Table of Contents
UNITED
STATES SECURITIES AND
EXCHANGE COMMISSION Washington, D.C. 20549 |
|
|
Form
10-Q |
|
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 |
|
For the Quarterly Period Ended September 30, 2014 |
OR
|
o |
TRANSITION REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
|
For the Transition period
from to |
|
|
Commission file
number: 001-35444 |
|
YELP
INC. (Exact Name of
Registrant as Specified in Its Charter) |
|
Delaware |
|
20-1854266 |
(State or Other Jurisdiction of |
|
(I.R.S. Employer |
Incorporation or Organization) |
|
Identification No.) |
|
140 New Montgomery Street,
9th
Floor |
|
|
San Francisco, CA |
|
94105 |
(Address of Principal Executive
Offices) |
|
(Zip
Code) |
(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 x NO o
Indicate by
check mark whether the registrant has submitted electronically and posted on its
corporate Website, 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 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 the
definitions of large accelerated filer, accelerated filer and smaller
reporting company in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer x |
|
Accelerated filer o |
|
Non-accelerated filer (Do not check if a smaller reporting
company) o |
|
Smaller reporting company o |
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 October 17, 2014, there were 62,529,143 shares of registrant’s Class A common stock, par value $0.000001 per share, issued and
outstanding and 9,989,495 shares of registrant’s Class B common stock, par value $0.000001 per share, issued and outstanding.
Table of Contents
Yelp Inc.
Quarterly Report on Form 10-Q
Table of
Contents
Unless the context otherwise indicates, where we refer in this Quarterly
Report on Form 10-Q (the Quarterly Report) to our mobile application or
mobile app, we refer to all of our applications for mobile-enabled devices.
Similarly, references to our website refer to both the U.S. and international
versions of our website, as well as the versions of our website dedicated to
mobile-based browsers.
Table of Contents
PART I. FINANCIAL
INFORMATION
ITEM 1. FINANCIAL
STATEMENTS
YELP INC.
CONDENSED CONSOLIDATED
BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
|
September 30, |
|
December 31, |
|
2014 |
|
2013 |
Assets |
|
|
|
|
|
|
|
Current
assets: |
|
|
|
|
|
|
|
Cash and cash
equivalents |
$ |
290,567 |
|
|
$ |
389,764 |
|
Short-term marketable
securities |
|
73,527 |
|
|
|
|
|
Accounts receivable (net
of allowance for doubtful accounts of $1,267 and $810 at |
|
|
|
|
|
|
|
September 30, 2014 and
December 31, 2013, respectively) |
|
31,175 |
|
|
|
21,317 |
|
Prepaid expenses and
other current assets |
|
9,485 |
|
|
|
5,752 |
|
|
Total
current assets |
|
404,754 |
|
|
|
416,833 |
|
|
Long-term marketable securities |
|
53,621 |
|
|
|
|
|
Property, equipment and software, net |
|
43,333 |
|
|
|
30,666 |
|
Goodwill |
|
55,808 |
|
|
|
59,690 |
|
Intangibles, net |
|
4,541 |
|
|
|
5,235 |
|
Restricted cash |
|
12,986 |
|
|
|
3,247 |
|
Other
assets |
|
2,356 |
|
|
|
306 |
|
|
Total
assets |
$ |
577,399 |
|
|
$ |
515,977 |
|
|
Liabilities and stockholders equity |
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
Accounts
payable |
$ |
2,226 |
|
|
$ |
3,364 |
|
Accrued
liabilities |
|
27,415 |
|
|
|
19,004 |
|
Deferred
revenue |
|
2,145 |
|
|
|
2,621 |
|
Total
current liabilities |
|
31,786 |
|
|
|
24,989 |
|
|
Long-term liabilities |
|
6,990 |
|
|
|
4,505 |
|
|
Total
liabilities |
|
38,776 |
|
|
|
29,494 |
|
|
Commitments and contingencies (Note 10) |
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
|
|
|
|
|
Common stock, $0.000001
par value per share500,000,000 shares authorized; |
|
|
|
|
|
|
|
72,477,685 and 70,874,493
shares issued and outstanding at September 30, 2014 and |
|
|
|
|
|
|
|
December 31, 2013,
respectively |
|
|
|
|
|
|
|
Additional paid-in
capital |
|
607,012 |
|
|
|
553,753 |
|
Accumulated other
comprehensive income |
|
(1,678 |
) |
|
|
3,186 |
|
Accumulated
deficit |
|
(66,711 |
) |
|
|
(70,456 |
) |
|
Total
stockholders equity |
|
538,623 |
|
|
|
486,483 |
|
|
Total
liabilities and stockholders equity |
$ |
577,399 |
|
|
$ |
515,977 |
|
See notes to condensed
consolidated financial statements.
1
Table of Contents
YELP
INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(In thousands, except per share
data)
(Unaudited)
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September
30, |
|
September
30, |
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
Net revenue |
|
$ |
102,455 |
|
|
$ |
61,181 |
|
|
$ |
267,649 |
|
$ |
162,337 |
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
(exclusive of depreciation and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
amortization shown
separately below) |
|
|
6,174 |
|
|
|
4,277 |
|
|
|
17,096 |
|
|
11,635 |
|
Sales and
marketing |
|
|
54,551 |
|
|
|
34,126 |
|
|
|
147,470 |
|
|
93,123 |
|
Product
development |
|
|
17,397 |
|
|
|
11,208 |
|
|
|
46,105 |
|
|
26,441 |
|
General and
administrative |
|
|
15,185 |
|
|
|
10,535 |
|
|
|
41,612 |
|
|
29,447 |
|
Depreciation and
amortization |
|
|
4,604 |
|
|
|
2,816 |
|
|
|
12,299 |
|
|
7,931 |
|
Restructuring and
integration |
|
|
|
|
|
|
|
|
|
|
|
|
|
675 |
|
Total
costs and expenses |
|
|
97,911 |
|
|
|
62,962 |
|
|
|
264,582 |
|
|
169,252 |
|
|
Income (loss) from operations |
|
|
4,544 |
|
|
|
(1,781 |
) |
|
|
3,067 |
|
|
(6,915 |
) |
Other income (expense), net |
|
|
200 |
|
|
|
(31 |
) |
|
|
183 |
|
|
(298 |
) |
|
Income (loss) before income taxes |
|
|
4,744 |
|
|
|
(1,812 |
) |
|
|
3,250 |
|
|
(7,213 |
) |
Benefit (provision) for income
taxes |
|
|
(1,107 |
) |
|
|
(510 |
) |
|
|
495 |
|
|
(786 |
) |
|
Net
income (loss) attributable to common stockholders (Class A and
B) |
|
$ |
3,637 |
|
|
$ |
(2,322 |
) |
|
$ |
3,745 |
|
$ |
(7,999 |
) |
|
Net income (loss) per share attributable to
common stockholders (Class A and Class B) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.05 |
|
|
$ |
(0.04 |
) |
|
$ |
0.05 |
|
$ |
(0.12 |
) |
|
Diluted |
|
$ |
0.05 |
|
|
$ |
(0.04 |
) |
|
$ |
0.05 |
|
$ |
(0.12 |
) |
|
Weighted-average shares used to compute net income (loss) per
share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
attributable to common stockholders (Class A and Class B) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
72,195 |
|
|
|
65,530 |
|
|
|
71,697 |
|
|
64,620 |
|
|
Diluted |
|
|
77,296 |
|
|
|
65,530 |
|
|
|
76,732 |
|
|
64,620 |
|
See notes to condensed
consolidated financial statements.
2
Table of Contents
YELP INC.
CONDENSED CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
|
Three Months Ended |
|
Nine Months Ended |
|
September
30, |
|
September
30, |
|
2014 |
|
2013 |
|
2014 |
|
2013 |
Net
income (loss) |
$ |
3,637 |
|
|
$ |
(2,322 |
) |
|
$ |
3,745 |
|
|
$ |
(7,999 |
) |
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments |
|
(4,442 |
) |
|
|
2,333 |
|
|
|
(4,864 |
) |
|
|
1,338 |
|
Other comprehensive income (loss) |
|
(4,442 |
) |
|
|
2,333 |
|
|
|
(4,864 |
) |
|
|
1,338 |
|
|
Comprehensive income (loss) |
$ |
(805 |
) |
|
$ |
11 |
|
|
$ |
(1,119 |
) |
|
$ |
(6,661 |
) |
See notes to condensed
consolidated financial statements.
3
Table of Contents
YELP INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
Nine Months Ended
September 30, |
|
2014 |
|
2013 |
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
Net
income (loss) |
$ |
3,745 |
|
|
$ |
(7,999 |
) |
Adjustments
to reconcile net income (loss) to net cash provided by |
|
|
|
|
|
|
|
operating
activities: |
|
|
|
|
|
|
|
Depreciation
and amortization |
|
12,299 |
|
|
|
7,931 |
|
Provision
for doubtful accounts and sales returns |
|
3,894 |
|
|
|
2,178 |
|
Stock-based
compensation |
|
30,457 |
|
|
|
17,888 |
|
(Gain)
loss on disposal of assets and website development costs |
|
(5 |
) |
|
|
188 |
|
Premium
amortization, net, on securities held-to-maturity |
|
212 |
|
|
|
|
|
Excess
tax benefit from share-based award activity |
|
(899 |
) |
|
|
|
|
Changes
in operating assets and liabilities: |
|
|
|
|
|
|
|
Accounts
receivable |
|
(13,772 |
) |
|
|
(7,557 |
) |
Prepaid
expenses and other assets |
|
(7,338 |
) |
|
|
(3,020 |
) |
Accounts
payable and accrued expenses |
|
10,899 |
|
|
|
3,179 |
|
Deferred
revenue |
|
(453 |
) |
|
|
(680 |
) |
|
Net
cash provided by operating activities |
|
39,039 |
|
|
|
12,108 |
|
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
Acquisition
of SeatMe, net of cash acquired |
|
|
|
|
|
(2,057 |
) |
Purchases
of property, equipment and software |
|
(12,743 |
) |
|
|
(9,547 |
) |
Capitalized
website and software development costs |
|
(7,969 |
) |
|
|
(3,265 |
) |
Change
in restricted cash |
|
(9,756 |
) |
|
|
(1,768 |
) |
Purchases
of intangibles |
|
(1,334 |
) |
|
|
|
|
Proceeds
from sale of property and equipment |
|
14 |
|
|
|
|
|
Goodwill
measurement period adjustment |
|
|
|
|
|
1,153 |
|
Purchases
of marketable securities |
|
(148,359 |
) |
|
|
|
|
Maturities
of marketable securities |
|
21,000 |
|
|
|
|
|
|
Net
cash used in investing activities |
|
(159,147 |
) |
|
|
(15,484 |
) |
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
Proceeds
from exercise of employee stock options |
|
17,316 |
|
|
|
9,702 |
|
Proceeds
from issuance of common stock for Employee Stock Purchase Plan |
|
4,087 |
|
|
|
|
|
Excess
tax benefit from share-based award activity |
|
899 |
|
|
|
|
|
Repurchase
of common stock |
|
(1,035 |
) |
|
|
(368 |
) |
|
Net
cash provided by financing activities |
|
21,267 |
|
|
|
9,334 |
|
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH |
|
|
|
|
|
|
|
EQUIVALENTS |
|
(356 |
) |
|
|
132 |
|
|
CHANGE IN CASH AND CASH EQUIVALENTS |
|
(99,197 |
) |
|
|
6,090 |
|
CASH
AND CASH EQUIVALENTSBeginning of period |
|
389,764 |
|
|
|
95,124 |
|
CASH
AND CASH EQUIVALENTSEnd of period |
$ |
290,567 |
|
|
$ |
101,214 |
|
|
SUPPLEMENTAL DISCLOSURES OF OTHER CASH
FLOW |
|
|
|
|
|
|
|
INFORMATION: |
|
|
|
|
|
|
|
Cash
paid for income taxes, net of refunds |
$ |
486 |
|
|
$ |
116 |
|
|
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
AND |
|
|
|
|
|
|
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
Purchases
of property and equipment recorded in accounts payable and |
|
|
|
|
|
|
|
accruals |
$ |
2,160 |
|
|
$ |
3,878 |
|
Capitalized
website and software development costs recorded in accounts |
|
|
|
|
|
|
|
payable
and accruals |
$ |
190 |
|
|
$ |
31 |
|
See notes to condensed
consolidated financial statements.
4
Table of Contents
YELP INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. DESCRIPTION OF
BUSINESS AND BASIS OF PRESENTATION
Yelp Inc. was incorporated
in Delaware on September 3, 2004. Except where specifically noted or the context
otherwise requires, the use of terms such as the Company and Yelp in these
Notes to Condensed Consolidated Financial Statements refers to Yelp Inc. and its
subsidiaries.
Yelp connects people with
great local businesses. Yelps 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 of all sizes use the Yelp platform to engage
with consumers at the critical moment when they are deciding where to spend
their money.
Basis of
Presentation
The accompanying interim
condensed consolidated financial statements are unaudited. These unaudited
interim condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America (GAAP) and applicable rules and regulations of the U.S. Securities and
Exchange Commission (SEC) regarding interim financial reporting. Certain
information and note disclosures normally included in the financial statements
prepared in accordance with GAAP have been condensed or omitted pursuant to such
rules and regulations. Accordingly, these unaudited interim condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements contained in the Companys Annual Report on
Form 10-K filed with the SEC on March 3, 2014 (the Annual Report). The
unaudited condensed consolidated balance sheet as of December 31, 2013 included
herein was derived from the audited consolidated financial statements as of that
date but does not include all disclosures required by GAAP, including certain
notes to the financial statements.
The unaudited interim
condensed consolidated financial statements have been prepared on the same basis
as the audited consolidated financial statements and, in the opinion of
management, include all adjustments of a normal recurring nature necessary for
the fair presentation of the interim periods presented.
Significant
Accounting Policies
The Company determines the
classification of its marketable securities at the time of purchase and
re-evaluates these determinations at each balance sheet date. Debt securities
are classified as held-to-maturity when the Company has the positive intent and
ability to hold the securities to maturity. Held-to-maturity securities are
stated at amortized cost and are periodically assessed for other-than-temporary
impairment. Amortized cost of debt securities is adjusted for amortization of
premiums and accretion of discounts to maturity, and is included in interest
income. Held-to-maturity securities with less than one year to maturity are
included in short-term marketable securities. All other held-to-maturity
securities are classified as long-term.
There have been no other
material changes to the Companys significant accounting policies, as compared
to the significant accounting policies described in the Annual Report.
Recent Accounting
Pronouncements Not Yet Effective
In May 2014, the Financial
Accounting Standards Board issued Accounting Standards Update 2014-09,
Revenue from Contracts with
Customers (ASU 2014-09), which
amended the existing accounting standards for revenue recognition. ASU 2014-09
establishes principles for recognizing revenue upon the transfer of promised
goods or services to customers, in an amount that reflects the consideration
expected to be received in exchange for those goods or services. The updated
standard will replace most existing GAAP revenue recognition guidance when it
becomes effective, and permits the use of either the retrospective or cumulative
effect transition method. Early adoption of this accounting standard is not
permitted. ASU 2014-09 will become effective for the Company in the first
quarter of the year ending December 31, 2017. The Company has not yet selected a
transition method and is currently evaluating the effect that ASU 2014-09 will
have on its consolidated financial statements and related disclosures.
In August 2014, the
Financial Accounting Standards Board issued Accounting Standards Update 2014-15,
Presentation of Financial
Statements Going Concern (Subtopic 205-40). The new guidance addresses managements
responsibility to evaluate whether there is substantial doubt about an entitys
ability to continue as a going concern and to provide related footnote
disclosures. Managements evaluation should be based on relevant conditions and
events that are known and reasonably knowable at the date that the financial
statements are issued. The standard will be effective for the first interim
period within annual reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company does
not expect to early adopt this guidance and does not believe that the adoption
of this guidance will have a material impact on its consolidated financial
statements.
