorized access, disable or degrade service or sabotage systems change
frequently, often are not recognized until launched against a target and may
originate from less regulated and remote areas around the world, we may be
unable to proactively address these techniques or to implement adequate
preventative measures. In addition, user and business owner accounts and profile
pages could be hacked, hijacked, altered or otherwise claimed or controlled by
unauthorized persons. For example, we enable businesses to create free online
business accounts and claim the business profile pages for each of their
business locations. We verify these claims through an automated telephone
verification process, which is designed to confirm that the person setting up
the account is affiliated with the business by confirming that the person has
access to the businesss telephone. Our verification system could fail to
confirm that the recipient of the call is an authorized representative of the
business, or mistakenly allow an unauthorized representative to claim the
businesss profile page. Any or all of these issues could negatively impact our
ability to attract new users or could deter current users from returning or
reduce the frequency with which consumers and advertisers use our solutions,
cause existing or potential advertisers to cancel their contracts or subject us
to third-party lawsuits, regulatory fines or other action or liability, thereby
harming our results of operations.
We process, store and use personal
information and other data, which subjects us to governmental regulation and
other legal obligations related to privacy. Our actual or perceived failure to
comply with such obligations could harm our business.
We
receive, store and process personal information and other user data, including
credit card information for certain users. There are numerous federal, state and
local laws around the world regarding privacy and the storing, sharing, use,
processing, disclosure and protection of personal Information and other user
data, the scope of which are changing, subject to differing interpretations, and
may be inconsistent between countries or conflict with other rules. We generally
comply with industry standards and are subject to the terms of our privacy
policies and privacy-related obligations to third parties (including, in certain
instances, voluntary third-party certification bodies such as TRUSTe). It is
possible that these obligations may be interpreted and applied in a manner that
is inconsistent from one jurisdiction to another and may conflict with other
rules or our practices. Any failure or perceived failure by us to comply with
our privacy policies, our privacy-related obligations to users or other third
parties, or our privacy-related legal obligations, or any compromise of security
that results in the unauthorized release or transfer of personally identifiable
information or other user data, may result in governmental enforcement actions,
litigation or negative publicity and could cause our users and advertisers to
lose trust in us, which could have an adverse effect on our business.
Additionally, if third parties with whom we work, such as advertisers, vendors
or developers, violate applicable laws or our policies, such violations may also
put our users information at risk and could have an adverse effect on our
business.
31
Our business is subject to a variety
of U.S. and foreign laws, many of which are unsettled and still developing and
which could subject us to claims or otherwise harm our business.
We are subject to
a variety of laws in the United States and abroad, including laws regarding data
retention, privacy, distribution of user-generated content and consumer
protection, that are frequently evolving and developing. The scope and
interpretation of the laws that are or may be applicable to us are often
uncertain and may be conflicting, particularly outside the United States. For
example, laws relating to the liability of providers of online services for
activities of their users and other third parties are currently being tested by
a number of claims, including actions based on invasion of privacy and other
torts, unfair competition, copyright and trademark infringement, and other
theories based on the nature and content of the materials searched, the ads
posted, or the content provided by users. In addition, regulatory authorities
around the world are considering a number of legislative and regulatory
proposals concerning data protection and other matters that may be applicable to
our business. It is also likely that if our business grows and evolves and our
solutions are used in a greater number of countries, we will become subject to
laws and regulations in additional jurisdictions. It is difficult to predict how
existing laws will be applied to our business and the new laws to which we may
become subject.
If we are not able to comply with these laws or regulations or if we
become liable under these laws or regulations, we could be directly harmed, and
we may be forced to implement new measures to reduce our exposure to this
liability. This may require us to expend substantial resources or to discontinue
certain products or features, which would negatively affect our business. In
addition, the increased attention focused upon liability issues as a result of
lawsuits and legislative proposals could harm our reputation or otherwise impact
the growth of our business. Any costs incurred to prevent or mitigate this
potential liability could also harm our business and operating results.
Domestic and foreign laws may be
interpreted and enforced in ways that impose new obligations on us with respect
to Yelp Deals, which may harm our business and results of operations.
Our Yelp Deals products may be deemed gift certificates, store gift
cards, general-use prepaid cards or other vouchers, or gift cards, subject to,
among other laws, the federal Credit Card Accountability Responsibility and
Disclosure Act of 2009 (Credit CARD Act of 2009) and similar federal, state
and foreign laws. Many of these laws include specific disclosure requirements
and prohibitions or limitations on the use of expiration dates and the
imposition of certain fees. For example, the Credit CARD Act of 2009 requires
that gift cards expire no earlier than five years after their issue. Yelp Deals
are comprised of two components: (i) the purchase value, which is the amount
paid by the purchaser and which does not expire, and (ii) the promotional value,
which is the remaining value for which the Yelp Deal can be redeemed during a
limited period, which typically ends one year after the date of purchase. If,
contrary to our belief, the Credit CARD Act of 2009 and similar state laws were
held to apply to the promotional value component of Yelp Deals, consumers would
be entitled to redeem the promotional value component of their Yelp Deals for up
to five years after their issue, and we could face liability for redemption
periods that are less than five years. Various companies that provide deal
products similar to ours are currently defendants in purported class action
lawsuits that have been filed in federal and state court claiming that their
deal products are subject to the Credit CARD Act of 2009 and various state laws
governing gift cards and that the defendants have violated these laws as a
result of expiration dates and other restrictions they have placed on their
deals. Similar lawsuits have been filed in other locations in which we plan to
sell our Yelp Deals, such as the Canadian province of Ontario, alleging similar
violations of provincial legislation governing gift cards.
