UNITED
STATES
SECURITIES AND
EXCHANGE COMMISSION
Washington,
D.C. 20549
☒ |
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
|
|
For
the Quarterly Period Ended June 30, 2015 |
|
|
OR |
☐ |
|
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 ☒ NO ☐
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 ☒ NO ☐
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 ☒ |
Accelerated
filer ☐ |
Non-accelerated filer
(Do not check if a smaller reporting company) ☐ |
Smaller reporting
company ☐ |
Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). YES ☐ NO ☒
As of July 24, 2015, there
were 65,797,617 shares of registrants Class A common stock, par value $0.000001
per share, issued and outstanding and 9,455,216 shares of registrants Class B
common stock, par value $0.000001 per share, issued and outstanding.
YELP INC.
QUARTERLY
REPORT ON FORM 10-Q
TABLE OF
CONTENTS
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Page |
PART
I.
FINANCIAL
INFORMATION |
|
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|
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Item 1. |
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Financial Statements
(Unaudited). |
|
|
|
|
|
Condensed
Consolidated Balance Sheets as of June 30, 2015 and December 31,
2014. |
|
1 |
|
|
|
Condensed
Consolidated Statements of Operations for the Three and Six Months
Ended |
|
2 |
|
|
|
June
30, 2015 and 2014. |
|
|
|
|
|
Condensed
Consolidated Statements of Comprehensive Income (Loss) for the Three
and |
|
3 |
|
|
|
Six
Months Ended June 30, 2015 and 2014. |
|
|
|
|
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Condensed
Consolidated Statements of Cash Flows for the Six Months Ended June
30, |
|
4 |
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2015
and 2014. |
|
|
|
|
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Notes to Condensed
Consolidated Financial Statements. |
|
5 |
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Item 2. |
|
Managements Discussion and
Analysis of Financial Condition and Results of Operations. |
|
20 |
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Item
3. |
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Quantitative and Qualitative Disclosures About Market
Risk. |
|
30 |
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Item 4. |
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Controls and Procedures. |
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31 |
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PART
II.
OTHER
INFORMATION |
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|
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Item 1. |
|
Legal Proceedings. |
|
32 |
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Item
1A. |
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Risk
Factors. |
|
32 |
|
Item 2. |
|
Unregistered Sales of Equity
Securities and Use of Proceeds. |
|
55 |
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Item
3. |
|
Defaults Upon Senior Securities. |
|
55 |
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Item 4. |
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Mine Safety Disclosures. |
|
56 |
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Item
5. |
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Other Information. |
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56 |
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Item 6. |
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Exhibits. |
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56 |
|
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Signatures |
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|
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57 |
______________________________ |
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; references to our mobile
platform refer to both our mobile app and the versions of our website that are
optimized for mobile-based browsers. 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 that are optimized for mobile-based browsers.
In the fourth quarter of
2014, we acquired Restaurant Kritik, a German review website, and Cityvox SAS, a
French review website. Following these acquisitions, we migrated the content and
redirected the websites of Restaurant Kritik and Cityvox to the Yelp platform.
Accordingly, the traffic, content and local business activity of Restaurant
Kritik and Cityvox are included in the key metrics presented in this Quarterly
Report as of and for the quarter ended June 30, 2015.
PART I. FINANCIAL
INFORMATION
ITEM 1. FINANCIAL
STATEMENTS
YELP
INC.
CONDENSED CONSOLIDATED
BALANCE SHEETS
(In thousands, except share and per share
data)
(Unaudited)
|
|
June 30, |
|
December 31, |
|
|
2015 |
|
2014 |
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash
and cash equivalents |
|
$ |
181,460 |
|
|
$ |
247,312 |
|
Short-term
marketable securities |
|
|
186,673 |
|
|
|
118,498 |
|
Accounts
receivable (net of allowance for doubtful accounts of $2,343 and
$1,627 |
|
|
|
|
|
|
|
|
at
June 30, 2015 and December 31, 2014, respectively) |
|
|
41,339 |
|
|
|
35,593 |
|
Prepaid
expenses and other current assets |
|
|
22,713 |
|
|
|
19,355 |
|
Total current assets |
|
|
432,185 |
|
|
|
420,758 |
|
|
Long-term marketable securities |
|
|
|
|
|
|
38,612 |
|
Property, equipment and software, net |
|
|
72,603 |
|
|
|
62,761 |
|
Goodwill |
|
|
173,296 |
|
|
|
67,307 |
|
Intangibles, net |
|
|
42,458 |
|
|
|
5,786 |
|
Restricted cash |
|
|
16,285 |
|
|
|
17,943 |
|
Other assets |
|
|
4,560 |
|
|
|
16,483 |
|
Total
assets |
|
$ |
741,387 |
|
|
$ |
629,650 |
|
|
Liabilities and stockholders
equity |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts
payable |
|
$ |
1,706 |
|
|
$ |
1,398 |
|
Accrued
liabilities |
|
|
37,716 |
|
|
|
29,581 |
|
Deferred
revenue |
|
|
2,546 |
|
|
|
2,994 |
|
Total current liabilities |
|
|
41,968 |
|
|
|
33,973 |
|
Long-term liabilities |
|
|
13,254 |
|
|
|
7,527 |
|
Total
liabilities |
|
|
55,222 |
|
|
|
41,500 |
|
Commitments and contingencies (Note
10) |
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
|
|
|
|
|
|
Common stock, $0.000001 par value 500,000,000
shares authorized; |
|
|
|
|
|
|
|
|
75,232,705
and 72,920,582 shares issued and outstanding at |
|
|
|
|
|
|
|
|
June
30, 2015 and December 31, 2014, respectively |
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
734,867 |
|
|
|
627,742 |
|
Accumulated other comprehensive loss |
|
|
(12,130 |
) |
|
|
(5,609 |
) |
Accumulated
deficit |
|
|
(36,572 |
) |
|
|
(33,983 |
) |
Total
stockholders equity |
|
|
686,165 |
|
|
|
588,150 |
|
Total liabilities and stockholders
equity |
|
$ |
741,387 |
|
|
$ |
629,650 |
|
See notes to condensed
consolidated financial statements.
1
YELP
INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(In thousands, except per share
data)
(Unaudited)
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June
30, |
|
June
30, |
|
|
2015 |
|
2014 |
|
2015 |
|
2014 |
Net
revenue |
|
$ |
133,913 |
|
|
$ |
88,787 |
|
|
$ |
252,421 |
|
|
$ |
165,194 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
(exclusive of depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shown separately
below) |
|
|
13,057 |
|
|
|
5,845 |
|
|
|
21,756 |
|
|
|
10,922 |
|
Sales and
marketing |
|
|
68,014 |
|
|
|
47,798 |
|
|
|
131,280 |
|
|
|
92,919 |
|
Product
development |
|
|
26,345 |
|
|
|
14,726 |
|
|
|
50,305 |
|
|
|
28,708 |
|
General and
administrative |
|
|
19,280 |
|
|
|
13,257 |
|
|
|
39,217 |
|
|
|
26,427 |
|
Depreciation and
amortization |
|
|
7,167 |
|
|
|
4,034 |
|
|
|
14,062 |
|
|
|
7,695 |
|
Total
costs and expenses |
|
|
133,863 |
|
|
|
85,660 |
|
|
|
256,620 |
|
|
|
166,671 |
|
|
Income (loss) from operations |
|
|
50 |
|
|
|
3,127 |
|
|
|
(4,199 |
) |
|
|
(1,477 |
) |
Other income (expense), net |
|
|
329 |
|
|
|
(15 |
) |
|
|
891 |
|
|
|
(17 |
) |
|
Income (loss) before income taxes |
|
|
379 |
|
|
|
3,112 |
|
|
|
(3,308 |
) |
|
|
(1,494 |
) |
Benefit (provision) for income taxes |
|
|
(1,684 |
) |
|
|
(369 |
) |
|
|
719 |
|
|
|
1,602 |
|
|
Net
income (loss) attributable to common stockholders (Class A and
B) |
|
$ |
(1,305 |
) |
|
$ |
2,743 |
|
|
$ |
(2,589 |
) |
|
$ |
108 |
|
|
Net
income (loss) per share attributable to common stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Class A and Class B) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.02 |
) |
|
$ |
0.04 |
|
|
$ |
(0.03 |
) |
|
$ |
0.00 |
|
Diluted |
|
$ |
(0.02 |
) |
|
$ |
0.04 |
|
|
$ |
(0.03 |
) |
|
$ |
0.00 |
|
|
Weighted-average shares used to compute net income (loss) per
share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
attributable to common stockholders (Class A and Class
B) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
74,631 |
|
|
|
71,714 |
|
|
|
74,009 |
|
|
|
71,444 |
|
Diluted |
|
|
74,631 |
|
|
|
77,056 |
|
|
|
74,009 |
|
|
|
76,903 |
|
See notes to condensed
consolidated financial statements.
2
YELP
INC.
CONDENSED CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
|
Three Months Ended |
|
Six Months Ended |
|
June
30, |
|
June
30, |
|
2015 |
|
2014 |
|
2015 |
|
2014 |
Net
income (loss) |
$ |
(1,305 |
) |
|
$ |
2,743 |
|
|
$ |
(2,589 |
) |
|
$ |
108 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
translation adjustments |
|
1,344 |
|
|
|
(338 |
) |
|
|
(6,521 |
) |
|
|
(422 |
) |
Other comprehensive income (loss) |
|
1,344 |
|
|
|
(338 |
) |
|
|
(6,521 |
) |
|
|
(422 |
) |
Comprehensive income (loss) |
$ |
39 |
|
|
$ |
2,405 |
|
|
$ |
(9,110 |
) |
|
$ |
(314 |
) |
See notes to condensed
consolidated financial statements.
3
YELP
INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
|
|
Six Months Ended |
|
|
|
June
30, |
|
|
|
2015 |
|
2014 |
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Net
income (loss) |
|
$ |
(2,589 |
) |
|
$ |
108 |
|
|
Adjustments to
reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation
and amortization |
|
|
14,062 |
|
|
|
7,695 |
|
|
Provision
for doubtful accounts and sales returns |
|
|
6,076 |
|
|
|
2,581 |
|
|
Stock-based
compensation |
|
|
29,187 |
|
|
|
19,539 |
|
|
Loss
(gain) on disposal of assets and website development costs |
|
|
144 |
|
|
|
(5 |
) |
|
Premium
amortization, net, on securities held-to-maturity |
|
|
481 |
|
|
|
93 |
|
|
Excess
tax benefit from stock-based award activity |
|
|
(3,952 |
) |
|
|
(460 |
) |
|
Changes
in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
Accounts
receivable |
|
|
(7,855 |
) |
|
|
(6,716 |
) |
|
Prepaid
expenses and other assets |
|
|
(7,079 |
) |
|
|
(5,980 |
) |
|
Accounts
payable, accrued expenses, and long-term liabilities |
|
|
15,616 |
|
|
|
3,567 |
|
|
Deferred
revenue |
|
|
(426 |
) |
|
|
(433 |
) |
|
Net
cash provided by operating activities |
|
|
43,665 |
|
|
|
19,989 |
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Acquisition, net of cash received |
|
|
(73,422 |
) |
|
|
|
|
|
Purchases of property, equipment and software |
|
|
(18,059 |
) |
|
|
(7,212 |
) |
|
Capitalized website and software development costs |
|
|
(6,012 |
) |
|
|
(4,327 |
) |
|
Proceeds from sale of property and equipment |
|
|
109 |
|
|
|
14 |
|
|
Purchases of intangible assets |
|
|
(314 |
) |
|
|
|
|
|
Maturities of investment securities,
held-to-maturity |
|
|
63,870 |
|
|
|
|
|
|
Purchases of investment securities,
held-to-maturity |
|
|
(93,914 |
) |
|
|
(122,226 |
) |
|
Changes in restricted cash |
|
|
1,672 |
|
|
|
(397 |
) |
|
Net
cash used in investing activities |
|
|
(126,070 |
) |
|
|
(134,148 |
) |
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Proceeds from exercise of employee stock options |
|
|
8,534 |
|
|
|
10,841 |
|
|
Proceeds from issuance of common stock for Employee Stock
Purchase Plan |
|
|
5,061 |
|
|
|
4,087 |
|
|
Excess tax benefit from stock-based award activity |
|
|
3,952 |
|
|
|
460 |
|
|
Repurchase of common stock |
|
|
(396 |
) |
|
|
(642 |
) |
|
Net
cash provided by financing activities |
|
|
17,151 |
|
|
|
14,746 |
|
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS |
|
|
(598 |
) |
|
|
35 |
|
CHANGE IN CASH AND CASH
EQUIVALENTS |
|
|
(65,852 |
) |
|
|
(99,378 |
) |
CASH AND CASH
EQUIVALENTSBeginning of period |
|
|
247,312 |
|
|
|
389,764 |
|
CASH AND CASH EQUIVALENTSEnd of
period |
|
$ |
181,460 |
|
|
$ |
290,386 |
|
SUPPLEMENTAL DISCLOSURES OF OTHER
CASH FLOW INFORMATION: |
|
|
|
|
|
|
|
|
|
Cash
paid for income taxes, net of refunds |
|
$ |
(4 |
) |
|
$ |
260 |
|
SUPPLEMENTAL DISCLOSURES OF
NONCASH INVESTING AND FINANCING |
|
|
|
|
|
|
|
|
ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Purchases of property and equipment recorded in accounts
payable and accruals |
|
$ |
2,046 |
|
|
$ |
1,185 |
|
|
Capitalized website and software development costs recorded
in accounts payable and |
|
|
|
|
|
|
|
|
|
accruals |
|
|
15 |
|
|
|
25 |
|
|
Goodwill measurement period adjustment for working
capital |
|
|
51 |
|
|
|
|
|
|
Issuance of common stock in connection with acquisition |
|
|
59,158 |
|
|
|
|
|
See notes to condensed
consolidated financial statements.
4
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 by bringing word of mouth online and providing a
platform for businesses and consumers to engage and transact. Yelps platform is
transforming the way people discover local businesses; every day, millions of
consumers visit its website or use its mobile app to find local businesses to
meet their everyday needs. 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 February 27, 2015 (the Annual Report). The
unaudited condensed consolidated balance sheet as of December 31, 2014 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
There have been no material
changes to the Companys significant accounting policies from those described in
the Annual Report.
Recent Accounting
Pronouncements Not Yet Effective
In May 2014, the Financial
Accounting Standards Board (FASB) 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 new standard requires
that reporting companies to disclose the nature, amount, timing, and uncertainty of
revenue and cash flows arising from contracts with customers. On July 9, 2015,
the FASB agreed to delay the effective date by one year. In accordance with the
agreed upon delay, the new standard is effective for the Company beginning in the first
quarter of 2018. Early adoption is permitted, but not before the original
effective date of the standard. The new standard is required to be applied
retrospectively to each prior reporting period presented or retrospectively with
the cumulative effect of initially applying it recognized at the date of initial
application. The Company has not yet selected a transition method nor has it
determined the impact of the new standard on its consolidated condensed
financial statements.