5
Table of Contents
Principles of
Consolidation
These unaudited interim
condensed consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All intercompany accounts and transactions
have been eliminated in consolidation.
Use of
Estimates
The preparation of the
Companys unaudited interim condensed consolidated financial statements in
conformity with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the condensed consolidated
financial statements and the reported amounts of income and expenses during the
reporting period. These estimates are based on information available as of the
date of the unaudited interim condensed consolidated financial statements;
therefore, actual results could differ from managements estimates.
2. FAIR VALUE OF
FINANCIAL INSTRUMENTS
The Companys investments
in money market accounts are recorded at fair value in the condensed
consolidated balance sheets. All other financial instruments are classified as
held-to-maturity investments and accordingly are recorded at amortized cost;
however, the Company is required to determine the fair value of these
investments on a recurring basis to identify any potential impairment. The
accounting guidance for fair value measurements prioritizes the inputs used in
measuring fair value in the following hierarchy:
Level 1Observable inputs, such as quoted prices in
active markets,
Level 2Inputs other than the quoted prices in active
markets that are observable directly or indirectly, or
Level 3Unobservable 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. The Companys money market
funds and U.S. government bonds are classified within Level 1 of the fair value
hierarchy because they are valued using quoted prices in active markets. The
Companys commercial paper, corporate bonds and agency bonds are classified
within Level 2 of the fair value hierarchy because they have been valued using
inputs other than quoted prices in active markets that are observable directly
or indirectly.
The following table
represents the Companys financial instruments measured at fair value as of
September 30, 2014 and December 31, 2013 (in thousands):
|
September 30,
2014 |
|
December 31,
2013 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
Money market funds(1) |
$ |
238,499 |
|
$ |
|
|
$ |
|
|
$ |
238,499 |
|
$ |
360,690 |
|
$ |
|
|
$ |
|
|
$ |
360,690 |
U.S.
government bonds |
|
5,010 |
|
|
|
|
|
|
|
|
5,010 |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper |
|
|
|
|
31,994 |
|
|
|
|
|
31,994 |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
|
|
|
24,480 |
|
|
|
|
|
24,480 |
|
|
|
|
|
|
|
|
|
|
|
|
Agency bonds |
|
|
|
|
65,618 |
|
|
|
|
|
65,618 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
$ |
243,509 |
|
$ |
122,092 |
|
$ |
|
|
$ |
365,601 |
|
$ |
360,690 |
|
$ |
|
|
$ |
|
|
$ |
360,690 |
(1) |
Included
in cash and cash equivalents on the condensed consolidated balance
sheets. |
6
Table of Contents
3. MARKETABLE SECURITIES
The amortized cost, gross
unrealized gains and losses, and fair value of securities held-to-maturity, all
of which mature within two years, as of September 30, 2014 are as follows (in
thousands):
|
|
As of September 30,
2014 |
|
|
|
|
|
Gross |
|
Gross |
|
|
|
|
|
|
|
|
Unrealized |
|
Unrealized |
|
|
|
|
|
Amortized
Cost |
|
Gains |
|
Losses |
|
Fair
Value |
Short-term
marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
paper |
|
$ |
31,994 |
|
$ |
|
|
$ |
|
|
|
$ |
31,994 |
Corporate
bonds |
|
|
14,436 |
|
|
|
|
|
(18 |
) |
|
|
14,418 |
Agency bonds |
|
|
27,097 |
|
|
1 |
|
|
(3 |
) |
|
|
27,095 |
|
|
$ |
73,527 |
|
$ |
1 |
|
$ |
(21 |
) |
|
$ |
73,507 |
|
Long-term marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
bonds |
|
$ |
10,053 |
|
$ |
10 |
|
$ |
(1 |
) |
|
$ |
10,062 |
Agency bonds |
|
|
38,560 |
|
|
1 |
|
|
(38 |
) |
|
|
38,523 |
U.S. government
bonds |
|
|
5,008 |
|
|
2 |
|
|
|
|
|
|
5,010 |
|
|
$ |
53,621 |
|
$ |
13 |
|
$ |
(39 |
) |
|
$ |
53,595 |
|
Total marketable securities |
|
$ |
127,148 |
|
$ |
14 |
|
$ |
(60 |
) |
|
$ |
127,102 |
The following table
presents gross unrealized losses and fair values for those securities that were
in an unrealized loss position as of September 30, 2014, aggregated by
investment category and the length of time that the individual securities have
been in a continuous loss position (in thousands):
|
|
As of
September 30, 2014 |
|
|
Less Than
12 Months |
|
12 Months
or Greater |
|
Total |
|
|
Fair
Value |
|
Unrealized
Loss |
|
Fair
Value |
|
Unrealized
Loss |
|
Fair
Value |
|
Unrealized
Loss |
Corporate bonds |
|
$ |
17,453 |
|
$ |
(19 |
) |
|
$ |
|
|
$ |
|
|
|
$ |
17,453 |
|
$ |
(19 |
) |
Agency bonds |
|
|
46,534 |
|
|
(41 |
) |
|
|
|
|
|
|
|
|
|
46,534 |
|
|
(41 |
) |
|
Total |
|
$ |
63,987 |
|
$ |
(60 |
) |
|
$ |
|
|
$ |
|
|
|
$ |
63,987 |
|
$ |
(60 |
) |
7
Table of Contents
The Company periodically
reviews its investment portfolio for other-than-temporary impairment. The
Company considers such factors as the duration, severity and reason for the
decline in value, and the potential recovery period. The Company also considers
whether it is more likely than not that it will be required to sell the
securities before recovery of their amortized cost basis, and whether the
amortized cost basis cannot be recovered as a result of credit losses. During
the three and nine months ended September 30, 2014, the Company did not
recognize any other-than-temporary impairment loss. The Company had no
investments in marketable securities outside of money market funds prior to
April 1, 2014.
4. ACQUISITIONS
SeatMe, Inc.
On July 24, 2013, the
Company acquired SeatMe, Inc. (SeatMe). In connection with the acquisition,
all of the outstanding capital stock and options to purchase capital stock of
SeatMe were converted into the right to receive an aggregate of approximately
$2.2 million in cash and 260,901 shares of Yelp Class A common stock with an
aggregate fair value of approximately $9.7 million, as determined on the basis
of the closing market price of the Companys Class A common stock on the
acquisition date. Of the total consideration paid in connection with the
acquisition, $0.1 million in cash and 31,236 shares of Yelp Class A common stock
were initially held in escrow to secure indemnification obligations. The key
factor underlying the acquisition was securing the technology to provide online
reservations directly through the Companys website with minimal product and
engineering work.
The acquisition was
accounted for as a business combination in accordance with Accounting Standards
Codification Topic 805, Business
Combinations (ASC 805), with
the results of SeatMes operations included in the Companys consolidated
financial statements starting on July 24, 2013. The following table summarizes
the consideration paid for SeatMe and the allocation of the purchase
price, based on the estimated fair value of the assets acquired and liabilities
assumed at the acquisition date (in thousands):
|
|
July 24,
2013 |
Fair
value of purchase consideration: |
|
|
|
Cash: |
|
|
|
Distributed to SeatMe equity holders |
|
$ |
2,057 |
Held in escrow account |
|
|
56 |
Class A common
stock: |
|
|
|
Distributed to SeatMe equity holders |
|
|
8,420 |
Held in escrow account |
|
|
1,246 |
Total purchase consideration |
|
$ |
11,779 |
|
Fair
value of net assets acquired: |
|
|
|
Cash and cash equivalents |
|
$ |
56 |
Property and equipment |
|
|
47 |
Intangibles |
|
|
1,440 |
Goodwill |
|
|
10,279 |
Other assets |
|
|
117 |
Total assets acquired |
|
|
11,939 |
Total liabilities assumed |
|
|
160 |
Net assets acquired |
|
$ |
11,779 |
8
Table of Contents
Estimated useful lives of
the intangible assets acquired are shown below:
Intangible Type |
|
Useful Life |
Developed technology |
|
6 years |
Customer relationships |
|
2
years |
Trade name |
|
2 years |
Weighted
average |
|
5.6
years |
The intangible assets are
being amortized on a straight-line basis, which reflects the pattern in which
the economic benefits of the intangible assets are being utilized. The goodwill
results from the Companys opportunity to offer its customers and leverage the
SeatMe web- and app-based reservation solution. None of the goodwill is
deductible for tax purposes.
Net revenues, earnings
since the acquisition and pro forma results of operations for this acquisition
have not been presented because they are not material to the consolidated
results of operations, either individually or in aggregate.
Qype
GmbH
On October 23, 2012, the
Company, through its wholly-owned subsidiary, Yelp Ireland Ltd., completed the
acquisition of all the outstanding equity interests of Qype GmbH and its
subsidiaries (collectively, Qype) for approximately $24.3 million in cash and
Yelp Class A common stock with an approximate fair value of $23.3 million. Of
the total consideration paid in connection with the acquisition, $10.3 million
was held in the form of cash in escrow to secure indemnification obligations.
The balance remaining in the escrow fund relating to this acquisition was
approximately $8.8 million as of September 30, 2014. The acquisition was
accounted for as a business combination in accordance with ASC 805, with the
results of Qypes operations included in the Companys consolidated financial
statements starting on October 23, 2012. The key factors underlying the
acquisition were to secure an established European market presence, obtain
Qypes content and traffic and provide the company with a better opportunity for expansion.
In October 2012, following
the acquisition of Qype, the Company announced its plan to reduce the size of
the Qype workforce and terminate several of Qypes leases. These actions were
made in order to reduce the Companys cost structure, enhance operating
efficiencies and strengthen the Companys business to achieve long-term
profitable growth. As a result of this plan, the Company incurred restructuring
charges during the fourth quarter of 2012 and the first quarter of 2013, which
were included in the restructuring and integration costs in the consolidated
statements of operations for such periods. The Company recorded restructuring
charges of $1.9 million through December 31, 2013. The remaining restructuring
liability was zero as of September 30, 2014 and was immaterial as of December
31, 2013.
5. CASH AND CASH
EQUIVALENTS
Cash and cash equivalents
as of September 30, 2014 and December 31, 2013 consist of the following (in
thousands):
|
|
September 30, |
|
December 31, |
|
|
2014 |
|
2013 |
Cash
and cash equivalents |
|
|
|
|
|
|
Cash |
|
$ |
52,068 |
|
$ |
29,074 |
Money
market funds |
|
|
238,499 |
|
|
360,690 |
Total cash and cash equivalents |
|
$ |
290,567 |
|
$ |
389,764 |
In addition, the lease
agreements for certain of the Companys offices require the Company to maintain
letters of credit issued to landlords of each facility. Each letter of credit is
subject to renewal annually until the applicable lease expires and is
collateralized by restricted cash. As of September 30, 2014 and December 31,
2013, the Company had restricted cash in the aggregate amount of $13.0 million
and $3.2 million, respectively, related to such letters of credit.
6. PROPERTY, EQUIPMENT
AND SOFTWARE, NET
Property, equipment and
software, net as of September 30, 2014 and December 31, 2013 consist of the
following (in thousands):
|
|
September 30, |
|
December 31, |
|
|
2014 |
|
2013 |
Computer equipment |
|
$ |
17,181 |
|
|
$ |
13,348 |
|
Software |
|
|
639 |
|
|
|
541 |
|
Capitalized website and internal-use software
development costs |
|
|
23,207 |
|
|
|
13,878 |
|
Furniture and fixtures |
|
|
5,564 |
|
|
|
4,388 |
|
Leasehold improvements |
|
|
21,051 |
|
|
|
13,984 |
|
Telecommunication |
|
|
2,583 |
|
|
|
2,179 |
|
Total |
|
|
70,225 |
|
|
|
48,318 |
|
Less
accumulated depreciation |
|
|
(26,892 |
) |
|
|
(17,652 |
) |
Property, equipment and software, net |
|
$ |
43,333 |
|
|
$ |
30,666 |
|
9
Table of Contents
Depreciation expense for
the three months ended September 30, 2014 and 2013 was approximately $3.7
million and $1.9 million, respectively, and for the nine months ended September
30, 2014 and 2013, depreciation expense was approximately $9.6 million and $5.3
million, respectively.
7. GOODWILL AND
INTANGIBLE ASSETS
The Companys goodwill is
the result of the acquisition of Qype on October 23, 2012 and the acquisition of
SeatMe on July 24, 2013, and represents the excess of purchase consideration
over the fair value of assets and liabilities acquired.
The changes in the carrying
amount of goodwill during the nine months ended September 30, 2014 were as
follows (in thousands):
Balance as of December 31, 2013 |
|
$ |
59,690 |
|
Effect of currency translation |
|
|
(3,882 |
) |
Balance as of September 30, 2014 |
|
$ |
55,808 |
|
Intangible assets at
September 30, 2014 and December 31, 2013 consist of the following (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Gross |
|
|
|
|
|
Net |
|
Average |
|
|
Carrying |
|
Accumulated |
|
Carrying |
|
Remaining |
|
|
Amount |
|
Amortization |
|
Amount |
|
Life |
September 30, 2014: |
|
|
|
|
|
|
|
|
|
|
|
|
Content |
|
$ |
3,221 |
|
$ |
(1,248 |
) |
|
$ |
1,973 |
|
3.1
years |
Advertiser
relationships |
|
|
1,936 |
|
|
(1,875 |
) |
|
|
61 |
|
0.1 years |
Developed
technology |
|
|
1,808 |
|
|
(749 |
) |
|
|
1,059 |
|
4.7
years |
Data licenses |
|
|
1,335 |
|
|
(27 |
) |
|
|
1,308 |
|
4.9 years |
Trade name and
other |
|
|
521 |
|
|
(452 |
) |
|
|
69 |
|
0.7
years |
Domains |
|
|
250 |
|
|
(179 |
) |
|
|
71 |
|
3.6 years |
|
|
$ |
9,072 |
|
$ |
(4,531 |
) |
|
$ |
4,541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Gross |
|
|
|
|
|
Net |
|
Average |
|
|
Carrying |
|
Accumulated |
|
Carrying |
|
Remaining |
|
|
Amount |
|
Amortization |
|
Amount |
|
Life |
December 31, 2013: |
|
|
|
|
|
|
|
|
|
|
|
|
Content |
|
$ |
3,413 |
|
$ |
(811 |
) |
|
$ |
2,602 |
|
3.8
years |
Advertiser
relationships |
|
|
2,045 |
|
|
(1,214 |
) |
|
|
831 |
|
2.0 years |
Developed
technology |
|
|
1,851 |
|
|
(422 |
) |
|
|
1,429 |
|
4.8
years |
Trade name and
other |
|
|
553 |
|
|
(276 |
) |
|
|
277 |
|
1.1 years |
Domains |
|
|
250 |
|
|
(154 |
) |
|
|
96 |
|
3.9
years |
|
|
$ |
8,112 |
|
$ |
(2,877 |
) |
|
$ |
5,235 |
|
|
Amortization expense was $0.6 million for each of the three months ended September 30, 2014 and 2013, and $1.9 million and $1.6 million for the nine months ended September 30, 2014 and 2013, respectively.