The application of various other laws and regulations to our products,
and particularly our Yelp Deals, is uncertain. These include laws and
regulations pertaining to unclaimed and abandoned property, partial redemption,
refunds, revenue-sharing restrictions on certain trade groups and professions,
sales and other local taxes and the sale of alcoholic beverages. For example,
although it is the responsibility of merchants to redeem or refund unexpired
Yelp Deals that they offer through our platform, the law might be interpreted to
require that we redeem or refund them. Because merchants alone, and not Yelp,
are in a position to track the redemption of Yelp Deals, we may not be able to
comply with such a requirement without substantial and potentially costly
changes to our infrastructure and business practices. In addition, we may
become, or be determined to be, subject to federal, state or foreign laws
regulating money transmitters or aimed at preventing money laundering or
terrorist financing, including the Bank Secrecy Act, the USA PATRIOT Act and
other similar future laws or regulations.
If we become subject to claims or are required to alter our business
practices as a result of current or future laws and regulations, our revenue
could decrease, our costs could increase and our business could otherwise be
harmed. In addition, the costs and expenses associated with defending any
actions related to such additional laws and regulations and any payments of
related penalties, fines, judgments or settlements could harm our business.
We may require additional capital to
support business growth, and this capital might not be available on acceptable
terms, if at all.
We intend to continue to make investments to support our business growth
and may require additional funds to respond to business challenges, including
the need to develop new features and products or enhance our existing services,
improve our operating infrastructure or acquire complementary businesses and
technologies. Accordingly, we may need to engage in equity or debt financings to
secure additional funds. If we raise additional funds through future issuances
of equity or convertible debt securities, our existing stockholders could suffer
significant dilution, and any new equity securities we issue could have rights,
preferences and privileges superior to those of holders of our Class A common
stock. Any debt financing we secure in the future could involve restrictive
covenants relating to our capital raising activities and other financial and
operational matters, which may make it more difficult for us to obtain
additional capital and to pursue business opportunities, including potential
acquisitions. We may not be able to obtain additional financing on terms
favorable to us, if at all. If we are unable to obtain adequate financing or
financing on terms satisfactory to us when we require it, our ability to
continue to support our business growth and to respond to business challenges
could be significantly impaired, and our business may be harmed.
We may acquire other companies or
technologies, which could divert our managements attention, result in
additional dilution to our stockholders and otherwise disrupt our operations and
harm our operating results.
Our success will depend, in part, on our ability to expand our product
offerings and grow our business in response to changing technologies, user and
advertiser demands and competitive pressures. In some circumstances, we may
determine to do so through the acquisition of complementary businesses or
technologies rather than through internal development. We do not have experience
acquiring other businesses and technologies. The pursuit of potential
acquisitions may divert the attention of management and cause us to incur
expenses in identifying, investigating and pursuing suitable acquisitions,
whether or not they are consummated. Furthermore, even if we successfully
acquire additional businesses or technologies, we may not be able to integrate
the acquired personnel, operations and technologies successfully, or effectively
manage the combined business following the acquisition. We also may not achieve
the anticipated benefits from the acquired business or technology. In addition,
we may unknowingly inherit liabilities from future acquisitions that arise after
the acquisition and are not adequately covered by indemnities. Acquisitions
could also result in dilutive issuances of equity securities or the incurrence
of debt, which could adversely affect our results of operations. If an acquired
business or technology fails to meet our expectations, our business, results of
operations and financial condition may suffer.
32
Our business is subject to the risks
of earthquakes, fires, floods and other natural catastrophic events and to
interruption by man-made problems such as computer viruses or terrorism.
Our systems and
operations are vulnerable to damage or interruption from earthquakes, fires,
floods, power losses, telecommunications failures, terrorist attacks, acts of
war, human errors, break-ins and similar events. For example, a significant
natural disaster, such as an earthquake, fire or flood, could have a material
adverse impact on our business, operating results and financial condition, and
our insurance coverage may be insufficient to compensate us for losses that may
occur. Our U.S. corporate offices and one of the facilities we lease to house
our computer and telecommunications equipment are located in the San Francisco
Bay Area, a region known for seismic activity. In addition, acts of terrorism,
which may be targeted at metropolitan areas that have higher population density
than rural areas, could cause disruptions in our or our local business
advertisers businesses or the economy as a whole. Our servers may also be
vulnerable to computer viruses, break-ins and similar disruptions from
unauthorized tampering with our computer systems, which could lead to
interruptions, delays, loss of critical data or the unauthorized disclosure of
confidential client data. We may not have sufficient protection or recovery
plans in certain circumstances, such as natural disasters affecting the San
Francisco Bay Area, and our business interruption insurance may be insufficient
to compensate us for losses that may occur. As we rely heavily on our servers,
computer and communications systems and the Internet to conduct our business and
provide high quality customer service, such disruptions could negatively impact
our ability to run our business and either directly or indirectly disrupt our
local business advertisers businesses, which could have an adverse affect on
our business, operating results and financial condition.