In August 2014, FASB 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 31, 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
In April 2015, the FASB
issued Accounting Standards Update No. 2015-05, "Customer's Accounting for Fees
Paid in a Cloud Computing Arrangement" ("ASU 2015-05"). ASU 2015-05 provides
guidance to customers about whether a cloud computing arrangement includes a
software license. If a cloud computing arrangement includes a software license,
then the customer should account for the software license element of the
arrangement consistent with the acquisition of other software licenses. If a
cloud computing arrangement does not include a software license, the customer
should account for the arrangement as a service contract. The guidance will not
change GAAP for a customer's accounting for service contracts. The standard will
be effective for the first interim period within annual reporting periods
beginning after December 31, 2015. The Company is currently assessing the impact
that adopting this new accounting guidance will have on its consolidated
financial statements and related disclosures.
In June 2015, the FASB
issued Accounting Standards Update No. 2015-10, "Technical Corrections and Improvements" ("ASU 2015-10").
ASU 2015-10 amends a wide range of Accounting Standards Codification topics to
make clarifying changes, correct unintended application of guidance, and make
minor changes that are not expected to have a significant effect on current
accounting practice or create a significant administrative cost on most
entities. The Company does not anticipate that the adoption of ASU 2015-10 will
have a material impact on its consolidated financial statements and related
disclosures.
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 as cash equivalents at fair value in the
condensed consolidated financial statements. 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 quoted prices in active markets
that are observable either directly or indirectly, or
Level 3Unobservable inputs for which there are 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, 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 Company classified the
contingent consideration liability related to the acquisition of Restaurant
Kritik within Level 3, because it was estimated using a discounted cash flow
technique with significant inputs that were not observable in the market. The
significant inputs not observable in the market in the Level 3 measurement
included the Companys probability assessments of completion, appropriately
discounted considering the uncertainties associated with the obligation, and
were calculated in accordance with the terms of the asset purchase agreement.
During the period ended June 30, 2015, the Company adjusted the liability to $0.8
million based on the completion of the associated milestones. Refer to Note 4
regarding the effects of the acquisition on the Companys consolidated financial
statements.
6
The following table
represents the Companys financial instruments measured at fair value as of June
30, 2015 and December 31, 2014 (in thousands):
|
|
June 30,
2015 |
|
December 31,
2014 |
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
Cash
Equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
market funds |
|
$ |
104,017 |
|
$ |
|
|
$ |
|
|
$ |
104,017 |
|
$ |
208,593 |
|
$ |
|
|
$ |
|
|
$ |
208,593 |
Marketable Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
government bonds |
|
|
5,005 |
|
|
|
|
|
|
|
|
5,005 |
|
|
5,005 |
|
|
|
|
|
|
|
|
5,005 |
Commercial
paper |
|
|
|
|
|
31,973 |
|
|
|
|
|
31,973 |
|
|
|
|
|
31,965 |
|
|
|
|
|
31,965 |
Corporate
bonds |
|
|
|
|
|
20,082 |
|
|
|
|
|
20,082 |
|
|
|
|
|
29,486 |
|
|
|
|
|
29,486 |
Agency
bonds |
|
|
|
|
|
129,615 |
|
|
|
|
|
129,615 |
|
|
|
|
|
90,575 |
|
|
|
|
|
90,575 |
|
Total cash equivalents and marketable
securities |
|
$ |
109,022 |
|
$ |
181,670 |
|
$ |
|
|
$ |
290,692 |
|
$ |
213,598 |
|
$ |
152,026 |
|
$ |
|
|
$ |
365,624 |
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration liability |
|
$ |
|
|
$ |
|
|
$ |
802 |
|
$ |
802 |
|
$ |
|
|
$ |
|
|
$ |
835 |
|
$ |
835 |
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 June 30, 2015 and December 31, 2014 were
as follows (in thousands):
|
|
As of June 30,
2015 |
|
|
|
|
|
Gross |
|
Gross |
|
|
|
|
|
|
|
|
Unrealized |
|
Unrealized |
|
|
|
|
|
Amortized
Cost |
|
Gains |
|
Losses |
|
Fair
Value |
Short-term marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
paper |
|
$ |
31,973 |
|
$ |
|
|
$ |
|
|
|
$ |
31,973 |
Corporate
bonds |
|
|
20,085 |
|
|
1 |
|
|
(4 |
) |
|
|
20,082 |
Agency
bonds |
|
|
129,612 |
|
|
12 |
|
|
(9 |
) |
|
|
129,615 |
U.S.
government bonds |
|
|
5,003 |
|
|
2 |
|
|
|
|
|
|
5,005 |
Total marketable securities |
|
$ |
186,673 |
|
$ |
15 |
|
$ |
(13 |
) |
|
$ |
186,675 |
|
|
|
As of December 31,
2014 |
|
|
|
|
|
Gross |
|
Gross |
|
|
|
|
|
|
|
|
Unrealized |
|
Unrealized |
|
|
|
|
|
Amortized
Cost |
|
Gains |
|
Losses |
|
Fair
Value |
Short-term marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
paper |
|
$ |
31,964 |
|
$ |
|
|
$ |
|
|
|
$ |
31,964 |
Corporate
bonds |
|
|
24,397 |
|
|
1 |
|
|
(31 |
) |
|
|
24,367 |
Agency
bonds |
|
|
57,130 |
|
|
1 |
|
|
(26 |
) |
|
|
57,105 |
U.S.
government bonds |
|
|
5,007 |
|
|
|
|
|
(2 |
) |
|
|
5,005 |
|
|
$ |
118,498 |
|
$ |
2 |
|
$ |
(59 |
) |
|
$ |
118,441 |
|
Long-term marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
bonds |
|
$ |
5,120 |
|
$ |
|
|
$ |
(1 |
) |
|
$ |
5,119 |
Agency
bonds |
|
|
33,492 |
|
|
|
|
|
(22 |
) |
|
|
33,470 |
|
|
$ |
38,612 |
|
$ |
|
|
$ |
(23 |
) |
|
$ |
38,589 |
Total marketable securities |
|
$ |
157,110 |
|
$ |
2 |
|
$ |
(82 |
) |
|
$ |
157,030 |
7
The following table
presents gross unrealized losses and fair values for those securities that were
in an unrealized loss position as of June 30, 2015 and December 31, 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 June 30,
2015 |
|
|
Less Than 12
Months |
|
12 Months or
Greater |
|
Total |
|
|
Fair Value |
|
Unrealized Loss |
|
Fair Value |
|
Unrealized Loss |
|
Fair Value |
|
Unrealized Loss |
Corporate bonds |
|
$ |
13,069 |
|
$ |
(4 |
) |
|
$ |
|
|
$ |
|
|
$ |
13,069 |
|
$ |
(4 |
) |
Agency bonds |
|
|
55,529 |
|
|
(9 |
) |
|
|
|
|
|
|
|
|
55,529 |
|
|
(9 |
) |
Total |
|
$ |
68,598 |
|
$ |
(13 |
) |
|
$ |
|
|
$ |
|
|
$ |
68,598 |
|
$ |
(13 |
) |
|
|
As of December 31,
2014 |
|
|
Less Than 12
Months |
|
12 Months or
Greater |
|
Total |
|
|
Fair Value |
|
Unrealized Loss |
|
Fair Value |
|
Unrealized Loss |
|
Fair Value |
|
Unrealized Loss |
Corporate bonds |
|
$ |
24,439 |
|
$ |
(32 |
) |
|
$ |
|
|
$ |
|
|
$ |
24,439 |
|
$ |
(32 |
) |
Agency bonds |
|
|
79,564 |
|
|
(48 |
) |
|
|
|
|
|
|
|
|
79,564 |
|
|
(48 |
) |
U.S.
government bonds |
|
|
5,005 |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
5,005 |
|
|
(2 |
) |
Total |
|
$ |
109,008 |
|
$ |
(82 |
) |
|
$ |
|
|
$ |
|
|
$ |
109,008 |
|
$ |
(82 |
) |
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 the 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 six months ended June 30, 2015 and 2014, the Company did not
recognize any other-than-temporary impairment loss.
4.
ACQUISITIONS
2015
Acquisition
On February 9, 2015, the
Company acquired Eat24Hours.com, Inc. (Eat24). In connection with the
acquisition, all of the outstanding capital stock of Eat24 was converted into
the right to receive an aggregate of approximately $75.0 million in cash, less
certain transaction expenses, and 1,402,844 shares of Yelp Class A common stock
with an aggregate fair value of approximately $59.2 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, $16.5 million in cash and 308,626 shares were initially held in
escrow to secure indemnification obligations. The key factor underlying the
acquisition was to obtain an online food ordering solution to drive daily
engagement in the Companys key restaurant vertical.
8
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 Eat24s operations included in the Companys consolidated
financial statements from February 9, 2015. The Companys allocation of the
purchase price is preliminary as the amounts related to contingent
consideration, identifiable intangible assets, the effects of income taxes
resulting from the transaction, and the effects of any net working capital
adjustments are still being finalized. Any material measurement period
adjustments will be recorded retroactively to the acquisition date. The purchase
price allocation, subject to finalization during the measurement period, is as
follows (in thousands):
|
|
February 9,
2015 |
Fair
value of purchase consideration: |
|
|
|
|
Cash: |
|
|
|
|
Distributed
to Eat24 stockholders |
|
$ |
56,624 |
|
Held
in escrow account |
|
|
16,500 |
|
Payable
on behalf of Eat24 stockholders |
|
|
1,876 |
|
Total
cash |
|
|
75,000 |
|
|
Class A common
stock: |
|
|
|
|
Distributed
to Eat24 stockholders |
|
|
46,143 |
|
Held
in escrow account |
|
|
13,015 |
|
Total
purchase consideration |
|
$ |
134,158 |
|
|
Fair
value of net assets acquired: |
|
|
|
|
Cash
and cash equivalents |
|
$ |
1,578 |
|
Intangibles |
|
|
39,600 |
|
Goodwill |
|
|
110,927 |
|
Other
assets |
|
|
6,031 |
|
Total
assets acquired |
|
|
158,136 |
|
Deferred
tax liability |
|
|
(15,207 |
) |
Other
liabilities |
|
|
(8,771 |
) |
Total
liabilities assumed |
|
|
(23,978 |
) |
Net
assets acquired |
|
$ |
134,158 |
|
Estimated useful lives and
the amount assigned to each class of intangible assets acquired are as follows:
Intangible Asset Type |
|
Amount Assigned |
|
Useful Life |
Restaurant relationships |
|
17,400 |
|
12.0 years |
Developed technology |
|
7,400 |
|
5.0
years |
User
relationships |
|
12,000 |
|
7.0 years |
Trade name |
|
2,800 |
|
4.0 years |
Weighted
average |
|
|
|
8.6
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 drive daily engagement in its
restaurant vertical and potentially expand Eat24s offering to the approximately
1 million U.S. restaurants listed on the Companys platform. None of the
goodwill is deductible for tax purposes.
For the three months ended
June 30, 2015, the Company recorded no acquisition-related transaction costs and
for the six-months ended June 30, 2015, the Company recorded approximately $0.2
million in acquisition-related transaction costs, which were included in general and administrative expense in the
accompanying consolidated statement of operations.
9
The unaudited pro forma
financial information in the table below summarizes the combined results of
operations for the Company and Eat24, as though the companies had been combined
as of January 1, 2014, and includes the accounting effects resulting from the
acquisition, including transaction, integration costs, amortization charges from
acquired intangible assets, and changes in depreciation due to differing asset
values and depreciation lives. The unaudited pro forma financial information, as
presented below, is for informational purposes only and is not necessarily
indicative of the results of operations that would have been achieved if the
acquisition had taken place as of January 1, 2014 (in thousands, except per
share data):
|
|
Pro
Forma |
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30 |
|
June
30 |
|
|
2015 |
|
2014 |
|
2015 |
|
2014 |
Revenue |
|
$ |
133,915 |
|
|
94,653 |
|
$ |
255,668 |
|
|
176,513 |
|
Net
income (loss) |
|
$ |
(1,304 |
) |
|
2,646 |
|
$ |
(3,705 |
) |
|
(872 |
) |
Basic net income (loss) per share attributable to common
stockholders |
|
$ |
(0.02 |
) |
|
0.04 |
|
$ |
(0.05 |
) |
|
(0.01 |
) |
Diluted net income (loss) per share attributable to common
stockholders |
|
$ |
(0.02 |
) |
|
0.03 |
|
$ |
(0.05 |
) |
|
(0.01 |
) |
The consolidated statements
of operations for the three and six months ended June 30, 2015 include $5.3
million and $10.1 million of revenue, respectively, attributable to
Eat24.
2014
Acquisitions
In October 2014, the
Company, through its wholly-owned subsidiary, Yelp Ireland Ltd., completed the
acquisition of all of the outstanding equity interests in Cityvox SAS. Also in
October 2014, the Company, through its wholly-owned subsidiaries Yelp Ireland
Ltd. and Qype GmbH, acquired the assets comprising the business conducted under
the name Restaurant Kritik from Kabukiman Ltd. The aggregate purchase price of
these businesses was $15.3 million, net of $0.1 million cash acquired; the
purchase price did not include stock in either transaction. Each of these
acquisitions has been accounted for as a business combination in accordance with
ASC 805, under the acquisition method. Accordingly, the aggregate purchase price
is allocated to the tangible and intangible assets acquired and the liabilities
assumed based on their respective fair values on the acquisition dates, and is
subject to adjustment based on purchase price adjustment provisions contained in
the acquisition agreements. The results of operations of the acquired companies
have been included in the Companys consolidated financial statements from the
respective acquisition dates. Net revenues, earnings since the acquisition and
pro forma results of operations for these acquisitions have not been presented
because they are not material to the consolidated results of operations, either
individually or in aggregate. During the quarter ended December 31, 2014, the
Company recorded acquisition-related transaction costs of $0.6 million, which
were included in general and administrative expense.
Under the Restaurant Kritik
asset purchase agreement, the Company agreed to pay an additional $0.9 million
in consideration if the migration of Restaurant Kritiks content to Yelp is
completed within one year of the acquisition date. The estimated fair value of
the contingent consideration was approximately $0.8 million as of the
acquisition date and $0.8 million as of June 30, 2015, and is included in
current liabilities on the Companys consolidated balance sheet.