As of September 30, 2014,
the estimated future amortization of purchased intangible assets for (i) the
remaining three months of 2014, (ii) each of the succeeding four years and (iii)
the succeeding fifth year and thereafter are as follows (in thousands):
Year Ending December 31, |
|
Amount |
2014
(from October 1, 2014) |
|
$ |
378 |
2015 |
|
|
1,109 |
2016 |
|
|
1,069 |
2017 |
|
|
943 |
2018 |
|
|
418 |
2019
and thereafter |
|
|
624 |
Total amortization |
|
$ |
4,541 |
10
Table of Contents
8. ACCRUED
LIABILITIES
Accrued liabilities as of
September 30, 2014 and December 31, 2013 consist of the following (in
thousands):
|
|
September 30, |
|
December 31, |
|
|
2014 |
|
2013 |
Accrued employee related expenses |
|
$ |
4,193 |
|
$ |
1,784 |
Accrued vacation |
|
|
4,608 |
|
|
2,950 |
Accrued commissions |
|
|
4,653 |
|
|
3,707 |
Accrued sales and marketing |
|
|
1,933 |
|
|
117 |
Accrued payroll tax |
|
|
1,814 |
|
|
1,508 |
Fixed asset purchase commitments |
|
|
1,737 |
|
|
2,247 |
Deferred rent |
|
|
1,442 |
|
|
298 |
Accrued legal |
|
|
1,194 |
|
|
656 |
Accrued taxes |
|
|
1,048 |
|
|
1,837 |
Merchant revenue share liability |
|
|
969 |
|
|
932 |
Other accrued expenses |
|
|
3,824 |
|
|
2,968 |
Total |
|
$ |
27,415 |
|
$ |
19,004 |
9. OTHER INCOME
(EXPENSE), NET
Other income (expense), net
for the three and nine months ended September 30, 2014 and 2013 consists of the
following (in thousands):
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September
30, |
|
September
30, |
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
Interest income |
|
$ |
222 |
|
|
$ |
11 |
|
|
458 |
|
|
$ |
41 |
|
Transaction gain (loss) on foreign exchange |
|
|
98 |
|
|
|
50 |
|
|
(79 |
) |
|
|
(173 |
) |
Other non-operating income (loss), net |
|
|
(120 |
) |
|
|
(92 |
) |
|
(196 |
) |
|
|
(166 |
) |
Other income (expense),
net |
|
$ |
200 |
|
|
$ |
(31 |
) |
|
183 |
|
|
$ |
(298 |
) |
10. COMMITMENTS AND
CONTINGENCIES
Office Facility
Leases The Company leases its
office facilities under operating lease agreements that expire from November
2014 to April 2025. Certain lease agreements provide for rental payments on a
graduated basis. The Company recognizes rent expense on a straight-line basis
over the lease period. Rental expense was $3.5 million and $2.3 million for the
three months ended September 30, 2014 and 2013, respectively, and was $10.8
million and $5.5 million for the nine months ended September 30, 2014 and 2013,
respectively.
Legal
Proceedings 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, the Company currently does not believe that the final outcome of any
of these matters will have a material adverse effect on the Companys business,
financial position, results of operations or cash flows.
11
Table of Contents
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 and Professions Code,
extortion and attempted extortion based on the conduct the plaintiffs allege and
seeking monetary relief in an unspecified amount and injunctive relief. In
October 2011, the court dismissed this consolidated action with prejudice. The
plaintiffs appealed to the U.S. Court of Appeals for the Ninth Circuit, which
affirmed the dismissal of the consolidated action on September 2, 2014. The
plaintiffs have petitioned the Ninth Circuit for a rehearing. Accordingly, the
Company is currently unable to reasonably estimate either the probability of
incurring a loss or an estimated range of such loss, if any, from this 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 and Professions Code seeking
monetary relief in an unspecified amount. In December 2012, the court issued a
judgment giving final approval to a settlement of this matter, without any
admission of liability on the Companys part, for payments by the Company in an
aggregate amount of approximately $0.8 million. The Company had originally
accrued for a settlement of approximately $1.3 million in the year ended
December 31, 2010. The accrual was adjusted in the quarter ended December 31,
2012 for the final settlement amount, which was paid in the first quarter of
2013.
On August 6, 2014, a putative class action lawsuit alleging violations of federal securities laws was filed in the U.S. District Court for the Northern District of California, naming as defendants the Company and certain of the Companys officers. An additional lawsuit containing similar claims was filed in the same court on August 25, 2014. The lawsuits allege violations of the Securities Exchange Act of 1934, as amended, by the Company and the Companys officers for making allegedly materially false and misleading statements regarding the Company's business and operations between October 29, 2013 and April 3, 2014. The plaintiffs seek unspecified monetary damages and other relief.
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.
While the outcome of these
matters cannot be predicted with certainty, the Company does not believe that
the outcome of any claims under indemnification arrangements will have a
material effect on the Companys business, financial position, results of
operations or cash flows.
11. STOCKHOLDERS EQUITY
Follow-on
Offering
In October 2013, the
Company closed a follow-on offering of 4,312,500 shares of its Class A common
stock (inclusive of 562,500 shares of Class A common stock from the full
exercise of the option to purchase additional shares granted to the
underwriters). The public offering price of the shares sold in the offering was
$67.00 per share. The total gross proceeds from the offering to the Company were
$288.9 million. After deducting underwriting discounts and commissions and
offering expenses payable by the Company, the aggregate net proceeds received by
the Company totaled approximately $276.5 million.
The following table
presents the shares authorized and issued and outstanding as of the periods
presented:
|
|
September 30, 2014 |
|
December 31, 2013 |
|
|
|
|
Shares |
|
|
|
Shares |
|
|
Shares |
|
Issued and |
|
Shares |
|
Issued and |
|
|
Authorized |
|
Outstanding |
|
Authorized |
|
Outstanding |
Stockholders equity: |
|
|
|
|
|
|
|
|
Class A common stock, $0.000001 par value |
|
200,000,000 |
|
62,447,651 |
|
200,000,000 |
|
59,163,134 |
Class B common stock, $0.000001 par value |
|
100,000,000 |
|
10,030,034 |
|
100,000,000 |
|
11,711,359 |
Common stock, $0.000001 par value |
|
200,000,000 |
|
|
|
200,000,000 |
|
|
Undesignated Preferred Stock |
|
10,000,000 |
|
|
|
10,000,000 |
|
|
Equity Incentive
Plans
The Company has outstanding
awards under 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, as amended (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. All outstanding stock awards
under the 2005 Plan continue to be governed by their existing terms. Upon the
effectiveness of the underwriting agreement in connection with the Companys
initial public offering (IPO), all shares that were reserved under the 2011
Plan but not issued were assumed by the 2012 Plan. No further awards will be
granted pursuant to the 2011 Plan. All outstanding stock awards under the 2011
Plan continue to be governed by their existing terms. Under the 2012 Plan, the
Company has the ability to issue incentive stock options, non-statutory stock
options, stock appreciation rights, restricted stock units (RSUs), restricted
stock awards (RSAs), performance units and performance shares. Additionally,
the 2012 Plan provides for the grant of performance cash awards to employees,
directors and consultants.
12
Table of Contents
Stock Options
Stock options granted under
the 2012 Plan are granted at a price per share not less than the fair value at
date of grant. Options granted to date generally vest either over a four-year
period with 25% vesting at the end of one year and the remaining vesting monthly
thereafter, or over a four-year period with 10% vesting over the first year, 20%
vesting over the second year, 30% vesting over the third year and 40% vesting
over the fourth year. Options granted generally are exercisable for up to 10
years. A summary of stock option activity for the nine months ended September
30, 2014, is as follows:
|
|
Options
Outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
Weighted- |
|
Remaining |
|
Aggregate |
|
|
|
|
|
Average |
|
Contractual |
|
Intrinsic |
|
|
Number of |
|
Exercise |
|
Term (in |
|
Value |
|
|
Shares |
|
Price |
|
years) |
|
(in
thousands) |
Outstanding January 1 , 2014 |
|
11,101,166 |
|
|
$ |
18.24 |
|
8.17 |
|
$ |
562,855 |
Granted |
|
130,925 |
|
|
|
80.67 |
|
|
|
|
|
Exercised |
|
(1,421,019 |
) |
|
|
12.12 |
|
|
|
|
|
Canceled |
|
(509,949 |
) |
|
|
34.06 |
|
|
|
|
|
Outstanding September 30, 2014 |
|
9,301,123 |
|
|
$ |
19.21 |
|
7.50 |
|
$ |
457,429 |
Options vested and expected to vest as of September 30,
2014 |
|
8,919,244 |
|
|
$ |
18.78 |
|
7.46 |
|
$ |
442,340 |
Options vested and exercisable as of September 30,
2014 |
|
4,324,790 |
|
|
$ |
12.33 |
|
6.80 |
|
$ |
241,830 |
Aggregate intrinsic value
represents the difference between the closing price of the Companys Class A
common stock on the New York Stock Exchange on September 30, 2014 of $68.25 and
the exercise price of outstanding, in-the-money options. The total intrinsic
value of options exercised was approximately $29.4 million and $30.7 million for
the three months ended September 30, 2014 and 2013, respectively, and $96.7
million and $65.5 million for the nine months ended September 30, 2014 and 2013,
respectively. The weighted-average grant date fair value of options granted was
$45.53 and $30.36 per share for the three months ended September 30, 2014 and
2013, respectively, and $44.74 and $15.86 per share for the nine months ended
September 30, 2014 and 2013, respectively.
As of September 30, 2014,
total unrecognized compensation costs, adjusted for estimated forfeitures,
related to unvested stock options was approximately $59.2 million, which is
expected to be recognized over a weighted-average time period of 2.19 years.
RSUs and
RSAs
The cost of RSUs and RSAs
are determined using the fair value of the Companys common stock on the date of
grant. RSUs and RSAs generally vest either over a four-year period with 25%
vesting at the end of one year and the remaining vesting quarterly or annually
thereafter, or over a four-year period with 10% vesting over the first year, 20%
vesting over the second year, 30% vesting over the third year and 40% vesting
over the fourth year.
A summary of RSU and RSA
activity for the nine months ended September 30, 2014 is as follows:
|
|
Restricted Stock
Units |
|
Restricted Stock
Awards |
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
Weighted- |
|
|
|
|
|
Grant |
|
|
|
|
Average Grant |
|
|
Number of |
|
Date Fair |
|
Number |
|
Date Fair |
|
|
Shares |
|
Value |
|
of Shares |
|
Value |
UnvestedJanuary 1, 2014 |
|
443,603 |
|
|
$ |
44.66 |
|
73,470 |
|
|
$ |
9.41 |
Granted |
|
563,737 |
|
|
|
75.65 |
|
|
|
|
|
|
Released |
|
(58,592 |
) |
|
|
40.09 |
|
(28,438 |
) |
|
|
9.11 |
Canceled |
|
(75,798 |
) |
|
|
58.02 |
|
|
|
|
|
|
UnvestedSeptember 30, 2014 |
|
872,950 |
|
|
$ |
63.82 |
|
45,032 |
|
|
$ |
9.60 |
13
Table of Contents
As of September 30, 2014,
the Company had approximately $48.1 million of unrecognized stock-based
compensation expense, net of estimated forfeitures, related to RSUs and RSAs,
which will be recognized over the remaining weighted-average vesting period of
approximately 3.36 years.
Employee Stock
Purchase Plan
Concurrent with the
effectiveness of the underwriting agreement in connection with the IPO on March
1, 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 during
designated offering periods. 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 133,905 shares purchased by
employees under the ESPP at a weighted-average purchase price of $30.52 per
share for the nine months ended September 30, 2014, and there were no shares
purchased by employees under the ESPP for the three months ended September 30,
2014. There were no shares purchased by employees under the ESPP for the three
and nine months ended September 30, 2013. The Company recognized $1.3 million
and $0.3 million of stock-based compensation related to the ESPP during the
three months ended September 30, 2014 and 2013, respectively, and $3.5 million
and $0.3 million for the nine months ended September 30, 2014 and 2013,
respectively.
Stock-Based
Compensation
The following table
summarizes the effects of stock-based compensation related to stock-based awards
in the condensed consolidated statements of operations during the periods
presented (in thousands):
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September
30, |
|
September
30, |
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
Cost
of revenue |
|
$ |
253 |
|
$ |
104 |
|
$ |
522 |
|
$ |
281 |
Sales and marketing |
|
|
3,883 |
|
|
2,660 |
|
|
11,008 |
|
|
6,930 |
Product development |
|
|
3,835 |
|
|
1,709 |
|
|
10,333 |
|
|
3,565 |
General and administrative |
|
|
2,947 |
|
|
2,542 |
|
|
8,594 |
|
|
6,557 |
Restructuring and integration |
|
|
|
|
|
|
|
|
|
|
|
555 |
Total
stock-based compensation |
|
$ |
10,918 |
|
$ |
7,015 |
|
$ |
30,457 |
|
$ |
17,888 |
During the three and nine
months ended September 30, 2013, the Company recognized zero and $0.6 million of
stock-based compensation, respectively, related to the acceleration of vesting
of RSUs associated with the Qype restructuring plan described in Note 4. The
Company capitalized stock-based compensation as website development costs of
$0.7 million and $0.2 million in the three months ended September 30, 2014 and
2013, respectively, and $1.6 million and $0.4 million in the nine months ended
September 30, 2014 and 2013, respectively.
12. NET INCOME (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 IPO in March 2012, all outstanding
shares of preferred stock and common stock were converted to Class B common
stock. As a result, shares of 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 share 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 on a
share-for-share basis at any time at the option of the stockholder, and are
automatically converted into Class A common stock upon sale or transfer, subject
to certain limited exceptions, and in connection with certain other conversion
events.
Basic net income per share
is computed using the weighted-average number of shares of common stock
outstanding during the period. Diluted net income per share is computed using
the weighted-average number of shares of common stock and, if dilutive,
potential shares of common stock outstanding during the period. The Companys
potential shares of common stock consist of the incremental shares of common
stock issuable upon the exercise of stock options, and to a lesser extent,
shares issuable upon the vesting of RSUs, RSAs, and purchases related to the
ESPP. The dilutive effect of these potential shares of common stock is reflected
in diluted earnings per share by application of the treasury stock method. The
computation of the diluted net income per share of Class A common stock assumes
the conversion of Class B common stock, while the diluted net income per share
of Class B common stock does not assume the conversion of Class B common stock.
14
Table of Contents
The undistributed earnings
are allocated based on the contractual participation rights of the Class A and
Class B common stock as if the earnings for the year have been distributed. As
the liquidation and dividend rights are identical, the undistributed earnings
are allocated on a proportionate basis. Further, as the conversion of Class B
common stock is assumed in the computation of the diluted net income per share
of Class A common stock, the undistributed earnings are equal to net income for
that computation.