The intended tax benefits of our
corporate structure and intercompany arrangements depend on the application of
the tax laws of various jurisdictions and on how we operate our business.
Our corporate structure and intercompany arrangements, including the
manner in which we develop and use our intellectual property and the transfer
pricing of our intercompany transactions, are intended to reduce our worldwide
effective tax rate. The application of the tax laws of various jurisdictions,
including the United States, to our international business activities is subject
to interpretation and depends on our ability to operate our business in a manner
consistent with our corporate structure and intercompany arrangements. The
taxing authorities of the jurisdictions in which we operate may challenge our
methodologies for valuing developed technology or intercompany arrangements,
including our transfer pricing, or determine that the manner in which we operate
our business does not achieve the intended tax consequences, which could
increase our worldwide effective tax rate and harm our financial position and
results of operations.
Our corporate structure includes legal entities located in jurisdictions
with income tax rates lower than the U.S. statutory tax rate. Our intercompany
arrangements allocate income to such entities in accordance with arms-length
principles and commensurate with functions performed, risks assumed and
ownership of valuable corporate assets. We believe that income taxed in certain
foreign jurisdictions at a lower rate relative to the U.S. statutory rate will
have a beneficial impact on our worldwide effective tax rate.
Significant judgment is required in evaluating our tax positions and
determining our provision for income taxes. During the ordinary course of
business, there are many transactions and calculations for which the ultimate
tax determination is uncertain. For example, our effective tax rates could be
adversely affected by earnings being lower than anticipated in countries where
we have lower statutory rates and higher than anticipated in countries where we
have higher statutory rates, by changes in foreign currency exchange rates or by
changes in the relevant tax, accounting and other laws, regulations, principles
and interpretations. As we operate in numerous taxing jurisdictions, the
application of tax laws can be subject to diverging and sometimes conflicting
interpretations by tax authorities of these jurisdictions. It is not uncommon
for taxing authorities in different countries to have conflicting views, for
instance, with respect to, among other things, the manner in which the arms
length standard is applied for transfer pricing purposes, or with respect to the
valuation of intellectual property. In addition, tax laws are dynamic and
subject to change as new laws are passed and new interpretations of the law are
issued or applied. In particular, there is uncertainty in relation to the U.S.
tax legislation in terms of the future corporate tax rate but also in terms of
the U.S. tax consequences of income derived from income related to intellectual
property earned overseas in low tax jurisdictions.
Our existing corporate structure and intercompany arrangements have been
implemented in a manner we believe is in compliance with current prevailing tax
laws. However, the tax benefits which we intend to eventually derive could be
undermined if we are unable to adapt the manner in which we operate our business
and due to changing tax laws.
The enactment of legislation
implementing changes in the U.S. taxation of international business activities
or the adoption of other tax reform policies could materially impact our
financial condition and results of operations.
The current administration has made public statements indicating that it
has made international tax reform a priority, and key members of the U.S.
Congress have conducted hearings and proposed new legislation. Recent changes to
U.S. tax laws, including limitations on the ability of taxpayers to claim and
utilize foreign tax credits and the deferral of certain tax deductions until
earnings outside of the United States are repatriated to the United States, as
well as changes to U.S. tax laws that may be enacted in the future, could impact
the tax treatment of our foreign earnings. Due to the expanding scale of our
international business activities, any changes in the U.S. taxation of such
activities may increase our worldwide effective tax rate and harm our financial
condition and results of operations.
33
Risks Related to Ownership of Our Class
A Common Stock
The dual class structure of our
common stock has the effect of concentrating voting control with those
stockholders who held our stock prior to our initial public offering, including
our founders, directors, executive officers and employees and their affiliates,
and limiting your ability to influence corporate matters.
Our Class B
common stock has 10 votes per share, and our Class A common stock has one vote
per share. Stockholders who hold shares of Class B common stock, including our
founders, directors, executive officers and employees and their affiliates,
together beneficially own shares representing approximately 98.5% of the voting
power of our outstanding capital stock as of March 31, 2012. Consequently, the
holders of Class B common stock collectively will continue to be able to control
all matters submitted to our stockholders for approval even if their stock
holdings represent less than 50% of the outstanding shares of our common stock.
Because of the 10-to-1 voting ratio between our Class B and Class A common
stock, the holders of our Class B common stock collectively will continue to
control a majority of the combined voting power of our common stock even when
the shares of Class B common stock represent a small minority of all outstanding
shares of our Class A and Class B common stock. This concentrated control will
limit your ability to influence corporate matters for the foreseeable future,
and, as a result, the market price of our Class A common stock could be
adversely affected. Future transfers by holders of Class B common stock will
generally result in those shares converting to Class A common stock, which will
have the effect, over time, of increasing the relative voting power of those
holders of Class B common stock who retain their shares in the long term, which
may include existing founders, officers and directors and their affiliates.
Our share price has been and will
likely continue to be volatile.