The following table
presents the aggregate purchase price allocations of these individually
immaterial acquisitions recorded in the Companys condensed consolidated balance
sheets as of their acquisition dates (in thousands):
Net tangible assets |
$ |
(277 |
) |
Goodwill |
|
13,995 |
|
Intangible assets |
|
1,546 |
|
Total purchase
price (excluding contingent consideration) |
|
15,264 |
|
Contingent consideration |
|
826 |
|
Total purchase
price |
$ |
16,090 |
|
Estimated useful lives as
of the acquisition dates of the intangible assets acquired are as follows:
Intangible Asset Type |
|
Useful Life |
Content |
|
5
years |
Developed technology |
|
0.5 years |
Trade name |
|
2 years |
Weighted
average |
|
4.3
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
represents the excess value over both tangible and intangible assets acquired.
The goodwill in these transactions is primarily attributable to traffic and the
opportunity for expansion. None of the goodwill is deductible for tax
purposes.
10
5. CASH AND CASH
EQUIVALENTS
Cash and cash equivalents
as of June 30, 2015 and December 31, 2014 consist of the following (in
thousands):
|
|
June
30, 2015 |
|
December
31, 2014 |
Cash
and cash equivalents |
|
|
|
|
|
|
Cash |
|
$ |
77,443 |
|
$ |
38,719 |
Money market
funds |
|
|
104,017 |
|
|
208,593 |
Total cash and cash equivalents |
|
$ |
181,460 |
|
$ |
247,312 |
The lease agreements for
certain of the Companys offices require the Company to maintain letters of
credit issued to the 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 June 30, 2015 and December 31, 2014,
the Company had letters of credit totaling $16.3 million and $17.9 million,
respectively, related to such leases.
6. PROPERTY, EQUIPMENT
AND SOFTWARE, NET
Property, equipment and
software, net as of June 30, 2015 and December 31, 2014 consist of the following
(in thousands):
|
|
June
30, 2015 |
|
December
31, 2014 |
Computer equipment |
|
$ |
22,247 |
|
|
$ |
19,111 |
|
Software |
|
|
831 |
|
|
|
802 |
|
Capitalized website and internal-use software development
costs |
|
|
34,997 |
|
|
|
27,602 |
|
Furniture and fixtures |
|
|
9,029 |
|
|
|
6,621 |
|
Leasehold improvements |
|
|
41,361 |
|
|
|
36,991 |
|
Telecommunication |
|
|
2,644 |
|
|
|
2,610 |
|
Total |
|
|
111,109 |
|
|
|
93,737 |
|
Less
accumulated depreciation |
|
|
(38,506 |
) |
|
|
(30,976 |
) |
Property, equipment and software, net |
|
$ |
72,603 |
|
|
$ |
62,761 |
|
Depreciation expense was
approximately $5.3 million and $3.1 million for the three months ended June 30,
2015 and 2014, respectively, and $10.9 million and $5.9 million for the six
months ended June 30, 2015 and 2014, respectively.
7. GOODWILL AND
INTANGIBLE ASSETS
The Companys goodwill is
the result of its acquisitions of other businesses, 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 six months ended June 30, 2015 were as follows (in
thousands):
Balance as of December 31, 2014 |
$ |
67,307 |
|
Goodwill measurement period
adjustment |
|
51 |
|
Goodwill acquired |
|
110,927 |
|
Effect of currency
translation |
|
(4,989 |
) |
Balance as of June 30, 2015 |
$ |
173,296 |
|
11
Intangible assets at June
30, 2015 and December 31, 2014 consist of the following (dollars in thousands):
|
|
Gross Carrying Amount |
|
Accumulated Amortization |
|
Net Carrying Amount |
|
Weighted Average Remaining Life |
June
30, 2015: |
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant and user
relationships |
|
$ |
29,400 |
|
$ |
(1,235 |
) |
|
$ |
28,165 |
|
9.6
years |
Developed and
acquired technology |
|
|
9,305 |
|
|
(1,602 |
) |
|
|
7,703 |
|
4.5 years |
Content |
|
|
4,037 |
|
|
(1,724 |
) |
|
|
2,313 |
|
3.2
years |
Data licenses and
domains |
|
|
2,291 |
|
|
(600 |
) |
|
|
1,691 |
|
4.2 years |
Trade name and
other |
|
|
3,356 |
|
|
(770 |
) |
|
|
2,586 |
|
3.5
years |
Total |
|
$ |
48,389 |
|
$ |
(5,931 |
) |
|
$ |
42,458 |
|
|
|
|
|
Gross Carrying Amount |
|
Accumulated Amortization |
|
Net Carrying Amount |
|
Weighted Average Remaining Life |
December 31, 2014: |
|
|
|
|
|
|
|
|
|
|
|
|
Developed and
acquired technology |
|
$ |
1,963 |
|
$ |
(861 |
) |
|
$ |
1,102 |
|
4.2
years |
Advertiser
relationships |
|
|
1,853 |
|
|
(1,853 |
) |
|
|
|
|
0.0 years |
Content |
|
|
4,299 |
|
|
(1,393 |
) |
|
|
2,906 |
|
3.6
years |
Data licenses and
domains |
|
|
1,977 |
|
|
(326 |
) |
|
|
1,651 |
|
4.5 years |
Trade name and
other |
|
|
596 |
|
|
(469 |
) |
|
|
127 |
|
1.4
years |
Total |
|
$ |
10,688 |
|
$ |
(4,902 |
) |
|
$ |
5,786 |
|
|
Amortization expense was
$1.8 million and $0.6 million for the three months ended June 30, 2015 and 2014,
respectively, and $3.0 million and $1.3 million for the six months ended June
30, 2015 and 2014, respectively.
As of June 30, 2015, the
estimated future amortization of purchased intangible assets for (i) the
remaining six months of 2015, (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 |
2015
(from July 1, 2015) |
|
$ |
3,414 |
2016 |
|
|
6,807 |
2017 |
|
|
6,660 |
2018 |
|
|
6,181 |
2019 |
|
|
5,299 |
2020
and thereafter |
|
|
14,097 |
Total amortization |
|
$ |
42,458 |
12
8. ACCRUED
LIABILITIES
Accrued liabilities as of
June 30, 2015 and December 31, 2014 consist of the following (in thousands):
|
|
June
30, 2015 |
|
December
31, 2014 |
Restaurant payable |
|
$ |
9,363 |
|
$ |
|
Accrued vacation |
|
|
5,685 |
|
|
3,972 |
Accrued commissions |
|
|
4,028 |
|
|
4,198 |
Accrued hosting |
|
|
1,436 |
|
|
1,478 |
Accrued income, withholding and business
taxes |
|
|
1,971 |
|
|
1,354 |
Fixed asset purchase commitments |
|
|
1,886 |
|
|
6,329 |
Accrued payroll tax |
|
|
1,650 |
|
|
1,251 |
Merchant revenue share liability |
|
|
1,219 |
|
|
1,218 |
Accrued employee related expenses |
|
|
1,194 |
|
|
1,209 |
Accrued employee stock purchase plan
liability |
|
|
791 |
|
|
907 |
Deferred rent |
|
|
691 |
|
|
1,229 |
Other accrued expenses |
|
|
7,802 |
|
|
6,436 |
Total |
|
$ |
37,716 |
|
$ |
29,581 |
9. OTHER INCOME
(EXPENSE), NET
Other income (expense), net
for the three and six months ended June 30, 2015 and 2014 consist of the
following (in thousands):
|
|
Three Months
Ended June 30, |
|
Six Months
Ended June 30, |
|
|
2015 |
|
2014 |
|
2015 |
|
2014 |
Interest income |
|
$ |
131 |
|
|
$ |
202 |
|
|
$ |
431 |
|
$ |
236 |
|
Transaction gain (loss) on foreign
exchange |
|
|
263 |
|
|
|
(128 |
) |
|
|
92 |
|
|
(177 |
) |
Other non-operating income (loss),
net |
|
|
(65 |
) |
|
|
(89 |
) |
|
|
368 |
|
|
(76 |
) |
Other
income (expense), net |
|
$ |
329 |
|
|
$ |
(15 |
) |
|
|
891 |
|
$ |
(17 |
) |
10. COMMITMENTS AND
CONTINGENCIES
Office Facility Leases
The Company leases its office
facilities under operating lease agreements that expire from 2015 to 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 $7.6 million and $3.7 million for the three months ended June
30, 2015 and 2014, respectively, and $14.5 million and $7.3 million for the six
months ended June 30, 2015 and 2014, 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.
In August 2014, two
putative class action lawsuits alleging violations of federal securities laws
were filed in the U.S. District Court for the Northern District of California,
naming as defendants the Company and certain of its officers. The lawsuits
allege violations of the Securities Exchange Act of 1934, as amended, by the
Company and its officers for allegedly making materially false and misleading
statements regarding the Company's business and operations between October 29,
2013 and April 3, 2014. These cases were subsequently consolidated and, in
January 2015, the plaintiffs filed a consolidated complaint seeking unspecified
monetary damages and other relief. Following the courts dismissal of the
consolidated complaint on April 21, 2015, the plaintiffs filed a first amended
complaint on May 21, 2015. On June 26, 2015, the Company and the other named
defendants filed a motion to dismiss the first amended complaint, and a hearing
on this motion has been scheduled for September 10, 2015.
On April 23, 2015, a
putative class action lawsuit was filed by former Eat24 employees in the
Superior Court of California for San Francisco County, naming as defendants the Company and Eat24. The lawsuit asserts that the defendants failed to permit meal
and rest periods for certain current and former employees working as Eat24
customer support specialists, and alleges violations of the California Labor
Code, applicable Industrial Welfare Commission Wage Orders and the California
Business and Professions Code. The plaintiffs seek monetary damages in an
unspecified amount and injunctive relief. On May 25, 2015, plaintiffs filed a
first amended complaint asserting an additional cause of action for penalties
under the Private Attorneys General Act.
13
On June 24, 2015, a former
Eat24 sales employee filed a lawsuit, on behalf of herself and a putative class
of current and former Eat24 sales employees, against Eat24 in the Superior Court
of California for San Francisco County. The lawsuit alleges that Eat24 failed to
pay required wages, including overtime wages, allow meal and rest periods and
maintain proper records, and asserts causes of action under the California Labor
Code, applicable Industrial Welfare Commission Wage Orders and the California
Business and Professions Code. The plaintiffs seek monetary damages and
penalties in unspecified amounts, as well as injunctive 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 to, among other
things, indemnify them against certain liabilities that may arise by reason of
their status or service as directors, officers or employees.
11. STOCKHOLDERS
EQUITY
The following table
presents the shares authorized and the shares issued and outstanding as of the
periods presented:
|
|
June 30,
2015 |
|
December 31,
2014 |
|
|
Shares Authorized |
|
Shares Issued and Outstanding |
|
Shares Authorized |
|
Shares Issued and Outstanding |
Stockholders equity: |
|
|
|
|
|
|
|
|
Class A common stock, $0.000001 par
value |
|
200,000,000 |
|
65,753,489 |
|
200,000,000 |
|
63,062,071 |
Class B common stock, $0.000001 par
value |
|
100,000,000 |
|
9,479,216 |
|
100,000,000 |
|
9,858,511 |
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.
14
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 shares 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 are generally exercisable for up
to 10 years. A summary of stock option activity for the six months ended June
30, 2015 is as follows:
|
|
Options
Outstanding |
|
|
|
|
|
|
|
Number
of Shares |
|
Weighted- Average Exercise Price |
|
Weighted- Average Remaining Contractual Term
(in years) |
|
Aggregate Intrinsic Value (in
thousands) |
Outstanding January 1, 2015 |
|
9,037,935 |
|
|
$ |
19.64 |
|
7.26 |
|
$ |
324,160 |
Granted |
|
316,450 |
|
|
|
52.09 |
|
|
|
|
|
Exercised |
|
(619,037 |
) |
|
|
13.79 |
|
|
|
|
|
Canceled |
|
(172,968 |
) |
|
|
40.62 |
|
|
|
|
|
Outstanding June 30, 2015 |
|
8,562,380 |
|
|
$ |
20.84 |
|
6.86 |
|
$ |
204,722 |
Options vested and expected to vest as of June 30,
2015 |
|
8,338,298 |
|
|
$ |
20.44 |
|
6.83 |
|
$ |
201,870 |
Options vested and exercisable as of June 30, 2015 |
|
5,142,755 |
|
|
$ |
15.10 |
|
6.29 |
|
$ |
147,623 |
Aggregate intrinsic value
represents the difference between the closing price of the Companys Class A
common stock and the exercise price of outstanding, in-the-money options. The
total intrinsic value of options exercised was approximately $11.0 million and
$15.3 million for the three months ended June 30, 2015 and 2014, respectively,
and $21.2 million and $67.3 million for the six months ended June 30, 2015 and
2014, respectively. The weighted-average grant date fair value of options
granted was $20.64 and $41.30 per share for the three months ended June 30, 2015
and 2014, respectively, and $26.65 and $44.73 per share for the six months ended
June 30, 2015 and 2014, respectively.
As of June 30, 2015, total
unrecognized compensation costs, adjusted for estimated forfeitures, related to
unvested stock options was approximately $47.0 million, which is expected to be
recognized over a weighted-average time period of 1.79 years.
RSUs and
RSAs
The cost of RSUs and RSAs
is 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 six months ended
June 30, 2015 is as follows:
|
|
Restricted Stock Units |
|
Restricted Stock Awards |
|
|
Number of Shares |
|
Weighted- Average Grant Date
Fair Value |
|
Number of Shares |
|
Weighted- Average Grant Date Fair Value |
UnvestedJanuary 1, 2015 |
|
1,131,849 |
|
|
$ |
64.96 |
|
30,970 |
|
|
$ |
9.48 |
Granted |
|
1,461,327 |
|
|
|
49.09 |
|
|
|
|
|
|
Released |
|
(134,009 |
) |
|
|
59.57 |
|
(19,062 |
) |
|
|
9.12 |
Canceled |
|
(201,377 |
) |
|
|
61.25 |
|
(1,250 |
) |
|
|
11.40 |
UnvestedJune 30, 2015 |
|
2,257,790 |
|
|
$ |
55.33 |
|
10,658 |
|
|
$ |
9.90 |
As of June 30, 2015, the
Company had approximately $107.3 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 3.32 years.