The following table
presents the calculation of basic and diluted net income (loss) per share (in
thousands, except per share data):
|
|
Three Months Ended
September 30, |
|
|
2014 |
|
2013 |
|
|
Class A |
|
Class B |
|
Class A |
|
Class B |
Basic net income (loss) per share
attributable to common stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of undistributed earnings |
|
$ |
3,125 |
|
$ |
512 |
|
$ |
(1,623 |
) |
|
$ |
(699 |
) |
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding |
|
|
62,036 |
|
|
10,159 |
|
|
45,802 |
|
|
|
19,728 |
|
Basic net income (loss) per share attributable to common
stockholders |
|
$ |
0.05 |
|
$ |
0.05 |
|
$ |
(0.04 |
) |
|
$ |
(0.04 |
) |
|
Diluted net income (loss) per share
attributable to common stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of undistributed earnings for basic computation |
|
$ |
3,125 |
|
$ |
512 |
|
$ |
(1,623 |
) |
|
$ |
(699 |
) |
Reallocation of undistributed earnings as a result of
conversion of Class B
to Class A shares |
|
|
512 |
|
|
|
|
|
|
|
|
|
|
|
Reallocation of undistributed earnings to Class B shares |
|
|
|
|
|
98 |
|
|
|
|
|
|
|
|
Allocation
of undistributed earnings |
|
$ |
3,637 |
|
$ |
610 |
|
$ |
(1,623 |
) |
|
$ |
(699 |
) |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares used in basic calculation |
|
|
62,036 |
|
|
10,159 |
|
|
45,802 |
|
|
|
19,728 |
|
Weighted-average effect of dilutive securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of Class B to Class A common
shares outstanding |
|
|
10,159 |
|
|
|
|
|
|
|
|
|
|
|
Stock
options |
|
|
4,702 |
|
|
2,761 |
|
|
|
|
|
|
|
|
Other
dilutive securities |
|
|
399 |
|
|
40 |
|
|
|
|
|
|
|
|
Number
of shares used in diluted calculation |
|
|
77,296 |
|
|
12,960 |
|
|
45,802 |
|
|
|
19,728 |
|
Diluted
net income (loss) per share attributable to common stockholders |
|
$ |
0.05 |
|
$ |
0.05 |
|
$ |
(0.04 |
) |
|
$ |
(0.04 |
) |
15
Table of Contents
|
|
Nine Months Ended
September 30, |
|
|
2014 |
|
2013 |
|
|
Class A |
|
Class B |
|
Class A |
|
Class
B |
Basic net income (loss) per share attributable to common
stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of undistributed earnings |
|
$ |
3,190 |
|
$ |
555 |
|
$ |
(4,414 |
) |
|
$ |
(3,585 |
) |
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding |
|
|
61,068 |
|
|
10,629 |
|
|
35,656 |
|
|
|
28,964 |
|
Basic net income (loss) per share attributable to common
stockholders |
|
$ |
0.05 |
|
$ |
0.05 |
|
$ |
(0.12 |
) |
|
$ |
(0.12 |
) |
|
Diluted net income (loss) per share attributable to common
stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of undistributed earnings for basic computation |
|
$ |
3,190 |
|
$ |
555 |
|
$ |
(4,414 |
) |
|
$ |
(3,585 |
) |
Reallocation of undistributed earnings as a result of conversion
of
Class B to Class A shares |
|
|
555 |
|
|
|
|
|
|
|
|
|
|
|
Reallocation of undistributed earnings to Class B shares |
|
|
|
|
|
100 |
|
|
|
|
|
|
|
|
Allocation of undistributed earnings |
|
$ |
3,745 |
|
$ |
655 |
|
$ |
(4,414 |
) |
|
$ |
(3,585 |
) |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares used in
basic calculation |
|
|
61,068 |
|
|
10,629 |
|
|
35,656 |
|
|
|
28,964 |
|
Weighted-average effect of dilutive securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Class B to Class A common
shares outstanding |
|
|
10,629 |
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
|
4,628 |
|
|
2,746 |
|
|
|
|
|
|
|
|
Other dilutive securities |
|
|
407 |
|
|
39 |
|
|
|
|
|
|
|
|
Number of shares used in diluted calculation |
|
|
76,732 |
|
|
13,414 |
|
|
35,656 |
|
|
|
28,964 |
|
Diluted net income
(loss) per share attributable to
common stockholders |
|
$ |
0.05 |
|
$ |
0.05 |
|
$ |
(0.12 |
) |
|
$ |
(0.12 |
) |
The following
weighted-average stock-based instruments 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 |
|
Nine Months Ended |
|
|
September
30, |
|
September
30, |
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
Stock options |
|
100 |
|
11,455 |
|
70 |
|
11,455 |
Restricted stock units |
|
|
|
369 |
|
|
|
369 |
Restricted stock awards |
|
|
|
88 |
|
|
|
88 |
Employee stock purchase plan |
|
|
|
54 |
|
|
|
54 |
13. 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 $1.1 million and $0.5 million for the three months ended
September 30, 2014 and 2013, respectively, and an income tax benefit of $0.5
million and an income tax provision of $0.8 million for the nine months ended
September 30, 2014 and 2013, respectively. The tax benefit for the nine months
ended September 30, 2014 is due to recognition of an income tax benefit of
approximately $2.0 million related to the release of valuation allowance on
foreign net operating losses offset by approximately $1.5 million in U.S.
federal and state income taxes and foreign income taxes. The tax expense for the
nine months ended September 30, 2013 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 certain of the
Companys net operating losses, foreign tax rate differences, meals and
entertainment, and non-deductible stock-based compensation expense.
As of September 30, 2014,
the total amount of gross unrecognized tax benefits was $2.0 million, $1.0
million of which is subject to a full valuation allowance and would not affect
the Companys effective tax rate if recognized. Included in the balance of
unrecognized tax benefits as of September 30, 2014, is $1.0 million of tax
benefits that, if recognized, would affect the effective tax rate. As of
September 30, 2014, the Company had an immaterial amount related to the accrual
of interest and penalties. During the nine months ended September 30, 2014, the
Companys gross unrecognized tax benefits increased by $0.2 million, $0.1
million of which would affect the Companys effective tax rate if recognized.
The Company does not have any tax positions as of September 30, 2014 for which
it is reasonably possible that the total amount of gross unrecognized tax
benefits will significantly increase or decrease within the next 12 months.
14. 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 Companys 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.
16
Table of Contents
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
Companys net revenue by product line and long-lived assets by geographic region
for the periods presented (in thousands):
Net
Revenue
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September
30, |
|
September
30, |
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
Net
revenue by product: |
|
|
|
|
|
|
|
|
|
|
|
|
Local
advertising |
|
$ |
85,132 |
|
$ |
51,167 |
|
$ |
226,012 |
|
$ |
134,932 |
Brand
advertising |
|
|
9,318 |
|
|
6,910 |
|
|
25,828 |
|
|
18,715 |
Other services |
|
|
8,005 |
|
|
3,104 |
|
|
15,809 |
|
|
8,690 |
Total net revenue |
|
$ |
102,455 |
|
$ |
61,181 |
|
$ |
267,649 |
|
$ |
162,337 |
During the three and nine
months ended September 30, 2014 and 2013, a substantial majority of the
Companys revenue was generated in the United States. In addition, no individual
customer accounted for 10% or more of consolidated net revenue in either period.
Long-Lived
Assets
|
|
September 30, |
|
December 31, |
|
|
2014 |
|
2013 |
United States |
|
$ |
41,519 |
|
$ |
29,186 |
All
Other Countries |
|
|
4,170 |
|
|
1,786 |
Total long-lived
assets |
|
$ |
45,689 |
|
$ |
30,972 |
17
Table of Contents
ITEM 2. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS |
You should read the
following discussion and analysis of our financial condition and results of
operations in conjunction with our condensed consolidated financial statements
and related notes appearing elsewhere in this Quarterly Report on Form 10-Q (the
Quarterly Report).
Forward Looking
Information
This Quarterly Report
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
that are not purely historical are forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended (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, look, may, might, plan,
project, seek, should, strategy, 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 66.6
million cumulative 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 139.4 million unique visitors used our website
on a monthly average basis during the quarter ended September 30, 2014 according
to Google Analytics, a product that provides digital marketing intelligence.
Approximately 73.4 million mobile unique visitors used our mobile website and
our mobile application on a monthly average basis during the quarter ended
September 30, 2014. Businesses of all sizes 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 communities of
contributors who write reviews, the consumers who read them and the local
businesses that they describe.
Our success is primarily
the result of significant investment in our communities, employees, content,
brand and technology. We expect to invest in features aimed at both attracting
more, and increasing the usage of, users and businesses as we look to leverage
our brand and benefit from accelerating network effect dynamics in our existing
markets. In addition, we expect to invest further in product development to
expand our platform by innovating and introducing new products to our website
and mobile applications. For example, during the nine months ended September 30,
2014, we launched Yelp Reservations, a tool that allows businesses in the
restaurant and nightlife categories to take online reservations, launched
automated mobile review translations and added the ability for consumers to
message business owners directly through Yelp.
We also plan to continue
investing in additional domestic and international markets. As of September 30,
2014, we are active in 61 Yelp
markets in the United States and 66 Yelp markets internationally. 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. For the nine months ended September 30, 2014, revenue generated
internationally accounted for three percent of our total revenue.
While our core local advertising business in the United States has a significant and growing base of revenue, we have invested, and will continue to invest, in initiatives to enhance our monetization opportunities. In particular, we plan to continue to grow and develop advertising and e-commerce products and partner arrangements that provide incremental value to our advertisers and business partners. In 2013, we introduced the Yelp Platform, which allows consumers to transact directly on Yelp through partnerships with third parties. Our current offerings include the ability to complete food delivery transactions, book spa appointments, book hotel rooms and reserve wine tastings.
Our overall strategy is to invest for long-term growth. During the remainder of 2014, we expect to continue to invest heavily in our sales and marketing efforts to grow domestically and internationally, and to continue the integration of SeatMe, Inc., the web- and app-based reservation solution for restaurant and nightlife establishments that we acquired in 2013 (SeatMe). As of September 30, 2014, we had 2,639 employees, which represents an increase of 46% compared to September 30, 2013.
18
Table of Contents
Critical Accounting
Policies and Estimates
Our consolidated financial
statements are prepared in accordance with accounting principles generally
accepted in the United States (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, business combinations, 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 our Annual Report on
Form 10-K for the year ended December 31, 2013.
Recent Accounting
Pronouncements Not Yet Effective
In May 2014, the Financial
Accounting Standards Board issued Accounting Standards Update 2014-09,
Revenue from Contracts with
Customers (ASU 2014-09), which amended the existing accounting standards for
revenue recognition. ASU 2014-09 establishes principles for recognizing revenue
upon the transfer of promised goods or services to customers, in an amount that
reflects the consideration expected to be received in exchange for those goods
or services. The updated standard will replace most existing GAAP revenue
recognition guidance when it becomes effective, and permits the use of either
the retrospective or cumulative effect transition method. Early adoption of this
accounting standard is not permitted. ASU 2014-09 will become effective for us
in the first quarter of the year ending December 31, 2017. We have not yet
selected a transition method and are currently evaluating the effect that ASU
2014-09 will have on our consolidated financial statements and related
disclosures.
In August 2014, the
Financial Accounting Standards Board issued Accounting Standards Update 2014-15,
Presentation of Financial
Statements Going Concern (Subtopic 205-40). The new guidance addresses managements
responsibility to evaluate whether there is substantial doubt about an entitys
ability to continue as a going concern and to provide related footnote
disclosures. Managements evaluation should be based on relevant conditions and
events that are known and reasonably knowable at the date that the financial
statements are issued. The standard will be effective for the first interim
period within annual reporting periods beginning after December 15, 2016. Early
adoption is permitted. We do not expect to early adopt this guidance and do not
believe that the adoption of this guidance will have a material impact on our
consolidated financial statements.
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.
- Reviews. Number of reviews represents the cumulative
number of reviews submitted to Yelp since inception, as of the period
end, including reviews that are not
recommended or that have 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 reviews that are not recommended and that have been removed 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
automated recommendation software continually reassesses which reviews to
recommend based on new information, the recommended or not recommended
status of reviews may change over time. Reviews that are not recommended or
that 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 reviews that are
not recommended 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 September 30, 2014, approximately
62.0 million reviews were available on business profile pages, including
approximately 15.3 million reviews that were not recommended, after accounting
for 4.6 million reviews that had been removed from our platform, either by us
for violation of our terms of
service or by the users who contributed them.
19
Table of Contents
The following table presents the number of
cumulative reviews as of the dates presented:
|
|
As of September
30, |
|
|
2014 |
|
2013 |
|
|
(in thousands) |
Reviews |
|
66,592 |
|
47,322 |
- 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 calculate unique visitors as the number of users measured by
Google Analytics, based on the use
of unique cookie identifiers. Unique visitors do not include users who access
our platform solely through our mobile app. Because the number of unique visitors is based on users
with unique cookies, an individual who accesses our website from multiple devices with different
cookies may be counted as multiple unique visitors, and multiple
individuals who access our website
from a shared device with a single cookie may be counted as a single unique
visitor.
The following
table presents the average monthly number of unique visitors during the
periods presented:
|
|
Three Months Ended |
|
|
September
30, |
|
|
2014 |
|
2013 |
|
|
(in thousands) |
Unique Visitors |
|
139,418 |
|
117,447 |
- Mobile Unique Visitors.
We define mobile unique visitors for a
given three-month period to be the
sum of (i) the average number of monthly unique visitors who have visited our
mobile website during that period
(measured as described above) and (ii) unique mobile devices using our mobile
app on a monthly average basis over
that period. Under this method of calculation, an individual who accesses both
our mobile website and our mobile app, or accesses either our mobile website or our mobile app from
multiple mobile devices, will be counted as multiple mobile unique visitors. Multiple individuals who
access either our mobile website or mobile app from a shared device will
be counted as a single mobile
unique visitor.
The
following table presents the average monthly number of mobile unique visitors
during the periods presented:
|
|
Three Months Ended |
|
|
September
30, |
|
|
2014 |
|
2013 |
|
|
(in thousands) |
Mobile Unique Visitors |
|
73,440 |
|
50,455 |
- 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 dates presented:
|
|
As of September
30, |
|
|
2014 |
|
2013 |
|
|
(in thousands) |
Claimed Local Business Locations |
|
1,886 |
|
1,344 |
- Active Local Business Accounts.
The number of active local
business accounts represents the number of 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.
20
Table of Contents
The following table presents the number of active local business
accounts from which we recognized revenue in the three-month periods
presented:
|
|
Three Months Ended
|
|
|
September
30, |
|
|
2014 |
|
2013 |
|
|
(in thousands) |
Active Local Business Accounts |
|
86 |
|
57 |
- 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; depreciation and amortization;
stock-based compensation; and
restructuring and integration costs. 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 our 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 |
|
Nine Months Ended |
|
|
September
30, |
|
September
30, |
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
|
|
(in thousands) |
Reconciliation of Adjusted
EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) |
|
$ |
3,637 |
|
|
$ |
(2,322 |
) |
|
$ |
3,745 |
|
|
$ |
(7,999 |
) |
(Benefit) provision for income taxes |
|
|
1,107 |
|
|
|
510 |
|
|
|
(495 |
) |
|
|
786 |
|
Other (income) expense, net |
|
|
(200 |
) |
|
|
31 |
|
|
|
(183 |
) |
|
|
298 |
|
Depreciation and amortization |
|
|
4,604 |
|
|
|
2,816 |
|
|
|
12,299 |
|
|
|
7,931 |
|
Stock-based compensation(1) |
|
|
10,918 |
|
|
|
7,015 |
|
|
|
30,457 |
|
|
|
17,333 |
|
Restructuring and integration |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
675 |
|
Adjusted
EBITDA |
|
$ |
20,066 |
|
|
$ |
8,050 |
|
|
$ |
45,823 |
|
|
$ |
19,024 |
|
(1)
|
The stock-based
compensation amounts of $7.0 million and $17.3 million for the three and
nine months ended September 30, 2013, respectively, exclude approximately
zero and $0.6 million of stock-based compensation, respectively, related
to the acquisition of Qype GmbH and its subsidiaries (collectively,
Qype) already included in restructuring and integration
costs. |
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 adjusted EBITDA, a non-GAAP
financial measure. We have provided above a reconciliation above of adjusted EBITDA to
net income (loss), the most directly comparable GAAP financial measure.
We have included adjusted
EBITDA in this Quarterly Report because it is a key measure used by our
management and our 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 to investors and others 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;
- adjusted EBITDA does not take into
account any restructuring and integration costs associated with our
acquisition of Qype; and
- other companies, including companies
in our industry, may calculate adjusted EBITDA differently, which reduces
its usefulness as a comparative
measure.
21
Table of Contents
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 table sets
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 the results of operations to be anticipated for the full year 2014 or any
future period.