The trading price of our Class A common stock has been, and is likely to
continue to be, highly volatile and could be subject to wide fluctuations in
response to various factors, some of which are beyond our control. Since shares
of our common stock were sold in our initial public offering in March 2012 at a
price of $15.00 per share, our stock price has ranged from $19.36 to $31.96
through April 30, 2012. In addition to the factors discussed in this Risk
Factors section and elsewhere in this Quarterly Report on Form 10-Q, factors
that may cause volatility in our share price include:
-
actual or anticipated fluctuations in
our financial condition and operating results;
-
changes in projected operating and
financial results;
-
actual or
anticipated changes in our growth rate relative to our competitors;
-
announcements of technological innovations or new offerings by us or
our competitors;
-
announcements by us or our competitors
of significant acquisitions, strategic partnerships,
joint ventures or capital-raising activities or commitments;
-
additions or departures of key
personnel;
-
issuance of research or reports by
securities analysts;
-
fluctuations in the valuation of
companies perceived by investors to be comparable to us;
-
sales of our Class A or Class B common
stock;
-
changes in laws or regulations
applicable to our solutions;
-
share price and volume fluctuations
attributable to inconsistent trading volume levels of our shares;
-
the expiration of contractual lock-up
agreements; and
-
general
economic and market conditions.
Furthermore, the
stock markets recently have experienced extreme price and volume fluctuations
that have affected and continue to affect the market prices of equity securities
of many companies. These fluctuations often have been unrelated or
disproportionate to the operating performance of those companies. These broad
market and industry fluctuations, as well as general economic, political and
market conditions such as recessions, interest rate changes or international
currency fluctuations, may negatively impact the market price of our Class A
common stock. In the past, companies that have experienced volatility in the
market price of their stock have been subject to securities class action
litigation. We may be the target of this type of litigation in the future.
Securities litigation against us could result in substantial costs and divert
our managements attention from other business concerns, which could harm our
business.
We do not intend to pay dividends
for the foreseeable future, and as a result your ability to achieve a return on
your investment will depend on appreciation in the price of our Class A common
stock.
We have never declared or paid any cash dividends on our common stock and
do not intend to pay any cash dividends in the foreseeable future. We anticipate
that we will retain all of our future earnings for use in the development of our
business and for general corporate purposes. Any determination to pay dividends
in the future will be at the discretion of our board of directors. Accordingly,
investors must rely on sales of their Class A common stock after price
appreciation, which may never occur, as the only way to realize any future gains
on their investments.
34
Anti-takeover provisions in our
charter documents and under Delaware law could make an acquisition of us more
difficult, limit attempts by our stockholders to replace or remove our current
management and limit the market price of our Class A common stock.
Provisions in our
certificate of incorporation and bylaws may have the effect of delaying or
preventing a change in control or changes in our management. Our amended and
restated certificate of incorporation and amended and restated bylaws include
provisions that:
-
authorize
our board of directors to issue, without further action by the stockholders,
up to 10,000,000 shares of undesignated preferred stock;
-
require that any action to be taken by
our stockholders be effected at a duly called annual or special meeting and
not by written consent;
-
specify that special meetings of our
stockholders can be called only by our board of directors, the Chair of our
board of directors, or our Chief Executive Officer;
-
establish an advance notice procedure
for stockholder proposals to be brought before an annual meeting, including
proposed nominations of persons for election to our board of directors;
-
establish that our board of directors is
divided into three classes, with directors in each class serving three-year
staggered terms;
-
prohibit cumulative voting in the
election of directors;
-
provide that vacancies on our board of
directors may be filled only by a majority of directors then in office, even
though less than a quorum;
-
require the approval of our board of
directors or the holders of a supermajority of our outstanding shares of
capital stock to amend our bylaws and certain provisions of our certificate of
incorporation; and
-
reflect two classes of common stock, as
discussed above.
These provisions
may frustrate or prevent any attempts by our stockholders to replace or remove
our current management by making it more difficult for stockholders to replace
members of our board of directors, which is responsible for appointing the
members of our management. In addition, because we are incorporated in Delaware,
we are governed by the provisions of Section 203 of the Delaware General
Corporation Law, which generally prohibits a Delaware corporation from engaging
in any of a broad range of business combinations with any interested
stockholder for a period of three years following the date on which the
stockholder became an interested stockholder.
If securities or industry analysts
do not publish research or reports about our business, or publish negative
reports about our business, our share price and trading volume could
decline.
The trading market for our Class A common stock, to some extent, depends
on the research and reports that securities or industry analysts publish about
us or our business. We do not have any control over these analysts. If one or
more of the analysts who cover us downgrade our shares or change their opinion
of our shares, our share price would likely decline. If one or more of these
analysts cease coverage of our company or fail to regularly publish reports on
us, we could lose visibility in the financial markets, which could cause our
share price or trading volume to decline.
Future sales of our Class A common
stock in the public market could cause our share price to decline.
We have a small public float relative to the total number of shares of
our Class A and Class B common stock that are issued and outstanding and a
substantial majority of our issued and outstanding shares are currently
restricted as a result of securities laws, lock-up agreements or other
contractual restrictions that restrict transfers.
Sales of a substantial number of shares of our Class A common stock in
the public market, or the perception that these sales might occur, could depress
the market price of our Class A common stock and could impair our ability to
raise capital through the sale of additional equity securities. Based on the
total number of outstanding shares of our common stock as of March 31, 2012, we
have 8,222,500 shares of Class A common stock and 52,909,098 shares of Class B
common stock outstanding, assuming no exercise of our outstanding options.