15
Employee Stock
Purchase Plan
The 2012 Employee Stock
Purchase Plan (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 fair market value of the Companys Class A
common stock on the last day of the offering period. There were 162,373 shares
purchased by employees under the ESPP at a weighted-average purchase price of
$31.17 per share during the three and six months ended June 30, 2015. There
were 133,905 shares purchased by employees under the ESPP at a weighted-average
purchase price of $30.52 per share during the three and six months ended June
30, 2014. The Company recognized stock-based compensation expense related to the ESPP of $1.3 million and $1.1
million of during the three months ended June 30, 2015 and 2014, respectively,
and $2.7 million and $2.2 million during the six months ended June 30, 2015 and
2014, 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 June 30, |
|
Six Months
Ended June 30, |
|
|
2015 |
|
2014 |
|
2015 |
|
2014 |
Cost
of revenue |
|
$ |
222 |
|
$ |
119 |
|
$ |
346 |
|
$ |
269 |
Sales and marketing |
|
|
5,654 |
|
|
3,728 |
|
|
10,591 |
|
|
7,125 |
Product development |
|
|
6,065 |
|
|
3,456 |
|
|
11,170 |
|
|
6,498 |
General and administrative |
|
|
3,575 |
|
|
2,780 |
|
|
7,080 |
|
|
5,647 |
Total stock-based compensation |
|
$ |
15,516 |
|
$ |
10,083 |
|
$ |
29,187 |
|
$ |
19,539 |
The Company capitalized
stock-based compensation as website development costs of $0.8 million and $0.5
million in the three months ended June 30, 2015 and 2014, respectively, and $1.6
million and $0.8 million in the six months ended June 30, 2015 and 2014,
respectively.
12. NET INCOME (LOSS)
PER SHARE
Basic and diluted net
income (loss) per share attributable to common stockholders is presented in
conformity with the two-class method required for participating securities.
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 at any time at the option of the
stockholder, and are automatically converted upon sale or transfer to Class A
common stock, 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 shares issuable upon the
vesting of RSUs, and, to a lesser extent, unvested shares subject to 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.
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.
16
The following table
presents the calculation of basic and diluted net income (loss) per share (in
thousands, except per share data):
|
|
Three Months Ended
June 30, |
|
|
2015 |
|
2014 |
|
|
Class A |
|
Class B |
|
Class A |
|
Class B |
Basic net income (loss) per share attributable
to common stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation
of undistributed earnings |
|
$ |
(1,138 |
) |
|
$ |
(167 |
) |
|
$ |
2,341 |
|
$ |
402 |
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares outstanding |
|
|
65,107 |
|
|
|
9,524 |
|
|
|
61,208 |
|
|
10,506 |
Basic net income (loss) per share attributable
to common stockholders |
|
$ |
(0.02 |
) |
|
$ |
(0.02 |
) |
|
$ |
0.04 |
|
$ |
0.04 |
|
Diluted net income (loss) per share
attributable to common stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation
of undistributed earnings for basic computation |
|
$ |
(1,138 |
) |
|
$ |
(167 |
) |
|
$ |
2,341 |
|
$ |
402 |
Reallocation
of undistributed earnings as a result of conversion of Class
B to Class A shares |
|
|
|
|
|
|
|
|
|
|
402 |
|
|
|
Reallocation
of undistributed earnings to Class B shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
79 |
Allocation
of undistributed earnings |
|
$ |
(1,138 |
) |
|
$ |
(167 |
) |
|
$ |
2,743 |
|
$ |
481 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of shares used in basic calculation |
|
|
65,107 |
|
|
|
9,524 |
|
|
|
61,208 |
|
|
10,506 |
Weighted-average
effect of dilutive securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of Class B to Class A shares |
|
|
|
|
|
|
|
|
|
|
10,506 |
|
|
|
Stock
options |
|
|
|
|
|
|
|
|
|
|
4,963 |
|
|
2,959 |
Other
dilutive securities |
|
|
|
|
|
|
|
|
|
|
379 |
|
|
48 |
Number
of shares used in diluted calculation |
|
|
65,107 |
|
|
|
9,524 |
|
|
|
77,056 |
|
|
13,513 |
Diluted net income (loss) per share
attributable to common stockholders |
|
$ |
(0.02 |
) |
|
$ |
(0.02 |
) |
|
$ |
0.04 |
|
$ |
0.04 |
17
|
|
Six Months Ended June
30, |
|
|
2015
|
|
2014 |
|
|
Class A |
|
Class B |
|
Class A |
|
Class B |
Basic net income (loss) per share attributable to common
stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation
of undistributed earnings |
|
$ |
(2,252 |
) |
|
$ |
(337 |
) |
|
$ |
92 |
|
$ |
16 |
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
common shares outstanding |
|
|
64,363 |
|
|
|
9,646 |
|
|
|
60,576 |
|
|
10,868 |
Basic net income (loss) per share attributable to common
stockholders |
|
$ |
(0.03 |
) |
|
$ |
(0.03 |
) |
|
$ |
0.00 |
|
$ |
0.00 |
|
Diluted net income (loss) per share attributable to common
stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation
of undistributed earnings for basic computation |
|
$ |
(2,252 |
) |
|
$ |
(337 |
) |
|
$ |
92 |
|
$ |
16 |
Reallocation
of undistributed earnings as a result of conversion of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class
B to Class A shares |
|
|
|
|
|
|
|
|
|
|
16 |
|
|
|
Reallocation
of undistributed earnings to Class B shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
Allocation
of undistributed earnings |
|
$ |
(2,252 |
) |
|
$ |
(337 |
) |
|
$ |
108 |
|
$ |
20 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of shares used in basic calculation |
|
|
64,363 |
|
|
|
9,646 |
|
|
|
60,576 |
|
|
10,868 |
Weighted-average
effect of dilutive securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of Class B to Class A shares |
|
|
|
|
|
|
|
|
|
|
10,868 |
|
|
|
Stock
options |
|
|
|
|
|
|
|
|
|
|
5,146 |
|
|
3,000 |
Other
dilutive securities |
|
|
|
|
|
|
|
|
|
|
313 |
|
|
48 |
Number
of shares used in diluted calculation |
|
|
64,363 |
|
|
|
9,646 |
|
|
|
76,903 |
|
|
13,916 |
Diluted net income (loss) per share attributable to common
stockholders |
|
$ |
(0.03 |
) |
|
$ |
(0.03 |
) |
|
$ |
0.00 |
|
$ |
0.00 |
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 |
|
Six Months Ended |
|
|
June
30, |
|
June
30, |
|
|
2015 |
|
2014 |
|
2015 |
|
2014 |
Stock options |
|
8,562 |
|
411 |
|
8,562 |
|
86 |
Restricted stock units |
|
2,258 |
|
|
|
2,258 |
|
|
Restricted stock awards |
|
11 |
|
|
|
11 |
|
|
Employee stock purchase plan |
|
22 |
|
|
|
22 |
|
|
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 $1.7
million and $0.4 million for the three months ended June 30, 2015 and 2014,
respectively, and an income tax benefit of $0.7 million and $1.6 million for the
six months ended June 30, 2015 and 2014, respectively. The tax benefit for the
six months ended June 30, 2015 is due to $0.7 million of discrete benefits. The
tax benefit for the six months ended June 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 $0.4
million in foreign income taxes and state minimum taxes.
18
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, tax credits, and non-deductible
stock-based compensation expense. As of June 30, 2015, the total amount of gross
unrecognized tax benefits was $3.6 million, $0.1 million of which is subject to
a full valuation allowance and would not affect the Companys effective tax rate
if recognized. As of June 30, 2015, the Company had an immaterial amount related
to the accrual of interest and penalties. During the three months ended June 30,
2015, the Companys gross unrecognized tax benefits increased by $0.2 million,
all of which would affect the Companys effective tax rate if
recognized.
The Company does not have
any tax positions as of June 30, 2015 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.
During the three months ended June 30, 2015 the Company began tracking revenue for the transactions product line consisting of Eat24, Platform transactions, and the sale of Yelp Deals and Gift Certificates. The Company has presented transactions revenue separately in the tables and discussion for prior periods for purposes of comparison.
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 |
|
Six Months Ended |
|
|
June
30, |
|
June
30, |
|
|
2015 |
|
2014 |
|
2015 |
|
2014 |
Net
revenue by product: |
|
|
|
|
|
|
|
|
|
|
|
|
Local
advertising |
|
$ |
107,882 |
|
$ |
75,685 |
|
$ |
206,452 |
|
$ |
140,880 |
Transactions |
|
|
11,304 |
|
|
1,228 |
|
|
17,910 |
|
|
2,492 |
Brand
advertising |
|
|
8,303 |
|
|
9,055 |
|
|
14,930 |
|
|
16,510 |
Other
services |
|
|
6,424 |
|
|
2,819 |
|
|
13,129 |
|
|
5,312 |
Total
net revenue |
|
$ |
133,913 |
|
$ |
88,787 |
|
$ |
252,421 |
|
$ |
165,194 |
During the three and six months ended June 30, 2015 and 2014, 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
|
June 30, |
|
December 31, |
|
2015 |
|
2014 |
United States |
$ |
71,483 |
|
$ |
73,344 |
All
Other Countries |
|
5,680 |
|
|
5,900 |
Total long-lived assets |
$ |
77,163 |
|
$ |
79,244 |
19
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 Quarterly 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 by bringing word of mouth online and providing a
platform for businesses and consumers to engage and transact. Our platform
provides value to consumers and businesses alike by connecting consumers with
local businesses at the critical moment when they are deciding where to spend
their money. Each day, millions of consumers use our platform to find and
interact with local businesses, which in turn use our free and paid services to
help them engage with consumers. The Yelp Platform, which allows consumers and
businesses to transact directly on Yelp, provides consumers with a continuous
experience from discovery to completion of transactions and local businesses
with an additional point of consumer engagement.
Our success is primarily
the result of significant investment in our communities, employees, content,
brand and technology. We believe that continued investment in our business
provides our largest opportunity for future growth and plan to continue to
invest for long-term growth in our key strategies:
● |
Accelerate Network
Effect. We plan to invest
in marketing and product development aimed at both attracting more, and
increasing the usage of, consumers as we look to leverage our brand and
benefit from accelerating network dynamics in Yelp communities. For
example, in May 2015, we launched our first television and digital
advertising campaign to increase consumer awareness of our brand, and plan to continue testing various advertising channels over the remainder of the year. We
believe that expanding our content will also attract new consumers as well
as increase the number of visits and searches per user, and so we will
continue to expand our community engagement efforts and explore new ways
to enable contributors to share content. |
● |
Enhance
Monetization. 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
several initiatives to enhance our monetization opportunities. One such
initiative has been, and will continue to be, to aggressively grow our
sales force in order to reach more businesses. We will also continue
expanding the Yelp Platform, business owner tools and other partnerships
to encourage businesses to advertise on Yelp. For example, in the second
quarter of 2015, we partnered with HTC to provide tailored recommendations
directly to the lock screen of HTCs One M9 device and to integrate Yelp
content and business recommendations into HTCs BlinkFeed application,
which is pre-loaded on all new HTC phones. |
Our overall strategy is to
invest for long-term growth. During the remainder of 2015, we expect to continue
to invest heavily in our sales and marketing efforts to grow domestically and
internationally, and to continue the integration of Eat24Hours.com, Inc., a
leading web and app-based food ordering service (Eat24), which we acquired in
February 2015. In addition, we plan to phase out our brand advertising products over the remainder of 2015 and redeploy the associated internal resources, including our brand sales team, elsewhere within our organization. Due to certain negative trends in the broader market for brand advertising products in particular, the shift toward programmatic advertising, which may have the effect of reducing the market price of cost-per-impression advertising, and increased advertiser demand for products such as video ads that are disruptive to the consumer experience we believe this decision will provide us with a long-term strategic advantage by allowing us to focus on our core strength of local advertising and continue providing a great consumer experience. As of June 30, 2015, we had 3,254 employees, which represents an
increase of 39% compared to June 30, 2014.
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.
20
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 on 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 were removed for
violation of our terms of service.
As of June 30, 2015,
approximately 77.4 million reviews were available on business profile pages,
including approximately 18.4 million reviews that were not recommended, after
accounting for 5.7 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. The following table presents the number of cumulative reviews
as of the dates indicated:
|
As of June
30, |
|
2015 |
|
2014 |
|
(in thousands) |
Reviews |
83,102 |
|
61,342 |
Desktop Unique
Visitors
We define desktop unique
visitors as the average number of monthly desktop unique visitors who have
visited our non-mobile optimized website (our desktop website) over a given
three-month period. We calculate monthly desktop unique visitors as the number
of users, as measured by Google Analytics, who have visited our desktop
website at least once in a given month. Google Analytics, a product from Google
Inc. that provides digital marketing intelligence, measures users based on
unique cookie identifiers. Because the number of desktop unique visitors is
therefore based on unique cookies, an individual who accesses our desktop
website from multiple devices with different cookies may be counted as multiple
desktop unique visitors, and multiple individuals who access our desktop website
from a shared device with a single cookie may be counted as a single desktop
unique visitor. The following table presents our desktop unique visitors for the
periods indicated:
|
Three Months Ended |
|
June
30, |
|
2015 |
|
2014 |
|
(in thousands) |
Desktop Unique Visitors |
79,175 |
|
81,884 |
We anticipate that use of
our mobile platform will be the driver of our growth for the foreseeable future
and that usage of our non-mobile optimized website through desktop computers
will continue to decline worldwide.
Mobile Unique
Visitors
We define mobile unique
visitors as the average number of monthly mobile unique visitors over a given
three-month period. We define monthly mobile unique visitors to be the sum of
(i) the number of users who have visited our mobile-optimized website at least
once in a given month and (ii) the number of unique mobile devices using our
mobile app in a given month. Under this method of calculation, an individual who
accesses both our mobile-optimized website and our mobile app, or accesses
either our mobile-optimized website or our mobile app from multiple mobile
devices, will be counted as multiple mobile unique visitors. Multiple
individuals who access either our mobile-optimized website or mobile app from a
shared device will be counted as a single mobile unique visitor. The following
table presents our mobile unique visitors for the periods indicated:
|
Three Months Ended |
|
June
30, |
|
2015 |
|
2014 |
|
(in thousands) |
Mobile Unique Visitors |
82,812 |
|
67,886 |
Of the mobile unique
visitors for the quarter ended June 30, 2015, approximately 18.1 million were
unique mobile devices using our mobile app, compared to 12.0 million in the
quarter ended June 30, 2014.
21
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 June
30, |
|
2015 |
|
2014 |
|
(in thousands) |
Claimed Local Business Locations |
2,349 |
|
1,751 |
Local Advertising
Accounts
Local advertising accounts
comprise all local business accounts from which we recognize revenue in a given
three-month period, excluding local business accounts from which we recognize
Yelp Deals revenue only. The following table presents the number of local
advertising accounts during the periods presented:
|
Three Months Ended |
|
June
30, |
|
2015 |
|
2014 |
|
(in thousands) |
Local Advertising Accounts |
97 |
|
69 |
Non-GAAP Financial
Measures
Our consolidated financial
statements are prepared in accordance with accounting principles generally
accepted in the United States (GAAP). However, to provide investors with
additional information regarding our financial results, we have disclosed in
this Quarterly Report adjusted EBITDA and non-GAAP net income, which are
non-GAAP financial measures. We have provided a reconciliation below of both
adjusted EBITDA and non-GAAP net income to net income (loss), the most directly
comparable GAAP financial measure in each case.