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September
30, |
|
September
30, |
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
|
|
(as percentage of net revenue) |
Consolidated Statements of
Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenue by product: |
|
|
|
|
|
|
|
|
|
|
|
|
Local
advertising |
|
83 |
% |
|
84 |
% |
|
84 |
% |
|
83 |
% |
Brand
advertising |
|
9 |
|
|
11 |
|
|
10 |
|
|
12 |
|
Other
services |
|
8 |
|
|
5 |
|
|
6 |
|
|
5 |
|
|
Total net
revenue |
|
100 |
% |
|
100 |
% |
|
100 |
% |
|
100 |
% |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
revenue (exclusive of depreciation and |
|
|
|
|
|
|
|
|
|
|
|
|
amortization shown separately below) |
|
6 |
% |
|
7 |
% |
|
6 |
% |
|
7 |
% |
Sales and
marketing |
|
53 |
|
|
56 |
|
|
55 |
|
|
57 |
|
Product
development |
|
17 |
|
|
18 |
|
|
17 |
|
|
16 |
|
General
and administrative |
|
15 |
|
|
17 |
|
|
16 |
|
|
18 |
|
Depreciation and amortization |
|
4 |
|
|
5 |
|
|
5 |
|
|
5 |
|
Restructuring and integration |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
96 |
|
|
103 |
|
|
99 |
|
|
104 |
|
|
Income
(loss) from operations |
|
4 |
|
|
(3 |
) |
|
1 |
|
|
(4 |
) |
Other
income (expense), net |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes |
|
5 |
|
|
(3 |
) |
|
1 |
|
|
(4 |
) |
Benefit
(provision) for income taxes |
|
(1 |
) |
|
(1 |
) |
|
|
|
|
|
|
|
Net income
(loss) |
|
4 |
% |
|
(4 |
)% |
|
1 |
% |
|
(5 |
)% |
Three and Nine Months
Ended September 30, 2014 and 2013
Net
Revenue
We generate revenue from
local advertising, brand advertising and other services, which includes Yelp
Deals, Gift Certificates 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 and our mobile app.
Brand
Advertising. We generate revenue
from brand advertising through the sale of advertising solutions for national
brands that want to improve their local presence in the form of display
advertisements and brand sponsorships. Our national advertisers include leading
brands in the automobile, financial services, logistics, consumer goods and
health and fitness industries.
22
Table of Contents
Other
Services. We generate other
revenue through partner arrangements, the sale of Yelp Deals and Gift
Certificates, and monetization of remnant advertising inventory through
third-party ad networks. Our revenue-sharing partner arrangements provide
consumers with the ability to complete food delivery transactions and make
online reservations through third parties directly on Yelp. Our fixed-fee
partner arrangements include allowing third-party data providers to update
business listing information on behalf of businesses. 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. 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 consumers purchase of the deal. Gift
Certificates allow merchants to sell full-priced gift certificates directly to
customers through their business profile page. We earn a fee based on the amount
of the Gift Certificate sold, which we record on a net basis and include in
revenue upon a consumers purchase of the Gift Certificate.
|
|
Three Months Ended |
|
|
|
|
Nine Months Ended |
|
|
|
|
|
September
30, |
|
2013 to |
|
September
30, |
|
2013 to |
|
|
2014 |
|
2013 |
|
2014 % |
|
2014 |
|
2013 |
|
2014 % |
|
|
(dollars in thousands) |
|
Change |
|
(dollars in thousands) |
|
Change |
Net
revenue by product: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Local
advertising |
|
$ |
85,132 |
|
|
$ |
51,167 |
|
|
66 |
% |
|
$ |
226,012 |
|
|
$ |
134,931 |
|
|
68 |
% |
Brand
advertising |
|
|
9,318 |
|
|
|
6,910 |
|
|
35 |
|
|
|
25,828 |
|
|
|
18,716 |
|
|
38 |
|
Other
services |
|
|
8,005 |
|
|
|
3,104 |
|
|
158 |
|
|
|
15,809 |
|
|
|
8,690 |
|
|
82 |
|
Total net revenue |
|
$ |
102,455 |
|
|
$ |
61,181 |
|
|
67 |
% |
|
$ |
267,649 |
|
|
$ |
162,337 |
|
|
65 |
% |
|
Net
revenue by product: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Local
advertising |
|
|
83 |
% |
|
|
84 |
% |
|
|
|
|
|
84 |
% |
|
|
83 |
% |
|
|
|
Brand
advertising |
|
|
9 |
|
|
|
11 |
|
|
|
|
|
|
10 |
|
|
|
12 |
|
|
|
|
Other
services |
|
|
8 |
|
|
|
5 |
|
|
|
|
|
|
6 |
|
|
|
5 |
|
|
|
|
Total net revenue |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
|
Total net revenue increased
$41.3 million, or 67%, in the three months ended September 30, 2014, compared to
the three months ended September 30, 2013. Our local advertising revenue
increased $34.0 million, or 66%, 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
$2.4 million, or 35%, primarily due to an increase in the average spend per
brand advertiser driven by increased advertising impressions per brand
advertiser. In addition, our other services revenue increased by $4.9 million,
or 158%, primarily due to an increase in revenue from partnership arrangements.
Total net revenue increased
$105.3 million, or 65%, in the nine months ended September 30, 2014, compared to
the nine months ended September 30, 2013. Our local advertising revenue
increased $91.1 million, or 68%, 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
$7.1 million, or 38%, primarily due to an increase in the average spend per
brand advertiser driven by increased advertising impressions per brand
advertiser. In addition, our other services revenue increased by $7.1 million,
or 82%, primarily due to an increase in revenue from partnership arrangements.
Cost of
Revenue
Our cost of revenue
consists primarily of credit card processing fees, web hosting expenses,
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, video production expenses and allocated facilities
costs. 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 we
continue to expand data center capacity and headcount associated with supporting
our website and mobile app.
|
|
Three Months Ended |
|
|
|
|
Nine Months Ended |
|
|
|
|
|
September
30, |
|
2013 to |
|
September
30, |
|
2013 to |
|
|
2014 |
|
2013 |
|
2014 % |
|
2014 |
|
2013 |
|
2014 % |
|
|
(dollars in thousands) |
|
Change |
|
(dollars in thousands) |
|
Change |
Cost
of revenue |
|
$ |
6,174 |
|
|
$ |
4,277 |
|
|
44 |
% |
|
$ |
17,096 |
|
|
$ |
11,635 |
|
|
47 |
% |
Percentage of net revenue |
|
|
6 |
% |
|
|
7 |
% |
|
|
|
|
|
6 |
% |
|
|
7 |
% |
|
|
|
In the three months ended
September 30, 2014, cost of revenue increased $1.9 million, or 44%, compared to
the three months ended September 30, 2013. This increase was primarily
attributable to an increase of $0.8 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. We also added personnel to support our website
infrastructure resulting in an increase of $0.2 million. In addition, setup
costs, including video production, for active local business pages increased by
$0.1 million due to increased demand by local businesses for video on their
business pages, and expenses related to creative design for brand advertising
customers increased $0.3 million. Merchant fees related to credit card
transactions also increased $0.5 million.
23
Table of Contents
In the nine months ended
September 30, 2014, cost of revenue increased $5.5 million, or 47%, compared to
the nine months ended September 30, 2013. This increase was primarily
attributable to an increase of $2.5 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. We also added personnel to
support our website infrastructure resulting in an increase of $0.3 million. In
addition, setup costs, including video production for active local business
pages, increased by $0.4 million due to increased demand by local businesses for
video on their business pages and expenses related to creative design for brand
advertising customers increased $0.6 million. Merchant fees related to credit
card transactions also increased $1.7 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. Our Community
Managers are responsible for growing and fostering local communities, and
coordinating events to raise awareness of our brand. We expect our community
management costs to increase as we continue to expand to new markets and within
existing markets. We expect our sales and marketing expenses to increase both
domestically and internationally as we expand our domestic and international
footprint, increase the number of active local business accounts and continue to
build our brand. The substantial majority of these expenses will be related to
hiring Community Managers and sales employees. We expect sales and marketing
expenses to increase and to be our largest expense for the foreseeable future.
|
|
Three Months Ended |
|
|
|
|
Nine Months Ended |
|
|
|
|
|
September
30, |
|
2013
to |
|
September
30, |
|
2013 to |
|
|
2014 |
|
2013 |
|
2014 % |
|
2014 |
|
2013 |
|
2014 % |
|
|
(dollars in thousands) |
|
Change |
|
(dollars in thousands) |
|
Change |
Sales and marketing |
|
$ |
54,551 |
|
|
$ |
34,126 |
|
|
60 |
% |
|
$ |
147,470 |
|
|
$ |
93,123 |
|
|
58 |
% |
Percentage of net revenue |
|
|
53 |
% |
|
|
56 |
% |
|
|
|
|
|
55 |
% |
|
|
57 |
% |
|
|
|
In the three months ended
September 30, 2014, sales and marketing expenses increased $20.4 million, or
60%, compared to the three months ended September 30, 2013. The increase was
primarily attributable to an increase in headcount and related expenses of $11.7
million, including an increase in stock-based compensation of $1.2 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 $0.9 million. In addition, we
experienced an increase in facilities and related allocations of $3.2 million
and domestic and international marketing and advertising costs of $4.6 million.
In the nine months ended
September 30, 2014, sales and marketing expenses increased $54.3 million, or
58%, compared to the nine months ended September 30, 2013. The increase was
primarily attributable to an increase in headcount and related expenses of $32.3
million, including an increase in stock-based compensation of $4.1 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 $5.2 million. In addition, we
experienced an increase in facilities and related allocations of $9.7 million
and domestic and international marketing and advertising costs of $7.1 million.
Product Development
Our product development
expenses primarily consist of salaries, benefits and stock-based compensation
for our engineers, 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 a
result, we expect product development expenses to increase for the foreseeable
future.
24
Table of Contents
|
|
Three Months Ended
|
|
|
|
Nine Months Ended
|
|
|
|
|
September
30, |
|
2013 to |
|
September
30, |
|
2013 to |
|
|
2014 |
|
2013 |
|
2014 % |
|
2014 |
|
2013 |
|
2014 % |
|
|
(dollars in thousands) |
|
Change |
|
(dollars in thousands) |
|
Change |
Product development |
|
$ |
17,397 |
|
|
$ |
11,208 |
|
|
55 |
% |
|
$ |
46,105 |
|
|
$ |
26,441 |
|
|
74 |
% |
Percentage of net revenue |
|
|
17 |
% |
|
|
18 |
% |
|
|
|
|
|
17 |
% |
|
|
16 |
% |
|
|
|
In the three months ended
September 30, 2014, product development expenses increased $6.2 million, or 55%,
compared to the three months ended September 30, 2013. The increase was
primarily attributable to an increase in headcount and related expenses of $5.8
million, including an increase in stock-based compensation of $2.1 million, and
an increase in facilities and related expenses of $0.5 million. The increase was
offset by a decrease of $0.1 million in the use of outside consultants as work
was transitioned internally.
In the nine months ended
September 30, 2014, product development expenses increased $19.7 million, or
74%, compared to the nine months ended September 30, 2013. The increase was
primarily attributable to an increase in headcount and related expenses of $18.7
million, including an increase in stock-based compensation of $6.7 million, and
an increase in facilities and related expenses of $1.7 million. The increase was
offset by a decrease of $0.7 million in the use of outside consultants as work
was transitioned internally.
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. We expect general and
administrative expenses to increase for the foreseeable future as we continue to
expand our business and incur ongoing expenses associated with being a publicly
traded company.
|
|
Three Months Ended |
|
|
|
|
Nine Months Ended |
|
|
|
|
|
September
30, |
|
2013 to |
|
September
30, |
|
2013 to |
|
|
2014 |
|
2013 |
|
2014 % |
|
2014 |
|
2013 |
|
2014 % |
|
|
(dollars in thousands) |
|
Change |
|
(dollars in thousands) |
|
Change |
General and administrative |
|
$ |
15,185 |
|
|
$ |
10,535 |
|
|
44 |
% |
|
$ |
41,612 |
|
|
$ |
29,447 |
|
|
41 |
% |
Percentage of net revenue |
|
|
15 |
% |
|
|
17 |
% |
|
|
|
|
|
16 |
% |
|
|
18 |
% |
|
|
|
In the three months ended
September 30, 2014, general and administrative expenses increased $4.7 million,
or 44%, compared to the three months ended September 30, 2013. The increase was
primarily attributable to an increase in headcount and related expenses of $2.1
million, including an increase in stock-based compensation of $0.4 million.
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 $1.4 million, and had an increase in bad debt expense of $0.8
million. We also experienced an increase in facilities and related expenses of
$0.3 million.
In the nine months ended
September 30, 2014, general and administrative expenses increased $12.2 million,
or 41%, compared to the nine months ended September 30, 2013. The increase was
primarily attributable to an increase in headcount and related expenses of $7.2
million, including an increase in stock-based compensation of $2.0 million.
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 $1.9 million, and had an increase in bad debt expense of $1.8
million. We also experienced an increase in facilities and related expenses of
$1.3 million.
Depreciation and
Amortization
Depreciation and
amortization expenses primarily consist of depreciation on computer equipment,
software, leasehold improvements, capitalized website and internal-use software
development costs and amortization of purchased intangibles. We expect
depreciation and amortization expenses to increase for the foreseeable future as
we continue to expand our technology infrastructure.
|
|
Three Months Ended |
|
|
|
|
Nine Months Ended |
|
|
|
|
|
September
30, |
|
2013 to |
|
September
30, |
|
2013 to |
|
|
2014 |
|
2013 |
|
2014 % |
|
2014 |
|
2013 |
|
2014 % |
|
|
(dollars in thousands) |
|
Change |
|
(dollars in thousands) |
|
Change |
Depreciation and amortization |
|
$ |
4,604 |
|
|
$ |
2,816 |
|
|
63 |
% |
|
$ |
12,299 |
|
|
$ |
7,931 |
|
|
55 |
% |
Percentage of net revenue |
|
|
4 |
% |
|
|
5 |
% |
|
|
|
|
|
5 |
% |
|
|
5 |
% |
|
|
|
In the three months ended
September 30, 2014, depreciation and amortization expense increased $1.8
million, or 63%, compared to the three months ended September 30, 2013. 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 software development
costs increased $1.2 million and $0.6 million, respectively.
25
Table of Contents
In the nine months ended
September 30, 2014, depreciation and amortization expense increased $4.4
million, or 55%, compared to the nine months ended September 30, 2013. 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 $2.8
million and $1.6 million, respectively.
Restructuring and
Integration
|
|
Three Months Ended |
|
|
|
Nine Months Ended |
|
|
|
|
September
30, |
|
2013 to |
|
September
30, |
|
2013 to |
|
|
2014 |
|
2013 |
|
2014 % |
|
2014 |
|
2013 |
|
2014 % |
|
|
(dollars in
thousands) |
|
Change |
|
(dollars in
thousands) |
|
Change |
Restructuring and Integration Costs |
|
$
|
|
|
|
$ |
|
|
|
N/A |
|
$ |
|
|
|
$ |
675 |
|
|
N/A |
Percentage of net revenue |
|
|
|
% |
|
|
|
% |
|
|
|
|
|
% |
|
|
|
% |
|
|
In the quarter ended March
31, 2013, we announced our plan to further reduce the size of the Qype
workforce. These actions were made in order to reduce our cost structure,
enhance operating efficiencies and strengthen our business to achieve long-term
profitable growth. We incurred restructuring and integration costs of $0.7
million in the three months ended March 31, 2013 as a result of this plan. The
restructuring was completed during 2013.
Other Income
(expense), Net
Other income (expense), net
consists primarily of the interest income earned on our marketable securities,
foreign exchange gains and losses and gains and losses on the disposal of
assets.