Upon completion of the release of the underwriters lockup from our IPO,
currently expected to occur late August or early September 2012, approximately
53 million shares will be eligible for sale upon the expiration of lock-up
agreements, subject in some cases to volume and other restrictions of Rule 144
and Rule 701 under the Securities Act. Sales of substantial amounts of our Class
A common stock in the public market following the release of the lock-up or
otherwise, or the perception that these sales could occur, could cause the
market price of our Class A common stock to decline.
35
The requirements of being a public
company may strain our resources, divert managements attention and affect our
ability to attract and retain qualified board members.
We are subject to
the reporting requirements of the Securities Exchange Act of 1934, as amended,
or the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing
requirements of the New York Stock Exchange and other applicable securities
rules and regulations. Compliance with these rules and regulations has increased
and will continue to increase our legal and financial compliance costs, make
some activities more difficult, time-consuming or costly, and increase demand on
our systems and resources. The Sarbanes-Oxley Act requires, among other things,
that we maintain effective disclosure controls and procedures and internal
control over financial reporting. In order to maintain and, if required, improve
our disclosure controls and procedures and internal control over financial
reporting to meet this standard, significant resources and management oversight
may be required. As a result, managements attention may be diverted from other
business concerns, which could harm our business and operating results. Although
we have hired additional employees to comply with these requirements, we may
need to hire more employees in the future, which will increase our costs and
expenses.
In addition, changing laws, regulations and standards relating to
corporate governance and public disclosure are creating uncertainty for public
companies, increasing legal and financial compliance costs and making some
activities more time consuming. These laws, regulations and standards are
subject to varying interpretations, in many cases due to their lack of
specificity, and, as a result, their application in practice may evolve over
time as new guidance is provided by regulatory and governing bodies. This could
result in continuing uncertainty regarding compliance matters and higher costs
necessitated by ongoing revisions to disclosure and governance practices. We
intend to invest resources to comply with evolving laws, regulations and
standards, and this investment may result in increased general and
administrative expenses and a diversion of managements time and attention from
revenue-generating activities to compliance activities. If our efforts to comply
with new laws, regulations and standards differ from the activities intended by
regulatory or governing bodies due to ambiguities related to practice,
regulatory authorities may initiate legal proceedings against us and our
business may be harmed.
We also expect that being a public company that is subject to these new
rules and regulations will make it more expensive for us to obtain director and
officer liability insurance, and we may be required to accept reduced coverage
or incur substantially higher costs to obtain coverage. These factors could also
make it more difficult for us to attract and retain qualified members of our
board of directors and qualified executive officers.
As a result of becoming a public
company, we will be obligated to develop and maintain proper and effective
internal controls over financial reporting. We may not complete our analysis of
our internal controls over financial reporting in a timely manner, or these
internal controls may not be determined to be effective, which may adversely
affect investor confidence in our company and, as a result, the value of our
Class A common stock.
We may be required, pursuant to Section 404 of the Sarbanes-Oxley Act, to
furnish a report by management on, among other things, the effectiveness of our
internal control over financial reporting for the fiscal year ending 2013. This
assessment will need to include disclosure of any material weaknesses identified
by our management in our internal control over financial reporting, as well as a
statement that our auditors have issued an attestation report on our
managements assessment of our internal controls. We are in the early stages of
the costly and challenging process of compiling the system and processing
documentation necessary to perform the evaluation needed to comply with Section
404. We may not be able to complete our evaluation, testing and any required
remediation in a timely fashion. During the evaluation and testing process, if
we identify one or more material weaknesses in our internal control over
financial reporting, we will be unable to assert that our internal controls are
effective. If we are unable to assert that our internal control over financial
reporting is effective, or if our auditors are unable to express an opinion on
the effectiveness of our internal controls, we could lose investor confidence in
the accuracy and completeness of our financial reports, which would cause the
price of our Class A common stock to decline.
ITEM 2. UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS
a)
Sale of Unregistered
Securities
From January 1, 2012 through March 31, 2012, we granted to employees
options to purchase an aggregate of 698,374 shares of common stock under our
2011 Equity Incentive Plan (the 2011 Plan), at an exercise price of $11.68 per
share.
From January 1, 2012 through March 31, 2012, we issued and sold to
employees, consultants and other service providers an aggregate of 183,694
shares of common stock upon the exercise of options under the 2005 and 2011 Plan
at exercise prices ranging from $0.20 to $11.68 per share, for an aggregate
exercise price of approximately $0.5 million.
From January 1, 2012 through March 31, 2012, we issued to employees an
aggregate of 1,250 shares of common stock pursuant to restricted stock awards
under the 2011 Plan.
36
The offers, sales and issuances of the securities described in Item 15(a) were deemed to be exempt from registration under the Securities Act under Rule 701 promulgated under the Securities Act as offers and sale of securities pursuant to certain compensatory benefit plans and contracts relating to compensation in compliance with Rule 701.
b)
Use of Proceeds from
Public Offering of Common Stock
On March 2, 2012, we closed our IPO, in which we sold 8,172,500 shares of
common stock at a price to the public of $15.00 per share. The aggregate
offering price for shares sold in the offering was approximately $122.6 million.