We have included adjusted
EBITDA and non-GAAP net income because they are key measures used by our
management and board of directors to understand and evaluate our 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 and non-GAAP net income can provide a
useful measure for period-to-period comparisons of our core business.
Accordingly, we believe that adjusted EBITDA and non-GAAP net income provide
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 and
non-GAAP net income have limitations as analytical tools, and you should not
consider them in isolation or as substitutes for analysis of our results as
reported under GAAP. In particular, adjusted EBITDA and non-GAAP net income
should not be viewed as a substitute for, or superior to, net income prepared in
accordance with GAAP as a measure of profitability or liquidity. 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 and
non-GAAP net income do 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 and
non-GAAP net income do not consider the potentially dilutive impact of
equity-based compensation; |
● |
adjusted EBITDA does
not reflect tax payments that may represent a reduction in cash available
to us; and |
● |
other companies,
including companies in our industry, may calculate adjusted EBITDA and
non-GAAP net income differently, which reduces their usefulness as
comparative measures. |
22
Because of these
limitations, you should consider adjusted EBITDA and non-GAAP net income
alongside other financial performance measures, including various cash flow
metrics, net income (loss) and our other GAAP results. The tables below present
reconciliations of adjusted EBITDA and non-GAAP net income to net income (loss)
for each of the periods indicated:
Adjusted EBITDA
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June
30, |
|
June
30, |
|
|
2015 |
|
2014 |
|
2015 |
|
2014 |
|
|
(in thousands) |
Reconciliation of
Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) |
|
$ |
(1,305 |
) |
|
$ |
2,743 |
|
$ |
(2,589 |
) |
|
$ |
108 |
|
(Benefit) provision for income taxes |
|
|
1,684 |
|
|
|
369 |
|
|
(719 |
) |
|
|
(1,602 |
) |
Other (income) expense, net |
|
|
(329 |
) |
|
|
15 |
|
|
(891 |
) |
|
|
17 |
|
Depreciation and amortization |
|
|
7,167 |
|
|
|
4,034 |
|
|
14,062 |
|
|
|
7,695 |
|
Stock-based compensation |
|
|
15,516 |
|
|
|
10,083 |
|
|
29,187 |
|
|
|
19,539 |
|
Adjusted
EBITDA |
|
$ |
22,733 |
|
|
$ |
17,244 |
|
$ |
39,050 |
|
|
$ |
25,757 |
|
Non-GAAP Net Income
(Loss)
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June
30, |
|
June
30, |
|
|
2015 |
|
2014 |
|
2015 |
|
2014 |
|
|
(in thousands) |
Reconciliation of
Non-GAAP Net Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to GAAP Net Income (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) |
|
$ |
(1,305 |
) |
|
$ |
2,743 |
|
|
$ |
(2,589 |
) |
|
$ |
108 |
|
Stock-based compensation |
|
|
15,516 |
|
|
|
10,083 |
|
|
|
29,187 |
|
|
|
19,539 |
|
Amortization of intangible assets |
|
|
1,803 |
|
|
|
629 |
|
|
|
3,034 |
|
|
|
1,255 |
|
Tax
effect of stock-based compensation and amortization of
intangibles |
|
|
(6,660 |
) |
|
|
(4,039 |
) |
|
|
(12,376 |
) |
|
|
(7,899 |
) |
Valuation allowance release (net of tax) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,958 |
|
Non-GAAP net
income |
|
$ |
9,354 |
|
|
$ |
9,416 |
|
|
$ |
17,256 |
|
|
$ |
14,961 |
|
23
Results of
Operations
The following table sets
forth our results of operations for the periods indicated 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 2015 or any
future period.
|
Three Months Ended |
|
Six Months Ended |
|
June
30, |
|
June
30, |
|
2015 |
|
2014 |
|
2015 |
|
2014 |
|
(as percentage of net revenue) |
Consolidated Statements of
Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
Net
revenue by product: |
|
|
|
|
|
|
|
|
|
|
|
Local
advertising |
81 |
% |
|
85 |
% |
|
82 |
% |
|
85 |
% |
Transactions |
8 |
|
|
2 |
|
|
7 |
|
|
2 |
|
Brand
advertising |
6 |
|
|
10 |
|
|
6 |
|
|
10 |
|
Other
services |
5 |
|
|
3 |
|
|
5 |
|
|
3 |
|
|
Total
net revenue |
100 |
% |
|
100 |
% |
|
100 |
% |
|
100 |
% |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenue (exclusive of depreciation and |
|
|
|
|
|
|
|
|
|
|
|
amortization
shown separately below) |
10 |
% |
|
7 |
% |
|
9 |
% |
|
7 |
% |
Sales
and marketing |
51 |
|
|
54 |
|
|
52 |
|
|
56 |
|
Product
development |
20 |
|
|
17 |
|
|
20 |
|
|
17 |
|
General
and administrative |
14 |
|
|
15 |
|
|
16 |
|
|
16 |
|
Depreciation
and amortization |
5 |
|
|
5 |
|
|
6 |
|
|
5 |
|
|
Total
costs and expenses |
100 |
|
|
96 |
|
|
102 |
|
|
101 |
|
|
Income
(loss) from operations |
|
|
|
4 |
|
|
(2 |
) |
|
(1 |
) |
Other
income (expense), net |
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes |
|
|
|
4 |
|
|
(1 |
) |
|
(1 |
) |
Benefit
(provision) for income taxes |
(1 |
) |
|
|
|
|
|
|
|
1 |
|
|
Net
income (loss) |
(1 |
)% |
|
3 |
% |
|
(1 |
)% |
|
|
% |
Three and Six Months
Ended June 30, 2015 and 2014
Net
Revenue
We generate revenue from
local advertising, transactions, brand advertising and other services. 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
mobile app. We also generate local advertising revenue from our SeatMe
restaurant reservation product, a monthly subscription service.
Transactions. We generate revenue
from various transactions with consumers, including through Eat24,
Platform transactions and the sale of Yelp Deals and Gift Certificates. In prior
periods, we included revenue from transactions within other services revenue; going forward, we will present transactions separately
to provide additional insight into this part of our business. We have also presented transactions revenue separately in the tables
and discussion below for prior periods for purposes of comparison. Eat24 generates revenue through arrangements with restaurants
in which restaurants pay a fixed fee commission percentage on orders placed through Eat24s platform. We record revenue associated with Eat24 platform transactions on a net basis. Our platform partnerships are revenue-sharing arrangements that provide consumers with the ability to complete food delivery transactions, make hotel bookings and book spa and salon appointments through third parties directly on Yelp. 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 a deal. Gift Certificates allow merchants to sell full-priced gift certificates directly to
consumers through their business profile pages. 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.
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. We plan to phase out our brand advertising products by the end of 2015.
24
Other
Services. We generate other
revenue through partner arrangements and monetization of remnant advertising
inventory through third-party ad networks. Our partner arrangements
include allowing third-party data providers to update business listing
information on behalf of businesses and resale of our local advertising products by the various partners.
|
Three Months Ended |
|
|
|
|
Six Months Ended |
|
|
|
|
June
30, |
|
2014 to |
|
June
30, |
|
2014 to |
|
2015 |
|
2014 |
|
2015 % |
|
2015 |
|
2014 |
|
2015 % |
|
(dollars in thousands) |
|
Change |
|
(dollars in thousands) |
|
Change |
Net
revenue by product: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Local
advertising |
$ |
107,882 |
|
|
$ |
75,685 |
|
|
43 |
% |
|
$ |
206,452 |
|
|
$ |
140,880 |
|
|
47 |
% |
Transactions |
|
11,304 |
|
|
|
1,228 |
|
|
821 |
|
|
|
17,910 |
|
|
|
2,492 |
|
|
619 |
|
Brand
advertising |
|
8,303 |
|
|
|
9,055 |
|
|
(8 |
) |
|
|
14,930 |
|
|
|
16,510 |
|
|
(10 |
) |
Other
services |
|
6,424 |
|
|
|
2,819 |
|
|
128 |
|
|
|
13,129 |
|
|
|
5,312 |
|
|
147 |
|
Total
net revenue |
$ |
133,913 |
|
|
$ |
88,787 |
|
|
51 |
% |
|
$ |
252,421 |
|
|
$ |
165,194 |
|
|
53 |
% |
|
Net
revenue by product: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Local
advertising |
|
81 |
% |
|
|
85 |
% |
|
|
|
|
|
82 |
% |
|
|
85 |
% |
|
|
|
Transactions |
|
8 |
|
|
|
2 |
|
|
|
|
|
|
7 |
|
|
|
2 |
|
|
|
|
Brand
advertising |
|
6 |
|
|
|
10 |
|
|
|
|
|
|
6 |
|
|
|
10 |
|
|
|
|
Other
services |
|
5 |
|
|
|
3 |
|
|
|
|
|
|
5 |
|
|
|
3 |
|
|
|
|
Total
net revenue |
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
|
Total net revenue increased
$45.1 million, or 51%, in the three months ended June 30, 2015 compared to the
three months ended June 30, 2014, and $87.2 million, or 53%, in the six months
ended June 30, 2015 compared to the six months ended June 30, 2014.
Our local advertising
revenue increased $32.2 million, or 43%, in the three months ended June 30, 2015
compared to the three months ended June 30, 2014, and $65.6 million, or 47%, in
the six months ended June 30, 2015 compared to the six months ended June 30,
2014. The increase in both periods was 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. This growth was driven
primarily by purchases of cost-per-click advertising, which increased from 20% to 46% of local advertising revenue in the three months ended June 30,
2015 compared to the same period in 2014, and from 19% to 43% of local advertising revenue in the six months ended June
30, 2015 compared to the same period in 2014. In the three- and six-months ended
June 30, 2015, a majority of both ad impressions and clicks were delivered on
mobile.
Our transactions revenue
increased $10.1 million, or 821%, in the three months ended June 30, 2015
compared to the three months ended June 30, 2014, and $15.4 million, or 619%, in
the six months ended June 30, 2015 compared to the six months ended June 30,
2014. The increase in both periods was primarily the result of revenue from
Eat24, which we acquired in February 2015.
Our brand advertising
revenue decreased $0.8 million, or 8%, in the three months ended June 30, 2015
compared to the three months ended June 30, 2014, and $1.6 million, or 10%, in
the six months ended June 30, 2015 compared to the six months ended June 30,
2014. The decrease in both periods was primarily due to a decrease in the number
of brand advertisers. We expect our brand advertising revenue to be volatile as it continues to decline due to trends in the broader online advertising industry and our planned phase-out of brand advertising products over the remainder of 2015.
Our other services revenue
increased by $3.6 million, or 128%, in the three months ended June 30, 2015
compared to the three months ended June 30, 2014, and $7.8 million, or 147%, in
the six months ended June 30, 2015 compared to the six months ended June 30,
2014. The increase in both periods was primarily the result of an increase in
revenue from partnership arrangements and remnant advertising inventory.
Cost of
Revenue
Our cost of revenue
consists primarily of network costs, credit card processing fees and web
hosting, as well as salaries, benefits and stock-based compensation expense for our
infrastructure teams related to operating our website. It also includes costs associated with Eat24, video production expenses and
creative design for brand advertising.
|
Three Months Ended |
|
|
|
|
Six Months Ended |
|
|
|
|
June
30, |
|
2014 to |
|
June
30, |
|
2014 to |
|
2015 |
|
2014 |
|
2015 % |
|
2015 |
|
2014 |
|
2015 % |
|
(dollars in thousands) |
|
Change |
|
|
(dollars in thousands) |
|
|
Change |
Cost
of revenue |
$ |
13,057 |
|
|
$ |
5,845 |
|
|
123 |
% |
|
$ |
21,756 |
|
|
$ |
10,922 |
|
|
99 |
% |
Percentage of net revenue |
|
10 |
% |
|
|
7 |
% |
|
|
|
|
|
9 |
% |
|
|
7 |
% |
|
|
|
25
Cost of revenue increased
$7.2 million, or 123%, in the three months ended June 30, 2015 compared to the
three months ended June 30, 2014, and $10.8 million, or 99%, in the six months
ended June 30, 2015 compared to the six months ended June 30, 2014. The
increases in the three and six months ended June 30, 2015 were primarily
attributable to increases of $3.6 million and $5.2 million, respectively, 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.
The increase was partially offset by a decrease of $0.1 million in set up costs, including video production, for local advertising
account pages during the three months ended June 30,
2015, which costs were flat during the six months ended June 30, 2014, due to flat demand
by local businesses for video on their business pages. Expenses related to
creative design for brand and local advertising increased $0.6 million and $1.0
million in the three- and six-month periods ended June 30, 2015, respectively. In addition, merchant
fees related to credit card transactions increased $2.2 million and $3.9 million
in the three- and six-month periods ended June 30, 2015, respectively, due primarily to the
acquisition of Eat 24 in February 2015. Headcount and employee related expenses increased
by $0.2 million during the three months ended June 30, 2015 and remained flat
during the six months ended June 30, 2015, with the overall increases in
employee related expenses offset by an increase in the proportion of employees
dedicated to capitalized website infrastructure projects. Costs associated with Eat24, which we acquired in February 2015, increased by
$0.7 million for the three- and six-months ended June 30, 2015, respectively.
Sales and
Marketing
Our sales and marketing
expenses primarily consist of salaries, benefits, stock-based compensation
expense, travel expense and incentive compensation expense 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 focus to
date has been on organic and viral growth driven by the community development
efforts of our community management team, which is responsible for growing and
fostering local communities, as well as coordinating events to raise awareness
of our brand. As a result, we have historically incurred minimal sales and marketing
expenses to acquire organic traffic to our platform. However, we launched our
first television and digital advertising campaign in the second quarter of 2015
and plan to continue to test various advertising channels during the remainder
of 2015.