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September
30, |
|
September
30, |
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
|
|
(in thousands) |
|
(in thousands) |
Interest income |
|
$ |
222 |
|
|
$ |
11 |
|
|
$ |
458 |
|
|
$ |
41 |
|
Transaction gain (loss) on foreign
exchange |
|
|
98 |
|
|
|
50 |
|
|
|
(79 |
) |
|
|
(173 |
) |
Other non-operating income (loss),
net |
|
|
(120 |
) |
|
|
(92 |
) |
|
|
(196 |
) |
|
|
(166 |
) |
Other
income (expense), net |
|
$ |
200 |
|
|
$ |
(31 |
) |
|
$ |
183 |
|
|
$ |
(298 |
) |
In the three months ended
September 30, 2014, other income (expense), net increased $0.2 million compared
to the three months ended September 30, 2013. The increase was largely driven by
an increase in interest income related to marketable securities. Additionally,
there was an increase in foreign exchange gains due to favorable foreign
currency exchange rates during the three months ended September 30, 2014
compared to September 30, 2013.
In the nine months ended
September 30, 2014, other income (expense), net increased $0.5 million compared
to the nine months ended September 30, 2013. The increase was largely
attributable to an increase in interest income related to marketable securities.
Additionally, there was a decrease in foreign exchange losses due to more
favorable foreign currency exchange rates during the nine months ended September
30, 2014 compared to the nine months ended September 30, 2013.
Benefit (Provision)
for Income Taxes
Benefit (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.
26
Table of Contents
|
Three Months
Ended |
|
Nine Months
Ended |
|
September
30, |
|
September
30, |
|
2014 |
|
2013 |
|
2014 |
|
2013 |
|
(in thousands) |
|
(in thousands) |
Benefit (Provision) for taxes |
$ |
(1,107 |
) |
|
$ |
(510 |
) |
|
$ |
495 |
|
|
$ |
(786 |
) |
Percentage of net revenue |
|
(1 |
)% |
|
|
(1 |
)% |
|
|
|
% |
|
|
|
% |
Liquidity and Capital
Resources
As of September 30, 2014, we had cash
and cash equivalents of $290.6 million. Cash and cash equivalents consist of cash and money market funds. Our cash
held internationally as of September 30, 2014 was $6.3 million. We did not have any outstanding bank loans or credit
facilities in place as of September 30, 2014. Our investment portfolio is comprised of highly-rated securities, and our
investment policy limits the amount of credit exposure to any one issuer. The policy generally requires securities to be
investment grade (rated A or higher by bond rating firms) with the objective of minimizing the potential risk of
principal loss. To date, we have been able to finance our operations and our acquisitions of Qype and SeatMe through
proceeds from private and public financings, including our initial public offering (IPO) in March 2012, our
follow-on offering in October 2013, cash generated from operations and, to a lesser extent, cash provided by the
exercise of employee stock options and purchases under our 2012 Employee Stock Purchase Plan (ESPP).
Our future capital
requirements and the adequacy of available funds will depend on many factors,
including those set forth under Risk Factors in this
Quarterly Report. We believe that our existing cash and cash equivalents,
together with any cash generated from operations, will be sufficient to meet our
working capital requirements and anticipated purchases of property and equipment
for at least the next 12 months. However, this estimate is based on a number of
assumptions that may prove to be wrong and we could exhaust our available cash
and cash equivalents earlier than presently anticipated. We may require or
otherwise seek additional funds in the next 12 months to respond to business
challenges, including the need to develop new features and products or enhance
existing services, improve our operating infrastructure or acquire complementary
businesses and technologies, and, accordingly, we may need to engage in equity
or debt financings to secure additional funds.
Amounts deposited with
third party financial institutions exceed the Federal Deposit Insurance
Corporation and Securities Investor Protection Corporation insurance limits, as
applicable. These cash and cash equivalents 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 and cash equivalents; however, we can provide no assurances that access to
our invested cash and cash equivalents will not be impacted by adverse
conditions in the financial markets.
Cash Flows
The following table
summarizes our cash flows for the periods presented:
|
Nine Months Ended September 30, |
|
2014 |
|
2013 |
|
(in thousands) |
Condensed Consolidated Statements
of Cash Flows Data: |
|
|
|
|
|
|
|
Purchases of property, equipment and
software |
$ |
(12,743 |
) |
|
$ |
(9,547 |
) |
Depreciation and amortization |
|
12,299 |
|
|
|
7,931 |
|
Cash
flows provided by operating activities |
|
39,039 |
|
|
|
12,108 |
|
Cash
flows used in investing activities |
|
(159,147 |
) |
|
|
(15,484 |
) |
Cash
flows provided by financing activities |
|
21,267 |
|
|
|
9,334 |
|
Operating Activities
We generated $39.0 million
of cash in operating activities in the nine months ended September 30, 2014,
primarily resulting from our net income of $3.7 million, which included non-cash
depreciation and amortization of $12.3 million, non-cash stock-based
compensation of $30.5 million and non-cash provision for doubtful accounts of
$3.9 million. In addition, operating assets and liabilities changed by $10.7
million, primarily due to the timing of collections on accounts receivable and
payments to vendors during the nine months ended September 30, 2014.
We generated $12.1 million
of cash in operating activities in the nine months ended September 30, 2013,
primarily resulting from our net loss of $8.0 million, offset by non-cash
depreciation and amortization of $7.9 million, non-cash stock-based compensation
of $17.9 million, non-cash provision for doubtful accounts and sales returns of
$2.2 million, and non-cash loss on disposal of assets of $0.2 million. In
addition, operating assets and liabilities changed by $8.1 million, primarily
due to the timing of collections on accounts receivable and payments to vendors
during the nine months ended September 30, 2013.
27
Table of Contents
Investing Activities
Our primary investing
activity in the nine months ended September 30, 2014 consisted of purchases of
marketable securities, as well as the continued purchases of property and
equipment to support the build out of our data centers, leasehold improvements
for our headquarters building in San Francisco and other locations, the
purchase of technology hardware to support our growth in headcount and software
to support website and mobile app development, website operations and our
corporate infrastructure. Purchases of property and equipment, as well as
leasehold improvements, may vary from period to period due to the timing of the
expansion of our offices, operations and website and internal-use software and
development. We expect to continue to invest in property and equipment,
leaseholds and the development of software for the remainder of 2014 and
thereafter.
We used $159.1 million of
cash in investing activities during the nine months ended September 30, 2014.
Cash used in investing activities primarily related to purchases of marketable
securities of $148.4 million, as well as an increase in expenditures related to
website and internally developed software of $8.0 million, purchases of
intangible data licenses of $1.3 million and purchases of property, equipment,
software and leasehold improvements of $12.7 million to support our growth in
the business and an increase in restricted cash of $9.8 million associated with
letters of credit in connection with leased office space. Cash used in investing
was offset by $21.0 million of maturities of investment securities held to
maturity.
We used $15.5 million of
cash in investing activities during the nine months ended September 30, 2013,
including $2.1 million net of cash received for the acquisition of SeatMe. Cash
used in investing activities primarily related to an increase in expenditures
related to website development of $3.3 million and purchases of property,
equipment, software and leasehold improvements of $9.5 million to support our
growth in the business. Restricted cash increased by $1.8 million related to
new or expanded office leases. Cash used in investing was offset by $1.2 million of
cash released from escrow related to the Qype acquisition, recorded as a
measurement period adjustment to the initial fair value of the acquired assets
and liabilities during the nine months ended September 30, 2013.
Financing Activities
During the nine months
ended September 30, 2014, we generated $21.3 million in financing activities
primarily due to net proceeds of $17.3 million from the issuance of common stock
upon the exercise of stock options, and $4.1 million in net proceeds from the
sale of stock under our ESPP.
During the nine months
ended September 30, 2013, we generated $9.3 million in financing activities
primarily due to net proceeds from the issuance of common stock upon the
exercise of stock options.
Off Balance Sheet
Arrangements
We did not have any off
balance sheet arrangements in 2013 or the first nine months of 2014.
Contractual
Obligations
We lease various office
facilities, including our corporate headquarters in San Francisco, California,
under operating lease agreements that expire from 2014 to 2025. The terms of the
lease agreements provide for rental payments on a graduated basis. We recognize
rent expense on a straight-line basis over the lease periods. We do not have any
debt or material capital lease obligations, and all of our property, equipment
and software have been purchased with cash. As of September 30, 2014, the
following table summarizes our contractual obligations and the effect such
obligations are expected to have on our liquidity and cash flow in future
periods.
|
|
Payments Due by
Period |
|
|
|
|
|
Less |
|
|
|
|
|
|
|
More |
|
|
|
|
|
Than |
|
|
|
|
|
|
|
Than |
|
|
Total |
|
1 Year |
|
1 3
Years |
|
3 5
Years |
|
5
Years |
|
|
(in thousands) |
Operating lease obligations |
|
$ |
237,163 |
|
$ |
20,936 |
|
$ |
56,735 |
|
$ |
53,665 |
|
$ |
105,827 |
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. As of September 30,
2014, our total liability for uncertain tax positions was $2.0 million. We are
not able to reasonably estimate the timing of future cash flow related to this
liability. As a result, this amount is not included in above contractual
obligations table.
28
Table of Contents
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 fluctuations, foreign currency exchange risks and inflation.
Interest Rate
Fluctuation Risk
The primary objective of
our investment activities is to preserve principal while maximizing income
without significantly increasing risk.
Our cash and cash
equivalents consist of cash and money market funds. We do not have any long-term
borrowings. Because our cash and cash equivalents have a relatively short
maturity, their fair value is relatively insensitive to interest rate changes.
We believe a hypothetical 10% increase in interest rates as of September 30,
2014 would not have a material impact on our cash and cash equivalent portfolio.
Our marketable securities
are comprised of fixed-rate debt securities issued by corporations, U.S.
government agencies and the U.S. Treasury; as such, their fair value may be
affected by fluctuations in interest rates in the broader economy. As we have
both the ability and intent to hold these securities to maturity, such
fluctuations would have no impact on our results of operations.
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), net 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 a hypothetical 10%
strengthening/(weakening) of the U.S. dollar against the British pound sterling,
either alone or in combination with a hypothetical 10% strengthening/(weakening)
of the U.S. dollar against the Euro, would not have a material impact on our
results of operations. In the event our foreign sales and expenses continue to
increase as a proportion of our overall sales and expenses, 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
We maintain disclosure
controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act, 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 U.S. Securities and Exchange Commissions (SEC) 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.
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
September 30, 2014. Based on the evaluation of our disclosure controls and
procedures as of September 30, 2014, our Chief Executive Officer and Chief
Financial Officer concluded that, as of such date, our disclosure controls and
procedures were effective at the reasonable assurance level.
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 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
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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.
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PART II. OTHER
INFORMATION
ITEM 1. LEGAL
PROCEEDINGS
In February and March 2010,
we were sued in two putative class actions on behalf of local businesses
asserting various causes of action based on claims that we manipulated the
ratings and reviews on our platform to coerce local businesses to buy our
advertising products. These cases were subsequently consolidated in an action
asserting claims for violation of the California Business and 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 consolidated action with prejudice. The plaintiffs
appealed to the U.S. Court of Appeals for the Ninth Circuit, which affirmed the
dismissal of the consolidated action on September 2, 2014. The plaintiffs have
petitioned the Ninth Circuit for a rehearing. Accordingly, we are currently
unable to reasonably estimate either the probability of incurring a loss or an
estimated range of such loss, if any, from this appeal.
On August 6, 2014, a putative class action
lawsuit alleging violations of federal securities laws was filed in the U.S. District Court for the Northern District of
California, naming as defendants us and certain of our officers. An additional lawsuit containing similar claims was filed
in the same court on August 25, 2014. The lawsuits allege violations of the Exchange Act by us and our officers for making
allegedly materially false and misleading statements regarding our business and operations between October 29, 2013 and April
3, 2014. The plaintiffs seek unspecified monetary damages and other relief.
In addition, we are 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 do not believe that the final outcome of any of these matters will
have a material adverse effect on our 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.
We have marked with an
asterisk (*) those risks described below that reflect substantive changes from
the risks described in our Annual Report on Form 10-K for the year ended
December 31, 2013.
We have a limited
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 limited operating
history in an evolving industry that may not develop as expected, if at all.
This limited 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 and the number of reviews and other content on our
platform;
- increase the revenue from advertisers
on our website and mobile app;
- continue to earn and preserve a
reputation for providing meaningful and reliable reviews of local
businesses;
- effectively monetize our mobile
products 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 have only 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;
- effectively integrate businesses we
may acquire, such as Qype and SeatMe;
- 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.
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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 address successfully these risks and difficulties or others,
including those described elsewhere in these risk factors. Failure to address
these risks and difficulties adequately 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 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 September 30, 2014, we had an accumulated deficit of approximately $66.7 million. Although our revenues have grown rapidly in the last several years, increasing from $12.1 million in 2008 to $233.0 million in 2013, 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. For example, although our average number of monthly unique visitors continues to grow, the rate of growth has slowed in recent quarters even as we have expanded our international presence. Slower growth rates may harm our business and financial results because traffic to our website determines the number of ads we are able to show, affects the value of those ads to businesses, and influences the content creation that drives further traffic. As a result, you should not rely on the revenue growth of any prior quarterly or annual period as an indication of our future performance. In addition, historically, our costs have increased each year and we expect our costs to increase in future periods as we continue to expend substantial financial resources on:
- sales and marketing;
- domestic and international expansion
efforts;
- product and feature development;
- our
technology infrastructure;
- 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. Our costs may also
increase as we hire additional employees, particularly as a result of the
significant competition that we face to attract and retain technical talent. Our
expenses may grow faster than our revenue and may be greater than we anticipate
in a particular period or over time. 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 maintain profitability.
*We rely on traffic
to our website from search engines like Google and Bing, some of which offer
products and services that compete directly with our solutions. If information
from and links to our website are not displayed as prominently on search engine
result pages as those from competing products and services, 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 and Bing. The number of users we attract from search engines to our website (including our mobile website) is due in large part to how and where information from and links to our website are displayed on search engine result pages. The display, including rankings, of unpaid search results 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 the second quarter of 2014, for example, Google made changes to its algorithms and methodologies that may be contributing to the recent slowing of our traffic growth rate. We cannot predict the long-term impact of these changes. In some instances, search engine companies may change their displays or rankings in order to promote their own competing products or services or the products or services of one or more of our competitors. Search engines may also remove links to content on our website from their search results in response to takedown requests submitted following a decision from the European Court of Justice regarding an individuals right to be forgotten.
Although traffic to our
mobile app is less reliant on search results than traffic to our website, growth
in mobile device usage may not decrease our overall reliance on search results
if mobile users use our mobile website at the expense of our mobile app. In
fact, growth in mobile device usage may exacerbate the risks associated with how
and where our website is displayed in search results because mobile device
screens are smaller than desktop computer screens and therefore display fewer
search results. 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.
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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 three months
ended September 30, 2014. 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. For example, our ability to provide
high quality content may be harmed as consumers increasingly contribute content
through our mobile website and mobile app because desktop contributions tend to
be longer than content contributed through mobile devices. 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.
*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 42% of the businesses that have been
reviewed on our platform and approximately 58% of our cumulative reviews through
September 30, 2014. 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 automated
software does not recommend helpful content or recommends 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 avoid recommending content that we believe may be biased,
unreliable or otherwise unhelpful, we cannot guarantee that our efforts will be
effective or adequate. In addition, some consumers and businesses have
alternately expressed concern that our technology either recommends too many
reviews, thereby recommending some reviews that may not be legitimate, or too
few reviews, thereby not recommending some reviews that may be legitimate. This
may cause consumers and businesses to stop or reduce their use of our platform
or our advertising solutions. If the performance of our automated recommendation
software 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.