The offer and sale of all of the shares in the IPO were registered under the
Securities Act pursuant to a registration statement on Form S-1 (File No.
333-178030), which was declared effective by the SEC on February 16, 2012. The
offering commenced as of February 16, 2012 and did not terminate before all of
the securities registered in the registration statement were sold. Goldman,
Sachs & Co., Citigroup Global Markets Incorporated, Jefferies & Company,
Incorporated, Allen & Company LLC and Oppenheimer & Co. Incorporated,
acted as the underwriters. We raised approximately $111.4 million in net
proceeds after deducting underwriting discounts and commissions of approximately
$8.6 million and other offering expenses of approximately $2.6 million. No
payments were made by us to directors, officers or persons owning ten percent or
more of our common stock or to their associates, or to our affiliates, other
than payments in the ordinary course of business to officers for salaries. There
has been no material change in the planned use of proceeds from our IPO as
described in our final prospectus filed with the SEC on March 2, 2012 pursuant
to Rule 424(b) of the Securities Act. We invested the funds received in
registered money market funds.
c)
Issuer Purchases of Equity Securities
None
ITEM 5. OTHER INFORMATION
In June 2011, the Financial Accounting
Standards Board issued guidance on the presentation of comprehensive income in
financial statements. Entities are required to present total comprehensive
income either in a single, continuous statement of comprehensive income or in
two separate, but consecutive, statements. We adopted this standard as of
January 1, 2012, and will present net income and other comprehensive income in
two separate statements in our annual financial statements. The table below
reflects the retrospective application of this guidance for each of the three
years ended December 31
st
. The retrospective application did not have
a material impact on our financial condition or results of operations.
Yelp Inc.
Consolidated Statements of Comprehensive Income (Loss)
|
Year Ended December
31,
|
In thousands
|
2011
|
|
2010
|
|
2009
|
Net Loss
|
$
|
(16,668
|
)
|
|
$
|
(9,566
|
)
|
|
$
|
(2,308
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain(loss) on
short-term investments
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
Foreign currency
translation adjustments
|
|
298
|
|
|
|
(20
|
)
|
|
|
(7
|
)
|
Other comprehensive (loss) income
|
|
298
|
|
|
|
(20
|
)
|
|
|
(4
|
)
|
Comprehensive
Loss
|
$
|
(16,370
|
)
|
|
$
|
(9,586
|
)
|
|
$
|
(2,312
|
)
|
37
ITEM 6.
EXHIBITS
Exhibits
|
|
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3.1
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Amended and Restated Certificate of Incorporation of Yelp
Inc.(1)
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3.2
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Amended and Restated Bylaws of Yelp Inc.(2)
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10.1+
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Form
of Indemnification Agreement made by and between Registrant and each of
its directors and executive officers.(3)
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10.2+
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Amended and Restated Offer Letter, between Registrant and Geoff
Donaker, dated February 3, 2012.(4)
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10.3+
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Amended and Restated Offer Letter, between Registrant and Rob
Krolik, dated February 3, 2012.(5)
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10.4+
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Amended and Restated Offer Letter, between Registrant and Jed
Nachman, dated February 3, 2012.(6)
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10.5+
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Amended and Restated Offer Letter, between Registrant and Laurence
Wilson, dated February 3, 2012.(7)
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10.6+
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Offer
Letter, between Registrant and Jeremy Stoppelman, dated February 3,
2012.(8)
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10.7+
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2012
Equity Incentive Plan.(9)
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10.8+
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Form
of Option Agreement and Grant Notice and RSU Award Agreement and Grant
Notice under the 2012 Equity Incentive Plan.(10)
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10.9+
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2012
Employee Stock Purchase Plan.(11)
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10.10+
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Executive Severance Benefit Plan.(12)
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10.11*
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Lease
Agreement, between Yelp UK Limited and Knight Frank LLP, dated March 1,
2012
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31.1*
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|
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)
of the Securities Exchange Act of 1934 as Adopted Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
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31.2*
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Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)
of the Securities Exchange Act of 1934 as Adopted Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
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|
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32.1*
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Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.(13)
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32.2*
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Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.(13)
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101.INS*
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XBRL
Instance Document(14)
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101.SCH*
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XBRL
Taxonomy Extension Schema Document(14)
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101.CAL*
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|
XBRL
Taxonomy Extension Calculation Linkbase Document(14)
|
|
|
|
101.LAB*
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|
XBRL
Taxonomy Extension Labels Linkbase Document(14)
|
|
|
|
101.PRE*
|
|
XBRL
Taxonomy Extension Presentation Linkbase
Document(14)
|
|
|
|
101.DEF*
|
|
XBRL Taxonomy Extension Definition Linkbase Document(14)
|
38
____________________
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*
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Filed
herewith.
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(1)
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Filed
as Exhibit 3.1 to the Companys Current Report on Form 8-K filed with the
Securities and Exchange Commission on March 9, 2012 (File No. 000-35444),
and incorporated herein by reference.
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(2)
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Filed
as Exhibit 3.4 to the Companys Registration Statement on Form S-1, as
amended (File No. 333-178030), originally filed with the Securities and
Exchange Commission on November 17, 2011, and incorporated herein by
reference.