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 as we
expand our domestic and international footprint, increase the number of local
advertising accounts and continue to build our brand. The substantial majority
of these expenses will be related to hiring sales employees and Community
Managers. We expect sales and marketing expenses to increase and to be our
largest expense for the foreseeable future.
|
Three Months Ended |
|
|
|
|
Six Months Ended |
|
|
|
|
June
30, |
|
2014 to |
|
June
30, |
|
2014 to |
|
2015 |
|
2014 |
|
2015 % |
|
2015 |
|
2014 |
|
2015 % |
|
|
(dollars in thousands) |
|
|
Change |
|
|
(dollars in thousands) |
|
|
Change |
Sales and marketing |
$ |
68,014 |
|
|
$ |
47,798 |
|
|
42 |
% |
|
$ |
131,280 |
|
|
$ |
92,919 |
|
|
41 |
% |
Percentage of net revenue |
|
51 |
% |
|
|
54 |
% |
|
|
|
|
|
52 |
% |
|
|
56 |
% |
|
|
|
Sales and marketing
expenses increased $20.2 million, or 42%, in the three months ended June 30,
2015 compared to the three months ended June 30, 2014, and $38.4 million, or
41%, in the six months ended June 30, 2015 compared to the six months ended June
30, 2014. The increases in the three- and six-months ended June 30, 2015 were
primarily attributable to increases in headcount and related expenses of $9.6
million and $19.1 million, respectively, including increases in stock-based
compensation expense of $1.9 million and $3.5 million, respectively, 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. In addition, we experienced increases in
facilities related costs of $7.1 million and $13.8 million in the three and six month periods ended June 30, 2015. As a result of new marketing campaigns, domestic and
international marketing and advertising costs increased by $3.4 million and $7.1
million in the three and six month periods ended June 30, 2015, respectively. Commission expenses
increased by $0.1 million during the three months ended June 30, 2015, and
decreased by $1.6 million during the six months ended June 30, 2015 primarily
due to the decrease in brand revenue.
Product
Development
Our product development
expenses primarily consist of salaries, benefits and stock-based compensation
expense for our engineers, product management and information technology
personnel. Product development expenses also 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 expense to increase for the foreseeable
future.
26
|
Three Months Ended |
|
|
|
|
Six Months Ended |
|
|
|
|
June
30, |
|
2014 to |
|
June
30, |
|
2014 to |
|
2015 |
|
2014 |
|
2015 % |
|
2015 |
|
2014 |
|
2015 % |
|
|
(dollars in thousands) |
|
|
Change |
|
|
(dollars in thousands) |
|
|
Change |
Product development |
$ |
26,345 |
|
|
$ |
14,726 |
|
|
79 |
% |
|
$ |
50,305 |
|
|
$ |
28,708 |
|
|
75 |
% |
Percentage of net revenue |
|
20 |
% |
|
|
17 |
% |
|
|
|
|
|
20 |
% |
|
|
17 |
% |
|
|
|
Product development
expenses increased $11.6 million, or 79%, in the three months ended June 30,
2015 compared to the three months ended June 30, 2014, and $21.6 million, or
75%, in the six months ended June 30, 2015 compared to the six months ended June
30, 2014. The increases in the three and six months ended June 30, 2015 were
primarily attributable to increases in headcount and related expenses of $8.9
million and $16.0 million, respectively, including increases in stock-based
compensation expense of $2.9 million and $5.6 million, respectively. In
addition, we experienced increases in facilities and related expenses of $2.0
million and $4.0 million in the three- and six-month periods, respectively, as a
result of the increase in headcount. Use of outside consultants also increased
by $0.7 million and $1.6 million in the three- and six-month periods ended June 30, 2015,
respectively, as we continued to invest in adding features and functionality to
our website and mobile app.
General and
Administrative
Our general and
administrative expenses primarily consist of salaries, benefits and stock-based
compensation expense for our executive, finance, user operations, legal, human
resources and other administrative employees. Our general and administrative
expenses also include outside consulting, legal and accounting services, as well
as facilities and other supporting overhead costs not allocated to other
departments. We expect our general and administrative expenses to increase for
the foreseeable future as we continue to expand our business.
|
Three Months Ended |
|
|
|
|
Six Months Ended |
|
|
|
|
June
30, |
|
2014 to |
|
June
30, |
|
2014 to |
|
2015 |
|
2014 |
|
2015 % |
|
2015 |
|
2014 |
|
2015 % |
|
|
(dollars in thousands) |
|
|
Change |
|
|
(dollars in thousands) |
|
|
Change |
General and administrative |
$ |
19,280 |
|
|
$ |
13,257 |
|
|
45 |
% |
|
$ |
39,217 |
|
|
$ |
26,427 |
|
|
48 |
% |
Percentage
of net revenue |
|
14 |
% |
|
|
15 |
% |
|
|
|
|
|
16 |
% |
|
|
16 |
% |
|
|
|
General and administrative
expenses increased $6.0 million, or 45%, in the three months ended June 30, 2015
compared to the three months ended June 30, 2014, and $12.8 million, or 48%, in
the six months ended June 30, 2015 compared to the six months ended June 30,
2014. The increases in the three and six months ended June 30, 2015 were
primarily attributable to increases in headcount and related expenses of $2.7
million and $5.2 million, respectively, including increases in stock-based
compensation expense of $0.8 million and $1.4 million, respectively.
Additionally, we invested in our systems and support for the growth of the
business through the use of outside consultants, which contributed to the
increases in the three and six month periods ended June 30, 2015 by $1.1 million and $2.8 million,
respectively. We also experienced increases in facilities and related expenses
in the three- and six-month periods ended June 30, 2015 of $1.0 million and $1.8 million,
respectively, and increases in bad debt expense of $1.2 million and $3.0
million, respectively.
Depreciation and
Amortization
Depreciation and
amortization expenses primarily consist of depreciation on computer equipment,
software, leasehold improvements, capitalized website and software development
costs and amortization of purchased intangible assets. We expect depreciation
and amortization expenses to increase for the foreseeable future as we continue
to expand our technology infrastructure.
|
Three Months Ended |
|
|
|
|
Six Months Ended |
|
|
|
|
June
30, |
|
2014 to |
|
June
30, |
|
2014 to |
|
2015 |
|
2014 |
|
2015 % |
|
2015 |
|
2014 |
|
2015 % |
|
|
(dollars in thousands) |
|
|
Change |
|
|
(dollars in thousands) |
|
|
Change |
Depreciation and amortization |
$ |
7,167 |
|
|
$ |
4,034 |
|
|
78 |
% |
|
$ |
14,062 |
|
|
$ |
7,695 |
|
|
83 |
% |
Percentage
of net revenue |
|
5 |
% |
|
|
5 |
% |
|
|
|
|
|
6 |
% |
|
|
5 |
% |
|
|
|
Depreciation and
amortization expenses increased $3.1 million, or 78%, in the three months ended
June 30, 2015 compared to the three months ended June 30, 2014, and $6.4
million, or 83%, in the six months ended June 30, 2015 compared to the six
months ended June 30, 2014. The increases were 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 $2.0 million and $4.6 million in the three and six months ended June 30, 2015. In addition, amortization related to our
intangible assets increased by $1.1 million and $1.8 million in the three- and
six-month periods, respectively, primarily due to intangibles acquired in the
Eat24 acquisition.
27
Other Income
(Expense), Net
Other income (expense), net
consists primarily of the interest income earned on our cash and cash
equivalents and marketable securities, gains and losses on the disposal of
assets, and foreign exchange gains and losses.
|
Three Months Ended |
|
Six Months Ended |
|
June
30, |
|
June
30, |
|
2015 |
|
2014 |
|
2015 |
|
2014 |
|
(in thousands) |
|
(in thousands) |
Interest income |
$ |
131 |
|
|
$ |
202 |
|
|
$ |
431 |
|
$ |
236 |
|
Transaction gain (loss) on foreign
exchange |
|
263 |
|
|
|
(128 |
) |
|
|
92 |
|
|
(177 |
) |
Other non-operating income (loss),
net |
|
(65 |
) |
|
|
(89 |
) |
|
|
368 |
|
|
(76 |
) |
Other
income (expense), net |
$ |
329 |
|
|
$ |
(15 |
) |
|
$ |
891 |
|
$ |
(17 |
) |
Other income (expense), net
increased by $0.3 million in the three months ended June 30, 2015 compared to
the three months ended June 30, 2014, and $0.9 million in the six months ended
June 30, 2015 compared to the six months ended June 30, 2014. The increases were
driven primarily by foreign exchange gains due to favorable foreign currency
exchange rate changes during the three- and six-months ended June 30, 3015
compared to the three- and six-months ended June 30, 2014. In addition, during
the six-months ended June 30, 2015, other non-operating income increased due to
the release of cash in escrow relating to the Qype acquisition, completed in 2012.
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.
|
Three Months Ended |
|
Six Months Ended |
|
June
30, |
|
June
30, |
|
2015 |
|
2014 |
|
2015 |
|
2014 |
|
(in thousands) |
|
(in thousands) |
Benefit (Provision) for taxes |
$ |
(1,684 |
) |
|
$ |
(369 |
) |
|
$ |
719 |
|
|
$ |
1,602 |
|
Percentage of net revenue |
|
(1 |
)% |
|
|
|
% |
|
|
|
% |
|
|
1 |
% |
For the three
months ended June 30, 2015, the Company recognized a tax
provision of $2.0 million as a result of a reduction of tax benefits expected to
be recognized for the year due to certain items such as non-deductible meals and
entertainment and stock-based compensation expense. This was offset by $0.3
million of discrete benefits related to disqualifying dispositions of incentive
stock options and shares purchased under our 2012 Employee Stock Purchase Plan (ESPP).
For the six months ended
June 30, 2015, we recognized a tax benefit that primarily consisted of U.S.
federal, state and foreign income tax benefits on year-to-date pre-tax loss, and
discrete benefits on year-to-date pre-tax loss, and discrete benefits related to
disqualifying dispositions of incentive stock options and shares purchased under
our ESPP.
Liquidity and Capital
Resources
As of June 30, 2015, we had
cash and cash equivalents of $181.5 million. Cash and cash equivalents consist
of both cash and money market funds. Our cash held internationally as of June
30, 2015 was $6.5 million. We did not have any outstanding bank loans or credit
facilities in place as of June 30, 2015. Our investment portfolio is comprised
of highly-rated marketable securities, and our investment policy limits the
amount of credit exposure to any one issuer. The policy generally requires
securities to be investment grade (i.e. 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 through
proceeds from private and public financings, including our initial public
offering 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 ESPP.
28
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:
|
|
Six Months Ended June
30, |
|
|
2015 |
|
2014 |
|
|
(in thousands) |
Condensed Consolidated Statements of Cash
Flows Data: |
|
|
|
|
|
|
|
|
Purchases of property, equipment and software |
|
$ |
(18,059 |
) |
|
$ |
(7,212 |
) |
Depreciation and amortization |
|
|
14,062 |
|
|
|
7,695 |
|
Cash
flows provided by operating activities |
|
|
43,665 |
|
|
|
19,989 |
|
Cash flows used in investing
activities |
|
|
(126,070 |
) |
|
|
(134,148 |
) |
Cash
flows provided by financing activities |
|
|
17,151 |
|
|
|
14,746 |
|
Operating Activities. We
generated $43.7 million of cash in operating activities in the six months ended
June 30, 2015, primarily resulting from our net loss of $2.6 million, which was
offset by non-cash depreciation and amortization of $14.1 million, non-cash
stock-based compensation expense of $29.2 million, and non-cash provision for
doubtful accounts of $6.1 million. In addition, significant changes in our
operating assets and liabilities resulted from the following:
● |
increase in accounts receivable of $7.9 million
due to an increase in billings for local advertising plans, as well as the
timing of payments from these customers; |
● |
increase in accounts payable, accrued expenses
and other liabilities of $15.6 million related to the growth in our
business, increase in Eat24 restaurant payable, accrued vacation and
employee-related expenses, and the timing of invoices and payments to
vendors; and |
● |
increase in prepaids and other assets of $7.1
million relating to the increase in prepaid licenses and deferred tax
benefits. |
We generated $20.0 million of cash in operating activities in the six
months ended June 30, 2014, primarily resulting from our net income of $0.1
million, which included non-cash depreciation and amortization of $7.7 million,
non-cash stock-based compensation expense of $19.5 million and non-cash
provision for doubtful accounts of $2.6 million. In addition, operating assets
and liabilities changed by $9.6 million, primarily due to the timing of
collections on accounts receivable and payments to vendors during the six months
ended June 30, 2014.
Investing Activities. Our
primary investing activities in the six months ended June 30, 2015 consisted of
acquisitions, purchases of marketable securities, purchases of property and
equipment to support the ongoing build out of our data centers, leasehold
improvements for our headquarters 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 during the remainder of
2015.
We used $126.1 million of cash in investing activities during the six
months ended June 30, 2015. Cash used in investing activities primarily related
to the $73.4 million cash portion of the purchase price of Eat24, purchases of
marketable securities of $93.9 million, an increase in expenditures related to
website and internally developed software of $6.0 million, purchases of
intangible data licenses of $0.3 million and purchases of property, equipment,
software and leasehold improvements of $18.1 million to support our growth in
the business. Cash used in investing was offset by $63.9 million of maturities
of investment securities held-to-maturity and the release of restrictions on
cash of $1.7 million.
29
We used $134.1 million of cash in investing activities during the six
months ended June 30, 2014. Cash used in investing activities primarily related
to purchases of marketable securities of $122.2 million, as well as an increase
in expenditures related to website and internally developed software of $4.3
million, purchases of property, equipment, software and leasehold improvements
of $7.2 million to support our growth in the business and an increase in
restricted cash of $0.4 million associated with letters of credit in connection
with leased office space.
Financing Activities.
During the six months ended June 30, 2015 and 2014, we generated $17.2 million
and $14.7 million, respectively, in financing activities, primarily due to $8.5
million and $10.8 million in net proceeds from the issuance of common stock upon
the exercise of stock options, $5.1 million and $4.1 million in net proceeds
from the sale of stock under our ESPP, and $4.0 million and $0.5 million in
excess tax benefit from stock-based award activity, respectively.
Off Balance Sheet
Arrangements
We did not have any off balance sheet arrangements in 2014 or the first
six months of 2015.
Contractual
Obligations
We lease various office facilities, including our corporate headquarters
in San Francisco, California, under operating lease agreements that expire from
2015 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 June 30, 2015, we had no material long-term purchase obligations
outstanding with any vendors or third parties. As of June 30, 2015, the
following table summarizes our future minimum payments under non-cancelable
operating leases for equipment and office facilities:
|
|
Payments Due by
Period |
|
|
Total |
|
Less Than 1
Year |
|
1 3 Years |
|
3 5 Years |
|
More Than 5
Years |
|
|
(in thousands) |
Operating lease obligations |
|
$ |
304,933 |
|
$ |
30,620 |
|
$ |
107,230 |
|
$ |
73,778 |
|
$ |
93,305 |
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 June 30, 2015, our total liability for uncertain tax positions was
$3.6 million. We are not reasonably able to estimate the timing of future cash
flow related to this liability. As a result, this amount is not included in the
contractual obligations table above.
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 business. These risks
include primarily interest rate, foreign exchange risks and
inflation.
Interest Rate
Fluctuation
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 the interest rates as of June 30, 2015
would not have a material impact on our cash and cash equivalents
portfolio.