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*Our business depends
on a strong brand, and any failure to maintain, protect and enhance our brand
would hurt our ability to retain and expand our base of users and advertisers,
as well as 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 are critical to
expanding our base of users and advertisers and increasing the frequency with
which they use our solutions. Our ability to do so 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, if consumers
do not perceive the user content on our platform to be authentic, they may lose
trust in the integrity of the content and our brand may be harmed. This may
occur if consumers 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.
Similarly, certain media
outlets have previously reported allegations that a significant percentage of
the reviews on our platform are not genuine. We dedicate significant resources
to the goal of maintaining and enhancing the quality, authenticity and integrity
of the reviews on our platform. In particular, our automated recommendation
software analyzes all reviews submitted to our platform and highlights what it
determines to be the most useful and reliable of them by publishing them
directly on business listing pages. Our recommendation software is designed to
avoid recommending content that we believe may be biased, unreliable or
otherwise unhelpful; for example, our software may not recommend reviews written
by users about whom we have limited information, reviews that may be biased
because they were solicited from family, friends or favored customers, or
unhelpful rants and raves. Our recommendation software operates continually, and
the results of its determinations with respect to particular reviews may change
over time as it factors in new information.
In addition, we take steps
to address reviews that may not be reliable through our consumer alerts program,
coordination with consumer protection agencies and law enforcement, sting
operations targeting the buying and selling of reviews and, in certain egregious
cases, taking legal action against businesses we believe to be engaged in
deceptive activities. We also remove content from our platform that violates our
terms of service, including, without limitation: fake or defamatory content;
content that has been bought, sold or traded; threatening, harassing or lewd
content, as well as hate speech and other displays of bigotry; and content that
violates the rights of any third party or any applicable law. As of September
30, 2014, approximately 70% of the reviews submitted to our platform were
recommended; approximately 23% were not recommended but still accessible on our
platform and approximately 7% had been removed. However, we cannot guarantee
that each of the 62.0 million reviews on our platform that have been recommended
and that have not been removed for violating our terms of service as of
September 30, 2014 is useful or reliable. If consumers do not believe our
recommended reviews to be useful and reliable, they 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 retain and attract users and advertisers and increase the frequency
with which they use our platform.
Maintaining and enhancing
our brand may require us to make substantial investments, and these investments
may not be successful. For example, 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 operations. If we fail to maintain
and enhance our brand successfully, or if we incur excessive expenses in this
effort, our business and financial results may be adversely affected.
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*Negative publicity
could adversely affect our reputation and brand.
Negative publicity about
our company, including our technology, sales practices, personnel, customer
service, or litigation or political activities, could diminish confidence in and
the use of our products. Certain media outlets have previously reported
allegations that we manipulate our reviews, rankings and ratings in favor of our
advertisers and against non-advertisers. These allegations, though untrue, could
adversely affect our reputation and brand, require significant management time
and attention, and subject us to inquiries or investigations. In order to
demonstrate that our automated recommendation software applies in a
nondiscriminatory manner to both advertisers and nonadvertisers, we have made
all reviews that are not recommended accessible on our platform. We have also
allowed businesses to comment publicly on reviews so that they can provide a
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. Allegations and complaints regarding our business
practices, and any resulting negative publicity, may also result in increased
regulatory scrutiny of our company. In addition to requiring management time and
attention, any regulatory inquiry or investigation could itself result in
further negative publicity regardless of its merit or outcome. In addition, our
website and mobile app also 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. Similarly, the actions of our partners may affect our brand if users
do not have a positive experience completing transactions on the Yelp Platform.
*If we fail to
maintain and expand our base of advertisers, our revenue and our business will
be harmed.
For the three and nine
months ended September 30, 2014, substantially all of our revenue was generated
by the sale of advertising products. We have incurred significant costs to
attract current and future advertisers and expect to incur significant
additional costs for the foreseeable future. Our ability to grow our business
depends on our ability to maintain and expand our advertiser base. To do so, we
must convince existing and prospective advertisers alike that our advertising
products offer a material benefit and can generate a competitive return relative
to other alternatives. Many prospective advertisers, such as those in new
markets, may not be familiar with our products or may view them as unproven.
Many of these businesses are more accustomed to using more traditional methods
of advertising, such as newspapers or print yellow pages directories. If we do
not deliver ads in an effective manner, or we do not provide accurate analytics
and measurement solutions that demonstrate the value of our ads, advertisers may
choose not to advertise with us.
Our advertisers typically
do not have long-term obligations to purchase our products, and their 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. 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, declining advertising budgets,
closures and bankruptcies.
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 42% of the businesses that have been reviewed on our platform and
approximately 58% of our cumulative reviews through September 30, 2014,
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. 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.
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, to grow our business. 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.
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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 reach those new markets and encountering different and
potentially lower levels of user engagement in some or all of these 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.
We plan to continue
expanding our operations abroad where we have limited operating experience and
may be subject to increased risks that could affect our financial results.
We plan to continue the
international expansion of our operations and 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 not
faced before or that increase our exposure to risks that we currently face,
including risks associated with:
- recruiting and retaining qualified,
multi-lingual employees, including sales personnel;
- integrating businesses we may acquire
internationally, such as Qype;
- 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;
- our ability to achieve prominent
display of our content in unpaid search results, which may be more difficult
in newer markets where we may have less content and more competitors than in
established markets;
- the enforceability of our intellectual
property rights;
- credit risk and higher levels of
payment fraud;
- compliance with anti-bribery laws,
including but not limited to 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.
Mobile advertising is
new and evolving. If our mobile advertising solutions are not compelling or do
not operate effectively with mobile operating systems, growth in use of our
mobile app and mobile website, particularly if it substitutes for use of our
website on personal computers, may adversely affect our results of operations
and business.
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 continue to increase. Although we currently
deliver advertising on our mobile app and mobile website, the mobile advertising
market remains a new and evolving market. Given our limited experience in
monetizing our mobile products and commitment to prioritizing the quality of
user experience over short-term monetization, we may not be able to generate
meaningful revenue from our mobile products despite the expected growth in
mobile usage. In addition, if consumers use our mobile app and mobile website as
substitutes for, rather than in addition to, use of our website on personal
computers and our mobile solutions prove ineffective, our advertisers may stop
or reduce their advertising with us.
Similarly, we may be unable to attract new advertisers if our mobile advertising
solutions are not compelling. If our advertising solutions are not effective or
we fail to continue to innovate and introduce enhanced mobile solutions, if our
solutions alienate our user base, or if our solutions are not widely adopted or
are insufficiently profitable, our business may suffer.
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Additionally, we are dependent on the interoperability of our mobile
products with popular mobile operating systems that we do not control, such as
Android and iOS, and any changes in such systems that degrade their
functionality could adversely affect mobile usage. 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. 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 Google, with whose local products we compete, or Apple, our
user growth and user engagement could be harmed. In addition, 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. Further, in the event
that it becomes more difficult for our users to access and use our mobile app,
or if users choose to use mobile products that do not offer access to our mobile
app, we may be unable to decrease our reliance on traffic from Google and other
search engines.
*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 and Bing; and various other online service
providers and review websites, including regional review websites that may have
strong positions in particular countries.
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. Certain
competitors could also use strong or dominant positions in one or more markets
to gain competitive advantage against us in areas where we operate, including
by: integrating review platforms or features into products they control, such as
search engines, web browsers or mobile device operating systems; changing their
unpaid search result rankings to promote their products; refusing to enter into
or renew licenses on which we depend; or limiting or denying our access to
advertising measurement or delivery systems.
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. 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.
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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.
Worldwide economic conditions, such as the sovereign debt and federal
government funding issues in the United States, create uncertainty and
unpredictability and add risk to our future outlook. Our performance is subject
to, among other things, the impact of worldwide economic conditions on levels of
advertising spend by small and medium-sized businesses, which may be
disproportionately affected by economic downturns. In the event of an economic
slowdown or deterioration of worldwide economic conditions, 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 platform 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.
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.
This risk may be increased if the immunities afforded to websites that
publish user-generated content are limited through new legislation or otherwise.
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. It may also be enhanced in certain
jurisdictions outside the United States where our protection from liability for
third-party actions may be unclear and where we may be less protected under
local laws than we are in the United States.
*Our business is
subject to complex and evolving U.S. and foreign regulations and other legal
obligations related to privacy, data protection and other matters. Our actual or
perceived failure to comply with such regulations and obligations could harm our
business.
We are subject to a variety of laws in the United States and abroad that
involve matters central to our business, including laws regarding privacy, data
retention, distribution of user-generated content and consumer protection, among
others. For example, because we receive, store and process personal information
and other user data, including credit card information for certain users, we are
subject to 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, such as the Childrens Online Privacy Protection Act, which regulates the
way we collect and use information from children. We are also subject to a
variety of laws, regulations and guidelines that regulate the way we distinguish
paid search results and other types of advertising from unpaid search results.
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The application and interpretation of these laws and regulations are
often uncertain, particularly in the new and rapidly evolving industry in which
we operate, and may be inconsistent between countries. It is also possible that
the interpretation and application of these obligations may conflict with other
rules or our practices, such as industry standards to which we adhere, our
privacy policies and our privacy-related obligations to third parties
(including, in certain instances, voluntary third-party certification bodies
such as TRUSTe). It is difficult to predict how existing laws will be applied to
our business, and if our business grows and evolves and our solutions are used
in a greater number of countries, we will also become subject to laws and
regulations in additional jurisdictions.
Similarly, our business could be adversely affected if new legislation or
regulations are adopted that are inconsistent with our current business
practices and that require us to change these practices or the design of our
platform, products or features. For example, regulatory frameworks for privacy
issues are currently in flux worldwide, and are likely to remain so for the
foreseeable future due to increased public scrutiny of the practices of
companies offering online services with respect to the personal information of
their users. The U.S. government, including the White House, the Federal Trade
Commission and the Department of Commerce, and many state governments are
reviewing the need for greater regulation of the collection of information
concerning consumer behavior with respect to online services, including
regulation aimed at restricting certain targeted advertising practices and the
collection and use of data from mobile services. In addition, the European Union
is in the process of promulgating a new general data protection regulation,
which may result in significantly greater compliance burdens for companies such
as us with users and operations in Europe. 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, such changes could
make it more difficult for us to provide effective advertising tools to
businesses on our platform, resulting in fewer advertisers and less revenue.
We believe our policies and practices comply with applicable laws and
regulations. However, if our belief proves incorrect, if these guidelines, laws
or regulations or their interpretations change or new legislation or regulations
are enacted, or if the third parties with whom we share user information fail to
comply with such guidelines, laws, regulations or their contractual obligations
to us, we may be forced to implement new measures to reduce our legal exposure.
This may require us to expend substantial resources, delay development of new
products or discontinue certain products or features, which would negatively
affect our business. For example, if we fail to comply with our privacy-related
obligations to users or third parties, or any compromise of security that
results in the unauthorized release or transfer of personally identifiable
information or other user data, 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. We may also face
litigation, governmental enforcement actions or negative publicity, which could
cause our users and advertisers to lose trust in us and have an adverse effect
on our business. For example, from time to time we receive inquiries from
government agencies regarding our business practices. Although the internal
resources expended and expenses incurred in connection with such inquiries and
their resolutions have not been material to date, any resulting negative
publicity could adversely affect our reputation and brand. Responding to and
resolving any future litigation, investigations, settlements or other regulatory
actions may require significant time and resources, and could diminish
confidence in and the use of our products.
Our growth depends in
part on the success of our strategic relationships with third parties, and any
failure to maintain these relationships could harm our business.
We rely in part on relationships with various third parties to grow our
business, including strategic partners and technology and content providers.
Identifying, negotiating and maintaining relationships with third parties
require significant time and resources, as does integrating their services and
technologies onto our platform. We may also have competing interests and
obligations with respect to our partners, which may make it difficult to
maintain, grow or maximize the benefit of each partnership. In addition, we have
had, and may in the future have, disagreements or disputes with our partners
about our respective contractual obligations, which could result in legal
proceedings or negatively affect our brand and reputation. It is also possible
that these third parties may not be able to devote the resources we expect to
the relationships or they may terminate their relationships with us. If we are
unsuccessful in establishing or maintaining our relationships with third
parties, our ability to grow our business could be impaired, and our operating
results could suffer.
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*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. We may also be unable to realize the expected
benefits and synergies of any acquisitions.
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. For example, in October
2012, we acquired Qype to accelerate our international expansion and, in July
2013, we acquired SeatMe to obtain an online reservation solution. We have
limited experience as a company in the complex process of acquiring other
businesses and technologies. The pursuit of potential future 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.
Acquisitions that are consummated could result in dilutive issuances of
equity securities or the incurrence of debt, which could adversely affect our
results of operations or our ability to achieve profitability. The incurrence of
debt in particular could result in increased fixed obligations or include
covenants or other restrictions that would impede our ability to manage our
operations. In addition, any acquisitions we announce could be viewed negatively
by users, businesses or investors. We may also discover liabilities or
deficiencies associated with the companies or assets we acquire that we did not
identify in advance. We may also fail to accurately forecast the financial
impact of an acquisition transaction, including related accounting charges.
In order to realize any gains from any acquisition that is consummated,
we must successfully complete the integration of the acquired business, its
operations, services and personnel with our organization. In order to realize
the expected benefits and synergies of our acquisitions, we must meet a number
of significant challenges, including:
- integrating operations, strategies,
sites and technologies and personnel of the acquired
company;
- managing the combined business
effectively;
- retaining and assimilating the key
personnel of the acquired company;
- retaining existing customers and
strategic partners and minimizing disruption to existing relationships as a
result of any integration of new
personnel;
- difficulties in the assimilation of
employees and corporate cultures;
- implementing and retaining uniform
standards, controls, procedures, policies and information
systems;
- addressing risks related to the
business of the acquired company that may continue to impact the businesses
following the acquisition;
and
- potential unknown liabilities
associated with an acquired company.
Any inability to integrate services, sites and technologies, operations
or personnel in an efficient and timely manner could harm our results of
operations. Transition activities are complex and require significant time and
resources, and we may not manage the process successfully, particularly if we
are managing multiple integrations concurrently. In addition, we may be required
to spend additional time or funds on integration that otherwise would be spent
on the development and expansion of the combined business. Even if we are able
to integrate the operations of any acquired company successfully, these
integrations may not result in the realization of the full benefits of
synergies, cost savings, innovation and operational efficiencies that may be
possible from the integration of each business, and these benefits may not be
achieved within a reasonable period of time.
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,
including through our acquisitions of Qype in October 2012 and SeatMe in July
2013, 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 and from any acquired
businesses, 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.
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Our business is
dependent on the uninterrupted and proper operation of our technology and
network infrastructure. Any significant disruption in our service could damage
our reputation, result a potential loss of users and engagement and adversely
affect our results of operations.
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. Such performance problems may be due to a variety of factors,
including infrastructure changes, human or software errors and capacity
constraints due to an overwhelming number of users accessing our platform
simultaneously. In some instances, we may not be able to identify the cause or
causes of these performance problems within an acceptable period of time. 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.
It may become increasingly difficult to maintain and improve the
availability of our platform, especially during peak usage times, as our
solutions become more complex and our user traffic increases. 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 systems and operations are also vulnerable to damage or interruption
from catastrophic occurrences such as earthquakes, fires, floods, power losses,
telecommunications failures, terrorist attacks and similar events. 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. 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. Our disaster recovery
program contemplates transitioning our platform and data to a backup center in
the event of a catastrophe. Although this program is functional, if our primary
data center shuts down, there will be a period of time that our services will
remain shut down while the transition to the back-up data center takes place.
During this time, our platform may be unavailable in whole or in part to our
users.