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(3)
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Filed as Exhibit 10.6
to the Companys Registration Statement on Form S-1, as amended (File No.
333-178030), originally filed with the Securities and Exchange Commission
on November 17, 2011, and incorporated herein by reference.
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(4)
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Filed as Exhibit 10.7
to the Companys Registration Statement on Form S-1, as amended (File No.
333-178030), originally filed with the Securities and Exchange Commission
on November 17, 2011, and incorporated herein by reference.
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(5)
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Filed as Exhibit 10.8
to the Companys Registration Statement on Form S-1, as amended (File No.
333-178030), originally filed with the Securities and Exchange Commission
on November 17, 2011, and incorporated herein by reference.
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(6)
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Filed as Exhibit 10.9
to the Companys Registration Statement on Form S-1, as amended (File No.
333-178030), originally filed with the Securities and Exchange Commission
on November 17, 2011, and incorporated herein by reference.
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(7)
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Filed as Exhibit
10.10 to the Companys Registration Statement on Form S-1, as amended
(File No. 333-178030), originally filed with the Securities and Exchange
Commission on November 17, 2011, and incorporated herein by
reference.
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(8)
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Filed as Exhibit
10.15 to the Companys Registration Statement on Form S-1, as amended
(File No. 333-178030), originally filed with the Securities and Exchange
Commission on November 17, 2011, and incorporated herein by
reference.
|
|
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(9)
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Filed as Exhibit
10.16 to the Companys Registration Statement on Form S-1, as amended
(File No. 333-178030), originally filed with the Securities and Exchange
Commission on November 17, 2011, and incorporated herein by
reference.
|
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(10)
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Filed as Exhibit
10.17 to the Companys Registration Statement on Form S-1, as amended
(File No. 333-178030), originally filed with the Securities and Exchange
Commission on November 17, 2011, and incorporated herein by
reference.
|
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(11)
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Filed as Exhibit
10.18 to the Companys Registration Statement on Form S-1, as amended
(File No. 333-178030), originally filed with the Securities and Exchange
Commission on November 17, 2011, and incorporated herein by
reference.
|
|
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(12)
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Filed as Exhibit
10.19 to the Companys Registration Statement on Form S-1, as amended
(File No. 333-178030), originally filed with the Securities and Exchange
Commission on November 17, 2011, and incorporated herein by
reference.
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(13)
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This certification
accompanies the Form 10-Q to which it relates, is not deemed filed with
the Securities and Exchange Commission and is not to be incorporated by
reference into any filing of the Registrant under the Securities Act of
1933, as amended, or the Securities Exchange Act of 1934, as amended
(whether made before or after the date of the Form 10-Q), irrespective of
any general incorporation language contained in such filing.
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(14)
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|
Pursuant to
applicable securities laws and regulations, the Registrant is deemed to
have complied with the reporting obligation relating to the submission of
interactive data files in such exhibits and is not subject to liability
under any anti-fraud provisions of the federal securities laws as long as
the Registrant has made a good faith attempt to comply with the submission
requirements and promptly amends the interactive data files after becoming
aware that the interactive data files fail to comply with the submission
requirements. These interactive data files are deemed not filed or part of
a registration statement or prospectus for purposes of sections 11 or 12
of the Securities Act of 1933, as amended, are deemed not filed for
purposes of section 18 of the Securities Exchange Act of 1934, as amended,
and otherwise are not subject to liability under these
sections.
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39
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
|
YELP INC.
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/s/ Rob
Krolik
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Rob
Krolik
|
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Chief Financial Officer
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(Principal Financial Officer and Duly Authorized
Signatory)
|
Date: May 4, 2012
40
INDEX TO EXHIBITS
Exhibits
|
|
|
3.1
|
|
Amended and Restated
Certificate of Incorporation of Yelp Inc.(1)
|
|
|
|
3.2
|
|
Amended and Restated
Bylaws of Yelp Inc.(2)
|
|
|
|
10.1+
|
|
Form of
Indemnification Agreement made by and between Registrant and each of its
directors and executive officers.(3)
|
|
|
|
10.2+
|
|
Amended and Restated
Offer Letter, between Registrant and Geoff Donaker, dated February 3,
2012.(4)
|
|
|
|
10.3+
|
|
Amended and Restated
Offer Letter, between Registrant and Rob Krolik, dated February 3,
2012.(5)
|
|
|
|
10.4+
|
|
Amended and Restated
Offer Letter, between Registrant and Jed Nachman, dated February 3,
2012.(6)
|
|
|
|
10.5+
|
|
Amended and Restated
Offer Letter, between Registrant and Laurence Wilson, dated February 3,
2012.(7)
|
|
|
|
10.6+
|
|
Offer Letter, between
Registrant and Jeremy Stoppelman, dated February 3, 2012.(8)
|
|
|
|
10.7+
|
|
2012 Equity Incentive
Plan.(9)
|
|
|
|
10.8+
|
|
Form of Option
Agreement and Grant Notice and RSU Award Agreement and Grant Notice under
the 2012 Equity Incentive Plan.(10)
|
|
|
|
10.9+
|
|
2012 Employee Stock
Purchase Plan.(11)
|
|
|
|
10.10+
|
|
Executive Severance
Benefit Plan.(12)
|
|
|
|
10.11*
|
|
Lease Agreement,
between Yelp UK Limited and Knight Frank LLP, dated March 1,
2012
|
|
31.1*
|
|
Certification of
Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934 as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
31.2*
|
|
Certification of
Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934 as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
32.1*
|
|
Certification of
Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.(13)
|
|
|
|
32.2*
|
|
Certification of
Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.(13)
|
|
|
|
101.INS*
|
|
XBRL Instance
Document(14)
|
|
|
|
101.SCH*
|
|
XBRL Taxonomy
Extension Schema Document(14)
|
|
|
|
101.CAL*
|
|
XBRL Taxonomy
Extension Calculation Linkbase Document(14)
|
|
|
|
101.LAB*
|
|
XBRL Taxonomy
Extension Labels Linkbase Document(14)
|
|
|
|
101.PRE*
|
|
XBRL Taxonomy
Extension Presentation Linkbase
Document(14)
|
|
|
|
101.DEF*
|
|
XBRL Taxonomy Extension Definition Linkbase Document(14)
|
41
____________________
|
*
|
|
Filed
herewith.