Our marketable securities
are comprised of fixed-rate debt securities issued by U.S. 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.
30
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 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 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 or 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 SECs rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by a company in the reports
that it files or submits under the Exchange Act is accumulated and communicated
to the companys management, including its principal executive and principal
financial officers, as appropriate to allow timely decisions regarding required
disclosure.
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 June
30, 2015. Based on the evaluation of our disclosure controls and procedures as
of June 30, 2015, our Chief Executive Officer and our 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 Rule 13a-15(f) and 15d-15(f) under the Exchange Act that
occurred during the three months ended June 30, 2015 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
Inherent Limitations on
Effectiveness of Controls
Our management, including
our Chief Executive Officer and our 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 the
collusion of two or more people or by management override of 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.
31
PART II. OTHER
INFORMATION
ITEM 1. LEGAL
PROCEEDINGS
In August 2014, two
putative class action lawsuits alleging violations of federal securities laws
were filed in the U.S. District Court for the Northern District of California,
naming as defendants us and certain of our officers. The lawsuits allege
violations of the Exchange Act by us and our officers for allegedly making
materially false and misleading statements regarding our business and operations
between October 29, 2013 and April 3, 2014. These cases were subsequently
consolidated and, in January 2015, the plaintiffs filed a consolidated complaint
seeking unspecified monetary damages and other relief. Following the courts
dismissal of the consolidated complaint on April 21, 2015, the plaintiffs filed
a first amended complaint on May 21, 2015. On June 26, 2015, we and the other
named defendants filed a motion to dismiss the first amended complaint, and a
hearing on this motion has been scheduled for September 10, 2015.
On April 23, 2015, a
putative class action lawsuit was filed by former Eat24 employees in the
Superior Court of California for San Francisco County, naming as defendants us
and Eat24. The lawsuit asserts that we failed to permit meal and rest periods
for certain current and former employees working as Eat24 customer support
specialists, and alleges violations of the California Labor Code, applicable
Industrial Welfare Commission Wage Orders and the California Business and
Professions Code. The plaintiffs seek monetary damages in an unspecified amount
and injunctive relief. On May 29, 2015, plaintiffs filed a first amended
complaint asserting an additional cause of action for penalties under the
Private Attorneys General Act.
On June 24, 2015, a former
Eat24 sales employee filed a lawsuit, on behalf of herself and a putative class
of current and former Eat24 sales employees, against Eat24 in the Superior Court
of California for San Francisco County. The lawsuit alleges that Eat24 failed to
pay required wages, including overtime wages, allow meal and rest periods and
maintain proper records, and asserts causes of action under the California Labor
Code, applicable Industrial Welfare Commission Wage Orders and the California
Business and Professions Code. The plaintiffs seek monetary damages and
penalties in unspecified amounts, as well as injunctive 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.
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, 2014.
Risks Related to Our
Business and Industry
*If we are unable to
increase traffic to our website and mobile app, or user engagement on our
platform declines, our revenue, business and operating results may be harmed.
We derive substantially all
of our revenue from the sale of impression- and click-based advertising. Because
traffic to our platform 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, slower growth rates may harm our business and
financial results. As a result, our ability to grow our business depends on our
ability to increase traffic to and user engagement on our platform. Our traffic
could be adversely affected by factors including:
● |
Reliance on
Internet Search Engines. As
discussed in greater detail below, we rely on Internet search engines to
drive traffic to our platform. However, 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 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 be in a position to
influence the results. Although Internet search engine results have
allowed us to attract a large audience with minimal organic traffic
acquisition costs to date, if they fail to drive sufficient traffic to our
platform in the future, we may need to increase our marketing expenses,
which could harm our operating results. |
● |
Increasing Competition. The market for information regarding local
businesses is intensely competitive and rapidly changing. If the
popularity, usefulness, ease of use, performance and reliability of our
products and services do not compare favorably to those of our
competitors, traffic may decline. |
● |
Review Concentration. Our restaurant and shopping categories
together accounted for approximately 42% of the businesses
that had been reviewed on our platform and approximately 57% of the cumulative reviews as of June 30, 2015. If the high
concentration of reviews in these categories generates a perception that
our platform is primarily limited to these categories, traffic may not
increase or may decline. |
● |
Our Recommendation Software. If our automated software does not
recommend helpful content or recommends unhelpful content, consumers may
reduce or stop their use of our platform. While we have designed our
technology to avoid recommending content that we believe to be unreliable
or otherwise unhelpful, we cannot guarantee that our efforts will be
successful. |
● |
Content Scraping. From time to time, other companies copy
information from our platform without our permission, through website
scraping, robots or other means, and publish or aggregate it with other
information for their own benefit. This may make them more competitive and
may decrease the likelihood that consumers will visit our platform to find
the local businesses and information they seek. Though we strive to detect
and prevent this third-party conduct, we may not be able to detect it in a
timely manner and, even if we could, 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 conduct. |
32
● |
Internet Access. The adoption of any laws or regulations
that adversely affect the growth, popularity or use of the Internet,
including laws impacting Internet neutrality, could decrease the demand
for our services. Similarly, any actions by companies that provide
Internet access that degrade, disrupt or increase the cost of user access
to our platform could undermine our operations and result in the loss of
users. |
● |
Macroeconomic Conditions. Consumer purchases of discretionary items
generally decline during recessions and other periods in which disposable
income is adversely affected. As a result, adverse economic conditions may
impact consumer spending, particularly with respect to local businesses,
which in turn could adversely impact the number of consumers visiting our
platform. |
We also anticipate that our
traffic growth rate will continue to slow over time, and potentially decrease in
certain periods, as our business matures and we achieve higher penetration
rates. In particular, the number of major geographic markets, especially within
the United States, that we have not yet entered is declining; further expansion
in smaller markets may not yield similar results or sustain our growth. That our
traffic growth has slowed in recent quarters even as we have expanded our
international presence is a reflection of this trend. As our traffic growth rate
slows, our success will become increasingly dependent on our ability to increase
levels of user engagement on our platform. This dependence may increase as the
portion of our revenue derived from performance-based advertising increases. A
number of factors may negatively affect our user engagement, including if:
● |
users engage with other products, services
or activities as an alternative to our
platform; |
● |
there is a decrease
in the perceived quality of the content contributed by our
users; |
● |
we fail to introduce
new and improved products or features, or we introduce new products or
features that do not effectively address consumer needs or otherwise
alienate consumers; |
● |
technical or other
problems negatively impact the availability and reliability of our
platform or otherwise affect the user
experience; |
● |
users have difficulty
installing, updating or otherwise accessing our platform as a result of
actions by us or third parties that we rely on to distribute our
products; |
● |
users believe that
their experience is diminished as a result of the decisions we make with
respect to the frequency, relevance and prominence of the advertising we
display; and |
● |
we do not maintain
our brand image or our reputation is damaged.
|
*We rely on Internet
search engines and application marketplaces to drive traffic to our platform,
certain providers of which offer products and services that compete directly
with our solutions. If links to our website and applications are not displayed
prominently, traffic to our platform 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 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. Beginning 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 and decline in traffic in the fourth quarter of 2014. We cannot
predict the long-term impact of these changes. 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 rather than 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 personal computer screens and
therefore display fewer search results.
33
We also rely on application
marketplaces, such as Apples App Store and Googles Play, to drive downloads of
our applications. In the future, Apple, Google or other marketplace operators
may make changes to their marketplaces that make access to our products more
difficult. For example, our applications may receive unfavorable treatment
compared to the promotion and placement of competing applications, such as the
order in which they appear within marketplaces. Similarly, if problems arise in
our relationships with providers of application marketplaces, our user growth
could be harmed.
In some instances, search
engine companies and application marketplaces 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. For example, Google has
integrated its local product offering, Google + Local, with certain of its
products, including search. The resulting promotion of Googles own competing
products in its web search results has negatively impacted the search ranking of
our website. Because Google in particular is the most significant source of
traffic to our website, accounting for more than half of the visits to our
website during the three months ended June 30, 2015, our success depends on our
ability to maintain a prominent presence in search results for queries regarding
local businesses on Google. As a result, Googles promotion of its own competing
products, or similar actions by Google in the future that have the effect of
reducing our prominence or ranking on its search results, could have a
substantial negative effect on our business and results of operations.
*Consumers are
increasingly using mobile devices to access online services. If our mobile
platform and mobile advertising products are not compelling, or if we are unable
to operate effectively on mobile devices, our business could be adversely
affected.
The number of people who
access information about local businesses through mobile devices, including
smartphones, tablets and handheld computers, has increased dramatically over the
past few years and is expected to continue to increase. Although many consumers
access our platform both on their mobile devices and through personal computers,
we have seen substantial growth in mobile usage. We anticipate that growth in
use of our mobile platform will be the driver of our growth for the foreseeable
future and that usage through personal computers may continue to decline
worldwide. As a result, we must continue to drive adoption of and user
engagement on our mobile platform, and our mobile app in particular. If we are
unable to drive continued adoption of and engagement on our mobile app, our
business may be harmed and we may be unable to decrease our reliance on traffic
from Google and other search engines.
In order to attract and
retain engaged users of our mobile platform, the mobile products and services we
introduce must be compelling. However, the ways in which users engage with our
platform and consume content has changed over time, and we expect it will
continue to do so as users increasingly engage via mobile. This may make it more
difficult to develop mobile products that consumers find useful or provide them
with the information they seek, and may also negatively affect our content if
users do not continue to contribute high quality content on their mobile
devices. In addition, building an engaged base of mobile users may also be
complicated by the frequency with which users change or upgrade their mobile
services. In the event users choose mobile devices that do not already include
or support our mobile app or do not install our mobile app when they change or
upgrade their devices, our traffic and user engagement may be harmed.
Our success is also
dependent on the interoperability of our mobile products with a range of mobile
technologies, systems, networks and standards that we do not control, such as
mobile operating systems like Android and iOS. We may not be successful in
developing products that operate effectively with these technologies, systems,
networks and standards or in creating, maintaining and developing relationships
with key participants in the mobile industry, some of which may be our
competitors. Any changes that degrade the functionality of our mobile products,
give preferential treatment to competitive products or prevent us from
delivering advertising could adversely affect mobile usage and monetization. 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 integrating our
mobile app into mobile devices, or we face increased costs to distribute our
mobile app, our user growth and operating results could be harmed.
34
In addition, the mobile
market remains a new and evolving market with which we have limited experience.
As new devices and platforms are released, users may begin consuming content in
a manner that is more difficult to monetize. Similarly, as mobile advertising
products develop, demand may increase for products that we do not offer or that
may alienate our user base. Although we currently have the ability to deliver
local and display advertising on both our mobile app and mobile website, with
61% of ad impressions delivered on mobile in the three months ended June 30,
2015, our continued success depends on our efforts to innovate and introduce
enhanced mobile solutions. If our efforts to develop compelling mobile
advertising products are not successful as a result of, for example, the
difficulties detailed above advertisers may stop or reduce their advertising
with us. At the same time, we must balance advertiser demands against our
commitment to prioritizing the quality of user experience over short-term
monetization. For example, we will be phasing out our brand advertising products
in part because demand in the brand advertising market has shifted toward
products disruptive to the consumer experience, such as video ads. If we are not
able to balance these competing considerations successfully, we may not be able
to generate meaningful revenue from our mobile products despite the expected
growth in mobile usage.
*If our users fail to
contribute high quality content or their contributions are not valuable to other
users, our traffic and revenue could be negatively affected.
Our success in attracting
users depends on our ability to provide consumers with the information they
seek, which in turn depends on the quantity and quality of the content
contributed by our users. We believe that as the depth and breadth of the
content on our platform grow, our platform will become more widely known and
relevant to broader audiences, thereby attracting new consumers to our service.
However, if we are unable to provide consumers with the information they seek,
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 ability to provide consumers with valuable content
may be harmed:
● |
if our users do not contribute content that
is helpful or reliable; |
● |
if our users remove
content they previously submitted; |
● |
as a result of user
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; and |
● |
as users increasingly
contribute content through our mobile platform, because content
contributed through mobile devices tends to be shorter than desktop
contributions. |
Similarly, if robots,
shills or other spam accounts are able to contribute a significant amount of
recommended content, or consumers perceive a significant amount of our
recommended content to be from such accounts, our traffic and revenue could be
negatively affected. Although we do not believe content from these sources has
had a material impact to date, if our automated software recommends a
substantial amount of such content in the future, our ability to provide high
quality content would be harmed and the consumer trust essential to our success
could be undermined.
In addition, if our
platform does not provide current information about local businesses or users do
not perceive reviews on our platform as relevant, our brand and business could
be harmed. For example, we do not phase out or remove dated reviews, and
consumers may view older reviews as less relevant, helpful or reliable than more
recent reviews.
35
*If we fail to
maintain and expand our base of advertisers, our revenue and our business will
be harmed.
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.
Our ability to do so depends on factors including:
● |
Acceptance of Online
Advertising. We believe
that the continued growth and acceptance of our online advertising
products will depend on the perceived effectiveness and the acceptance of
online advertising models generally, which is outside of our control. Many
advertisers still have limited experience with online advertising and, as
a result, may continue to devote significant portions of their advertising
budgets to traditional, offline advertising media, such as newspapers or
print yellow pages directories. |
● |
Competitiveness of Our
Products. We must deliver
ads in an effective manner; we may be unable to attract new advertisers if
our products are not compelling or we fail to innovate and introduce
enhanced products meeting advertiser expectations. However, we must
balance advertiser demands against our commitment to providing a good user
experience. For example, we will be phasing out our brand advertising
products in part because demand in the brand advertising market has
shifted toward products disruptive to the consumer experience. In
addition, we must provide accurate analytics and measurement solutions
that demonstrate the value of our advertising products compared to those
of our competitors. Similarly, if the pricing of our advertising products
does not compare favorably to those of our competitors, advertisers may
reduce their advertising with us or choose not to advertise with us at
all. |
● |
Traffic Quality. The success of our advertising program
depends on delivering positive results to our advertising customers.