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, users and business owners. For example, certain of
our users have sued us claiming that they were in fact Yelp employees and should
have received minimum wage for their time spent writing reviews. Other users
have brought suit alleging that we violated their privacy rights when our mobile
app accessed certain data on their mobile devices. Various businesses have also
sued us alleging that we manipulate Yelp reviews in order to coerce them and
other businesses to pay for Yelp advertising.
Companies in the Internet, technology and media industries own large
numbers of patent and other intellectual property rights, and frequently enter
into litigation based on allegations of infringement or other violations of such
rights. In addition, various non-practicing entities that own patents and
other intellectual property rights often aggressively attempt to assert their
rights in order to extract value from technology companies. From time to time,
we receive notice letters from patent holders alleging that certain of our
products and services infringe their patent rights. 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. We
presently are involved in numerous patent lawsuits, all of which involve
plaintiffs targeting multiple defendants in the same or similar suits.
Other claims against us can be expected to be made in the future, and as
we face increasing competition and gain an increasingly high profile, we expect
the number of claims against us to accelerate. The results of litigation and
claims to which we may be subject cannot be predicted with certainty. Even if
the claims are without merit, the costs associated with defending these types of
claims may be substantial, 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. 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.
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Some of our products
contain open source software, which may pose particular risks to our proprietary
software and solutions.
We use open source software in our products 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 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.
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 adjusted EBITDA, as well as appropriately estimate and plan our
expenses;
- the effects of changes in search
engine placement and prominence;
- the effects of increased competition
in our business;
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- our ability to expand successfully in
existing markets, enter new markets and manage our international
expansion;
- our ability to maintain and increase
traffic to our website and mobile app;
- our ability to manage and integrate
successfully any acquisitions of businesses, solutions or technologies, such
as Qype and SeatMe;
- 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 and grow our
intellectual property;
- our ability to maintain an adequate
rate of growth and effectively manage that growth;
- 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;
- changes in consumer behavior with
respect to local businesses;
- fluctuations in spending by our
advertisers due to seasonality, such as historically stronger spending in the
fourth quarter of each year, or
other factors;
- the effects of natural or man-made
catastrophic events;
- 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 our senior management team,
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. As we mature,
the incentives to attract, retain and motivate employees provided by our equity
awards, for example, may not be as effective as in the past, and if we issue
significant equity to attract additional employees, the ownership of our
existing stockholders may be further diluted and our expenses may significantly
increase.
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 means 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.
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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.
Our platform involves the storage and transmission of user and business
information, some of which may be private, and security breaches could expose us
to a risk of loss of this information, which could result in potential liability
and litigation. Computer viruses, break-ins, malware, phishing attacks, attempts
to overload servers with denial-of-service or other attacks and similar
disruptions from unauthorized use of computer systems have become more prevalent
in our industry, have occurred on our systems in the past and may occur on our
systems in the future. We may be a particularly compelling target for such
attacks as a result of our brand recognition. Although none of the disruptions
we have experienced to date have had a material effect on our business, any
future disruptions 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. Even if we experience
no significant shutdown or no critical data is lost, obtained or misused in
connection with an attack, the occurrence of such attack or the perception that
we are vulnerable to such attacks may harm our reputation, our ability to retain
existing users and our ability to attract new users. 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 more remote areas around the world, we may
be unable to proactively address these techniques or to implement adequate
preventative measures. User and business owner accounts and profile pages could
also 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.
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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 or other action or liability, thereby harming our results of
operations. Government authorities could also initiate legal or regulatory
actions against us in connection with such incidents, which could cause us to
incur significant expense and liability or result in orders or consent decrees
forcing us to modify our business practices. For example, we work with third-party vendors to process credit card payments by certain of our users and local
businesses and are subject to payment card association operating rules. If our
security measures fail to protect this information adequately as a result of
employee error, malfeasance or otherwise, or we fail to comply with the
applicable operating rules, we could be liable to our users and local businesses
for their losses, as well as the vendors under our agreements with them; be
subject to fines and higher transaction fees; or face regulatory action. Any of
these events could cause our users, local businesses and vendors to end their
relationships with us, which would harm our business and financial 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 (the Credit CARD Act) 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 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 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
have been subject to allegations that their deal products are subject to the
Credit CARD Act and various state laws governing gift cards and that such
companies have violated these laws as a result of expiration dates and other
restrictions they have placed on their deals. Lawsuits have also been filed in
other locations in which we sell or 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 and Gift Certificates, 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 and Gift Certificates 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 and Gift Certificates, 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.
45
Table of Contents
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 or otherwise seek 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.
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 not only in terms of the future corporate tax rate, but also 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.
Changes in tax laws
or tax rulings could materially affect our financial position and results of
operations.
The current U.S. administration and key members of Congress have made
public statements indicating that tax reform is a priority. Certain changes to
U.S. tax laws, including limitations on the ability to defer U.S. taxation on
earnings outside of the United States until those earnings are repatriated to
the United States, as well as changes to U.S. tax laws that may be enacted in
the future, could affect the tax treatment of our foreign earnings. In addition,
many countries in the European Union, as well as a number of other countries and
organizations such as the Organization for Economic Cooperation and Development,
are actively considering changes to existing tax laws that, if enacted, could
increase our tax obligations in many countries where we do business. Due to the
expanding scale of our international
business activities, any changes in the taxation of such activities may increase
our worldwide effective tax rate and harm our financial position and results of
operations.
46
Table of Contents
If our goodwill or
intangible assets become impaired, we may be required to record a significant
charge to earnings.
Under GAAP, we review our
intangible assets for impairment when events or changes in circumstances
indicate the carrying value may not be recoverable. Goodwill is required to be
tested for impairment at least annually. Factors that may be considered include
a change in circumstances indicating that the carrying value of our goodwill or
other intangible assets may not be recoverable include declines in our stock
price and market capitalization or future cash flows projections. We recorded a
significant amount of goodwill related to our acquisition of Qype in the fourth
quarter of 2012 and our acquisition of SeatMe in the third quarter of 2013. A
decline in our stock price, or any other adverse change in market conditions,
particularly if such change has the effect of changing one of our critical
assumptions or estimates, could result in a change to the estimation of fair
value that could result in an impairment charge to our goodwill and intangible
assets. Any such material charges may have a material negative impact on our
financial position and operating results.
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 our other stockholders 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 62% of the voting power of
our outstanding capital stock as of September 30, 2014. 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 though 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 our other stockholders 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. Between January 1, 2013 and September 30, 2014,
our Class A common stocks daily closing price has ranged from $19.70 to $98.04.
In addition to the factors discussed in this Risk Factors section and
elsewhere in this Quarterly Report, 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;
47
Table of Contents
- 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; 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. For example, in August 2014, we and certain of our officers were sued in two similar putative class action lawsuits alleging violations of federal securities laws for making allegedly materially false and misleading statements. We may be the target of additional litigation of
this type in the future as well. 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 our stockholders
ability to achieve a return on their 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.
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.
48
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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.
Sales of a substantial
number of shares of our Class A common stock in the public market, particularly
sales by our directors, officers and employees and significant stockholders, 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. As of September 30, 2014, we had
62,447,651 shares of Class A common stock and 10,030,034 shares of Class B
common stock outstanding. Although a public market exists for our Class A common
stock only, shares of Class B common stock are generally convertible into an
equivalent number of shares of Class A common stock at the option of the holder
or upon transfer (subject to certain exceptions).
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 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.
Being a public company that
is subject to these rules and regulations makes it more expensive for us to
obtain and retain director and officer liability insurance, and we may in the
future be required to accept reduced coverage or incur substantially higher
costs to obtain or retain adequate 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.
49
Table of Contents
ITEM 2. UNREGISTERED
SALES OF EQUITY SECURITIES
AND USE OF PROCEEDS
Use of Proceeds from
Public Offering of Common Stock
On March 2, 2012, we closed
our initial public offering, in which we sold 8,172,500 shares of Class A 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 initial public offering 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. Our
use of proceeds to date has been as described in our final prospectus (the
Prospectus) filed with the SEC pursuant to Rule 424(b) under the Securities
Act on March 2, 2012, and has included the approximately $24.3 million cash
portion of the purchase price of Qype and the approximately $2.2 million cash
portion of the purchase price of SeatMe. There has been no material change in
the planned use of proceeds from our initial public offering as described in the
Prospectus. We have invested the funds received that have not yet been utilized
in registered money market funds.
Issuer Purchases of
Equity Securities
The table below provides
information with respect to repurchases of shares of our Class B common stock.
No shares of our Class A common stock were repurchased during this period.
|
|
|
|
|
|
|
Total Number of |
|
|
|
|
|
|
|
|
|
Shares |
|
Maximum |
|
|
|
|
|
|
|
Purchased as |
|
Number of |
|
|
Total |
|
Weighted |
|
Part of Publicly |
|
Shares that May |
|
|
Number of |
|
Average |
|
Announced |
|
Yet Be Purchased |
|
|
Shares |
|
Price Paid |
|
Plans or |
|
Under the Plans |
Period |
|
Purchased(1) |
|
per
Share |
|
Programs |
|
or
Programs |
July
1 July 31, 2014 |
|
|
|
|
|
|
|
|
|
August 1 August 31, 2014 |
|
4,892 |
|
$ |
80.30 |
|
|
|
|
September 1 September 30, 2014 |
|
|
|
|
|
|
|
|
|
Total |
|
4,892 |
|
$ |
80.30 |
|
|
|
|
(1) |
|
Represents shares
withheld to satisfy tax withholding obligations in connection with the
vesting of employee restricted stock awards under our 2012 Equity
Incentive Plan, as amended. |
ITEM 3. DEFAULTS
UPON SENIOR
SECURITIES
None.
ITEM 4. MINE
SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER
INFORMATION
None.
ITEM 6. EXHIBITS
A list of exhibits filed
with this report or incorporated herein by reference is found in the Exhibit
Index immediately following the signature page of this report and is
incorporated into this Item 6 by reference.
50
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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. |
|
Date: October 24, 2014 |
|
/s/ Rob
Krolik |
|
|
Rob
Krolik |
|
|
Chief Financial Officer |
|
|
(Principal Financial and Accounting Officer and Duly
Authorized Signatory) |
Table of Contents
EXHIBIT
INDEX
|
|
|
|
|
|
|
|
|
|
|
|
Filed |
|
|
|
|
Incorporated by
Reference |
|
Herewith |
Exhibit |
|
|
|
|
|
|
|
|
|
|
|
|
Number |
|
Exhibit Description |
|
Form |
|
File No. |
|
Exhibit |
|
Filing Date |
|
|
3.1 |
|
Amended and Restated Certificate of Incorporation of Yelp
Inc. |
|
8-K |
|
001-35444 |
|
3.1 |
|
3/9/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.2 |
|
Amended and Restated Bylaws of
Yelp Inc. |
|
S-1/A |
|
333-178030 |
|
3.4 |
|
2/3/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.1 |
|
Reference is made to Exhibits 3.1 and 3.2. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.2 |
|
Form of Class A Common Stock
Certificate. |
|
S-1/A |
|
333-178030 |
|
4.1 |
|
2/3/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.3 |
|
Form
of Class B Common Stock Certificate. |
|
S-1/A |
|
333-178030 |
|
4.2 |
|
2/3/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.1 |
|
Lease, dated July 31, 2014, by and
between Yelp Inc. and 11 Madison Avenue LLC. |
|
8-K |
|
001-35444 |
|
10.1 |
|
8/6/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.1 |
|
Certification pursuant to Rule 13a-14(a)/15d-14(a). |
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
31.2 |
|
Certification pursuant to Rule
13a-14(a)/15d-14(a). |
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
32.1 |
|
Certifications of Chief Executive Officer and Chief Financial
Officer. |
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
101.INS |
|
XBRL Instance Document. |
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
101.SCH |
|
XBRL
Taxonomy Extension Schema Document. |
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
101.CAL |
|
XBRL Taxonomy Extension
Calculation Linkbase Document. |
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
101.DEF |
|
XBRL
Taxonomy Extension Definition Linkbase Document. |
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
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101.LAB |
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XBRL Taxonomy Extension Labels
Linkbase Document. |
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101.PRE |
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XBRL
Taxonomy Extension Presentation Linkbase Document. |
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The certifications
attached as Exhibit 32.1 accompany this Quarterly Report on Form 10-Q, are
not deemed filed with the Securities and Exchange Commission and are not
to be incorporated by reference into any filing of Yelp Inc. 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 this Quarterly
Report on Form 10-Q, irrespective of any general incorporation language
contained in such filing. |
EXHIBIT 31.1
CERTIFICATIONS
I, Jeremy Stoppelman,
certify that:
1. |
|
I have reviewed this Quarterly Report on Form 10-Q of Yelp
Inc.; |
|
2. |
|
Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this report; |
|
3. |
|
Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
report. |
|
4. |
|
The registrants other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
|
|
|
a) |
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared; |
|
|
|
b) |
|
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles; |
|
|
|
c) |
|
Evaluated
the effectiveness of the registrants disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and |
|
|
|
d) |
|
Disclosed
in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent
fiscal quarter (the registrants fourth fiscal quarter in the case of an
Annual Report) that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over financial
reporting; and |
|
5. |
|
The registrants other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrants auditors and the audit committee of the
registrants board of directors (or persons performing the equivalent
functions): |
|
|
|
a) |
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrants ability to record,
process, summarize and report financial information; and |
|
|
|
b) |
|
Any fraud,
whether or not material, that involves management or other employees who
have a significant role in the registrants internal control over
financial reporting. |
Date: October 24, 2014
/s/ Jeremy Stoppelman |
Jeremy Stoppelman Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION
I, Rob Krolik, certify
that:
1. |
|
I have reviewed this Quarterly Report on Form 10-Q of Yelp
Inc.; |
|
2. |
|
Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this report; |
|
3. |
|
Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
report. |
|
4. |
|
The registrants other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
|
|
|
a) |
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared; |
|
|
|
b) |
|
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles; |
|
|
|
c) |
|
Evaluated
the effectiveness of the registrants disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and |
|
|
|
d) |
|
Disclosed
in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent
fiscal quarter (the registrants fourth fiscal quarter in the case of an
Annual Report) that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over financial
reporting; and |
|
5. |
|
The registrants other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrants auditors and the audit committee of the
registrants board of directors (or persons performing the equivalent
functions): |
|
|
|
a) |
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrants ability to record,
process, summarize and report financial information; and |
|
|
|
b) |
|
Any fraud,
whether or not material, that involves management or other employees who
have a significant role in the registrants internal control over
financial reporting. |
Date: October 24, 2014
/s/ Rob Krolik |
Rob
Krolik Chief Financial Officer
|
EXHIBIT 32.1
CERTIFICATION
Pursuant to the requirement
set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended
(the Exchange Act), and Section 1350 of Chapter 63 of Title 18 of the United
States Code (18 U.S.C. § 1350), Jeremy Stoppelman, Chief Executive Officer of
Yelp Inc. (the Company), and Rob Krolik, Chief Financial Officer of the
Company, each hereby certifies that, to the best of his knowledge:
|
1. |
|
The
Companys Quarterly Report on Form 10-Q for the period ended September 30,
2014, to which this Certification is attached as Exhibit 32.1 (the
Quarterly Report), fully complies with the requirements of Section 13(a)
or Section 15(d) of the Exchange Act; and |
|
|
|
2. |
|
The
information contained in the Quarterly Report fairly presents, in all
material respects, the financial condition and results of operations of
the Company. |
In Witness Whereof, the
undersigned have set their hands hereto as of the 24th day of
October, 2014.
/s/ Jeremy Stoppelman |
|
/s/ Rob Krolik |
Jeremy Stoppelman |
|
Rob
Krolik |
Chief Executive Officer |
|
Chief Financial Officer |
This certification
accompanies the Quarterly Report on 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 Yelp Inc. 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 Quarterly Report on Form 10-Q), irrespective of any
general incorporation language contained in such filing.
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