|
|
|
|
(1)
|
|
Filed
as Exhibit 3.1 to the Companys Current Report on Form 8-K filed with the
Securities and Exchange Commission on March 9, 2012 (File No. 000-35444),
and incorporated herein by reference.
|
|
|
|
(2)
|
|
Filed
as Exhibit 3.4 to the Companys Registration Statement on Form S-1, as
amended (File No. 333-178030), originally filed with the Securities and
Exchange Commission on November 17, 2011, and incorporated herein by
reference.
|
|
|
|
(3)
|
|
Filed
as Exhibit 10.6 to the Companys Registration Statement on Form S-1, as
amended (File No. 333-178030), originally filed with the Securities and
Exchange Commission on November 17, 2011, and incorporated herein by
reference.
|
|
|
|
|
|
(4)
|
|
Filed as Exhibit 10.7
to the Companys Registration Statement on Form S-1, as amended (File No.
333-178030), originally filed with the Securities and Exchange Commission
on November 17, 2011, and incorporated herein by reference.
|
|
|
|
(5)
|
|
Filed as Exhibit 10.8
to the Companys Registration Statement on Form S-1, as amended (File No.
333-178030), originally filed with the Securities and Exchange Commission
on November 17, 2011, and incorporated herein by reference.
|
|
|
|
(6)
|
|
Filed as Exhibit 10.9
to the Companys Registration Statement on Form S-1, as amended (File No.
333-178030), originally filed with the Securities and Exchange Commission
on November 17, 2011, and incorporated herein by reference.
|
|
|
|
(7)
|
|
Filed as Exhibit
10.10 to the Companys Registration Statement on Form S-1, as amended
(File No. 333-178030), originally filed with the Securities and Exchange
Commission on November 17, 2011, and incorporated herein by
reference.
|
|
|
|
(8)
|
|
Filed as Exhibit
10.15 to the Companys Registration Statement on Form S-1, as amended
(File No. 333-178030), originally filed with the Securities and Exchange
Commission on November 17, 2011, and incorporated herein by
reference.
|
|
|
|
(9)
|
|
Filed as Exhibit
10.16 to the Companys Registration Statement on Form S-1, as amended
(File No. 333-178030), originally filed with the Securities and Exchange
Commission on November 17, 2011, and incorporated herein by
reference.
|
|
|
|
(10)
|
|
Filed as Exhibit
10.17 to the Companys Registration Statement on Form S-1, as amended
(File No. 333-178030), originally filed with the Securities and Exchange
Commission on November 17, 2011, and incorporated herein by
reference.
|
|
|
|
(11)
|
|
Filed as Exhibit
10.18 to the Companys Registration Statement on Form S-1, as amended
(File No. 333-178030), originally filed with the Securities and Exchange
Commission on November 17, 2011, and incorporated herein by
reference.
|
|
|
|
(12)
|
|
Filed as Exhibit
10.19 to the Companys Registration Statement on Form S-1, as amended
(File No. 333-178030), originally filed with the Securities and Exchange
Commission on November 17, 2011, and incorporated herein by
reference.
|
|
|
|
(13)
|
|
This certification
accompanies the Form 10-Q to which it relates, is not deemed filed with
the Securities and Exchange Commission and is not to be incorporated by
reference into any filing of the Registrant under the Securities Act of
1933, as amended, or the Securities Exchange Act of 1934, as amended
(whether made before or after the date of the Form 10-Q), irrespective of
any general incorporation language contained in such filing.
|
|
|
|
(14)
|
|
Pursuant to
applicable securities laws and regulations, the Registrant is deemed to
have complied with the reporting obligation relating to the submission of
interactive data files in such exhibits and is not subject to liability
under any anti-fraud provisions of the federal securities laws as long as
the Registrant has made a good faith attempt to comply with the submission
requirements and promptly amends the interactive data files after becoming
aware that the interactive data files fail to comply with the submission
requirements. These interactive data files are deemed not filed or part of
a registration statement or prospectus for purposes of sections 11 or 12
of the Securities Act of 1933, as amended, are deemed not filed for
purposes of section 18 of the Securities Exchange Act of 1934, as amended,
and otherwise are not subject to liability under these
sections.
|
42
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