Low-quality or invalid traffic, such as robots, spiders and the mechanical
automation of clicking, may be detrimental to our relationships with
advertisers and could adversely affect our advertising pricing and
revenue. If we fail to detect and prevent click fraud or other invalid
clicks on ads, the affected advertisers may experience or perceive a
reduced return on their investments, which could lead to dissatisfaction
with our products, refusals to pay, refund demands or withdrawal of future
business. |
● |
Perception of Our Platform. Our ability to compete effectively for
advertiser budgets depends on our reputation and perceptions regarding our
platform. For example, we may face challenges expanding our advertiser
base in businesses outside the restaurant and shopping categories if
businesses believe that consumers perceive the utility of our platform to
be limited to finding businesses in these categories. The ratings and
reviews that businesses receive from our users may also affect their
advertising decisions. Favorable ratings and reviews, on the one hand,
could be perceived as obviating the need to advertise. Unfavorable ratings
and reviews, on the other, could discourage businesses from advertising to
an audience that they perceive as hostile or cause them to form a negative
opinion of our products and user base. |
● |
Macroeconomic Conditions. Adverse macroeconomic conditions can have
a negative impact on the demand for advertising, particularly with respect
to online advertising products. We rely heavily on small and medium-sized
businesses, which often have limited advertising budgets and may be
disproportionately affected by economic downturns. In addition, such
business may view online advertising as lower priority than offline
advertising. |
As is typical in our
industry, our advertisers generally do not have long-term obligations to
purchase our products. Their decisions to renew depend on the degree of
satisfaction with our products as well as a number of factors that are outside
of our control, including their ability to continue their operations and
spending levels. Small and medium-sized local businesses in particular have
historically experienced high failure rates. 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. To grow our business, we must continually add new
advertisers 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, which we may not be able to do.
36
If we fail to expand
our operations effectively, including in international markets where we have
limited operating experience and may be subject to increased risks, our revenue
and business will be harmed.
We intend to expand our
operations into new markets, both domestically and abroad. Our expansion into
new markets places us in competitive environments with which we are unfamiliar
and involves various 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 or advertiser demand in some or all
of these markets. Our current and future expansion plans will require
significant resources and management attention, and the returns on such
investments may not be achieved for several years, or at all.
Because we have already
entered many of the largest markets in the United States and further expansion
in smaller markets may not yield similar results, our continued growth depends
on our ability to expand effectively in international markets. We have a limited
operating history in international markets, which makes it difficult to evaluate
our future prospects and may increase the risk that we will not be successful.
If the markets we have targeted for international expansion do not develop as we
expect, or if we fail to address the needs of those markets, our business will
be harmed. Expanding internationally may also 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:
● |
operating a rapidly growing business in an
environment of multiple languages, cultures, customs, legal systems,
regulatory systems and commercial
infrastructures; |
● |
recruiting and
retaining qualified, multi-lingual employees, including sales
personnel; |
● |
increased competition
from local websites and guides, and potential preferences by local
populations for local providers; |
● |
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 more established
markets; |
● |
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; |
● |
compliance with
applicable foreign laws and regulations, including different privacy,
censorship and liability
standards; |
● |
the enforceability of
our intellectual property rights; |
● |
credit risk and
higher levels of payment fraud; |
● |
currency exchange
rate fluctuations; |
● |
compliance with
anti-bribery laws, including but not limited to the Foreign Corrupt
Practices Act and the U.K. Bribery Act; |
● |
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 potential adverse tax consequences due to
changes in the tax laws of the United States or foreign jurisdictions in
which we operate; and |
● |
higher costs of doing
business internationally. |
37
*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 February 2015, we acquired Eat24 to obtain
an online food ordering 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 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 maintain 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, which may result in significant unanticipated costs. For example, two
putative class actions have been filed against us by former Eat24 employees,
alleging, among other things, that the employees failed to receive required meal
and rest breaks during a period beginning prior to our acquisition of Eat24. The
effectiveness of our due diligence review and our ability to evaluate the
results of such due diligence are dependent upon the accuracy and completeness
of statements and disclosures made by the companies we acquire or their
representatives, as well as the limited amount of time in which acquisitions are
executed. We may also fail to accurately forecast the financial impact of an
acquisition transaction, including tax and accounting charges.
In order to realize the
expected benefits and synergies of any acquisition that is consummated, we must
meet a number of significant challenges that may create unforeseen operating
difficulties and expenditures, including:
● |
integrating operations, strategies,
services, sites and technologies of the acquired
company; |
● |
managing the combined
business effectively; |
● |
retaining and
assimilating the employees 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 corporate cultures; |
● |
implementing and
retaining uniform standards, controls, procedures, policies and
information systems; and |
● |
addressing
risks related to the business of the acquired company that may continue to
impact the business following the acquisition.
|
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. Our ability to integrate complex acquisitions is unproven,
particularly with respect to companies that have significant operations or that
develop products with which we do not have prior experience. For example, Eat24
is larger and more complex than previous companies we have acquired. In
addition, Eat24 operates a business that is new to us, and we are in the early
stages of developing the structures and expertise needed to support this
business. We plan to invest resources to support this and any future
acquisitions, which will result in ongoing operating expenses and may divert
resources and management attention from other areas of our business. We cannot
assure you that these investments will be successful. 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 combination of the
businesses, or we may not achieve these benefits within a reasonable period of
time.
38
*We rely on
third-party service providers and strategic partners for many aspects of our
business, and any failure to maintain these relationships could harm our
business.
We rely on relationships
with various third parties to grow our business, including strategic partners
and technology and content providers. For example, we rely on third parties for
data about local businesses, mapping functionality, payment processing and
administrative software solutions. We also rely on partners for various
transactions available through the Yelp Platform, including Booker for spa and
salon appointments, Locu for menu data and Hipmunk for hotel bookings, among
others. Identifying, negotiating and maintaining relationships with third
parties require significant time and resources, as does integrating their data,
services and technologies onto our platform. It is possible that these third
parties may not be able to devote the resources we expect to the relationships.
We may also have competing interests and obligations with respect to our
partners in particular, which may make it difficult to maintain, grow or
maximize the benefit for each partnership. Our focus on integrating additional
partners to expand the Yelp Platform may exacerbate this risk.
If our relationships with
our partners and providers deteriorate, we could suffer increased costs and
delays in our ability to provide consumers and advertisers with content or
similar services. 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.
In addition, we exercise limited control over our third-party partners and
vendors, which makes us vulnerable to any errors, interruptions or delays in
their operations. If these third parties experience any service disruptions,
financial distress or other business disruption, or difficulties meeting our
requirements or standards, it could make it difficult for us to operate some
aspects of our business. For example, we rely on a single supplier to process
payments of all transactions made on the Yelp Platform and for purchases of Yelp
Deals and Gift Certificates. Any disruption or problems with this supplier or
its services could have an adverse effect on our reputation, results of
operations and financial results. Similarly, upon expiration or termination of
any of our agreements with third-party providers, we may not be able to replace
the services provided to us in a timely manner or on terms that are favorable to
us, if at all, and a transition from one partner or provider to another could
subject us to operational delays and inefficiencies.
We face competition
for both local business directory traffic and advertiser spending, and expect
competition to increase in the future.
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. We compete for consumer
traffic with traditional, offline local business guides and directories,
Internet search engines, such as Google and Bing, review and social media
websites and various other online service providers. These competitors may
include regional review websites that may have strong positions in particular
countries. We also compete with these companies for the content of contributors,
and may experience decreases in both traffic and user engagement if our
competitors offer more compelling environments.
Although advertisers are
allocating an increasing amount of their overall marketing budgets to online
advertising, such spending lags behind growth in Internet and mobile usage
generally, making the market for online advertising intensely competitive. We
compete for a share of local businesses overall advertising budgets with
traditional, offline media companies and service providers, as well as Internet
marketing providers. Many of these companies have established marketing
relationships with local businesses, and certain of our online competitors have
substantial proprietary advertising inventory and web traffic that may provide a
significant competitive advantage.
Certain competitors could
use strong or dominant positions in one or more markets to gain competitive
advantage against us in areas in which we operate, including by: integrating
review platforms or features into products they control, such as search engines,
web browsers or mobile device operating systems; making acquisitions; changing their unpaid search result rankings to
promote their own products; refusing to enter into or renew licenses on which we
depend; limiting or denying our access to advertising measurement or delivery
systems; limiting our ability to target or measure the effectiveness of ads; or
making access to our platform more difficult. This risk may be exacerbated by
the trend in recent years toward consolidation among online media companies,
potentially allowing our larger competitors to offer bundled or integrated
products that feature alternatives to our platform.
39
Our competitors may also
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. Traditional
television and print media companies, for example, have large established
audiences and more traditional and widely accepted advertising products. 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 may leverage their relationships based on
other products or services to gain additional share of advertising budgets.
To compete effectively, we
must continue to invest significant resources in product development to enhance
user experience and engagement, as well as sales and marketing to expand our
base of advertisers. However, there can be no assurance that we will be able to
compete successfully for users and advertisers against existing or new
competitors, and failure to do so could result in loss of existing users,
reduced revenue, increased marketing expenses or diminished brand strength, any
of which could harm our business.
*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
products.
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 platform, which
we may not do successfully. We dedicate significant resources to these goals,
primarily through our automated recommendation software, sting operations
targeting the buying and selling of reviews, our consumer alerts program,
coordination with consumer protection agencies and law enforcement, and, in
certain egregious cases, taking legal action against business we believe to be
engaged in deceptive activities. We also endeavor to remove content from our
platform that violates our terms of service.
Despite these efforts, we
cannot guarantee that each of the 59.0 million reviews on our platform that have
been recommended and that have not been removed as of June 30, 2015 is useful or
reliable, or that consumers will trust the integrity of our content. For
example, if our recommendation 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. 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. 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
the frequency with which they use our platform.
Consumers may also believe
that the reviews, photos and other user 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, identifying Community Managers as Yelp employees on their account
profile pages 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, the actions of our partners may
affect our brand if users do not have a positive experience on the Yelp
Platform. If others misuse our brand or pass themselves off as being endorsed or
affiliated with us, it could harm our reputation and our business could suffer.
Our website and mobile app also serve as a platform for expression by our users,
and third parties or the public at large may also attribute the political or
other sentiments expressed by users on our platform to us, which could harm our
reputation.
40
In addition, negative
publicity about our company, including our technology, sales practices,
personnel, customer service, litigation or political activities could diminish
confidence in our brand 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. In order to
demonstrate that our automated recommendation software applies in a
nondiscriminatory manner to both advertisers and non-advertisers, we allow users
to access reviews that are both recommended and not recommended by our software.
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 our content 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.
Maintaining and enhancing
our brand may also 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 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 certain jurisdictions. Doing
so could harm our brand recognition and adversely affect our business. 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.
*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
other businesses, such as Eat24 in February 2015, which places substantial
demands on management and our operational infrastructure. Most of our employees
have been with us for fewer than two years; to manage the expected growth of our
operations, we will need to continue to increase the productivity of our current
employees and hire, train and manage new employees. In particular, we intend to
continue to make substantial investments in our engineering, sales and marketing
and community management organizations. As a result, 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.
As our business matures, we
make periodic changes and adjustments to our organization in response to various
internal and external considerations, including market opportunities, the
competitive landscape, new and enhanced products, acquisitions, sales
performance, increases in headcount and cost levels. In some instances, these
changes have resulted in a temporary lack of focus and reduced productivity,
which may occur again in connection with any future changes to our organization
and may negatively affect our results of operations. Similarly, any significant
changes to the way we structure compensation of our sales organization may be
disruptive and may affect our ability to generate revenue.
To manage our growth, we
may need to improve our operational, financial and management systems and
processes, which may require significant capital expenditures and allocation of
valuable management and employee resources,
as well as subject us to the risk of over-expanding our operating
infrastructure. However, if we fail to scale our operations successfully and
increase productivity, the quality of our platform and efficiency of our
operations could suffer, which could harm our brand, results of operations and
business.
41
*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 on the best interests of the consumers who use our platform. 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. For example, we will be phasing out brand advertising products
in part because demand in the brand advertising market has shifted toward
products disruptive to the consumer experience, such as video ads. Our approach
of putting consumers first may negatively impact our relationship with 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 will allow the review to remain on our 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. However, we believe that this approach has been essential
to our success in attracting users and increasing the frequency with which they
use our platform. As a result, we believe this approach has served the long-term
interests of our company and our stockholders and will continue to do so in the
future.
*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. 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.
Our future 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 before we can validate their productivity.
Volatility in the price of our Class A common stock may make it more difficult
or costly in the future to use equity compensation to motivate, incentivize and
retain our employees. If we do not succeed in attracting well-qualified
employees or retaining and motivating existing employees, our business could be
harmed.
Risks Related to Our
Technology
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 in 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. Our products and services are highly
technical and complex, and may contain errors or vulnerabilities that could
result in unanticipated downtime for our platform and harm to our reputation and
business. Users may also use our products in unanticipated ways that may cause a
disruption in service for other users attempting to access our platform. We may
encounter such difficulties more frequently as we acquire companies and incorporate their technologies into our
service. It may also 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.
42
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 user our platform. 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 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 densities 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.
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 are expected to occur periodically on our systems in
the future. We may be a particularly compelling target for such attacks as a
result of our brand recognition. User and business owner accounts and profile
pages could be hacked, hijacked, altered or otherwise claimed or controlled by
unauthorized persons. For example, we enable businesses to create free online
accounts and claim the business profile pages for each of their business
locations. Although we take steps to confirm that the person setting up the
account is affiliated with the business, our verification systems could fail to
confirm that such person is an authorized representative of the business, or
mistakenly allow an unauthorized person to claim the businesss profile page. In
addition, we face risks associated with security breaches affecting our
third-party partners and service providers. A security breach at any such third
party could be perceived by consumers as a security breach of our systems and
result in negative publicity, damage to our reputation and expose us to other
losses.
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. Although
we have developed systems and processes that are designed to protect our data
and prevent data loss and other security
breaches, 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. As a result, these preventative measures may not be
adequate and we cannot assure you that they will provide absolute security.
43
Any or all of these issues
could negatively impact our ability to attract new users, deter current users
from returning to our platform, cause existing or potential advertisers to
cancel their contracts or subject us to third-party lawsuits or other
liabilities. For example, we work with third-party vendors to process credit
card payments by users and businesses, and are subject to payment card
association operating rules. If our security measures fail to protect payment
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
the users and businesses for their losses, as well as the vendors under our
agreements with them, and be subject to fines and higher transaction fees. In
addition, 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.
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 because open source licensors
generally do not provide warranties or controls on the origin of the 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.
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, as well as
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 or 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
intellectual property, including trademarks and domain names, in an increasing
number of jurisdictions, a process that is expensive and may not be successful,
but have not done so in every location in which we operate. Litigation may
become necessary to enforce our intellectual property rights, protect our
respective trade secrets or determine the validity and scope of proprietary
rights claimed by others. For example, we may incur significant costs in
enforcing our trademarks against those who attempt to imitate our Yelp brand.
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.
44
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 the websites 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
cause us 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 by others 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.
Risks Related to Our
Financial Statements and Tax Structure
*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. As
a result, our historical operating results may not be indicative of our future
operating results, making 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, which we may
not be able to address successfully. 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; |
● |
attract and retain
new advertising clients, many of which may have limited or no online
advertising experience; |
● |
forecast revenue and
adjusted EBITDA accurately, which may be more difficult as we discontinue
our brand advertising products and sell more performance-based
advertising, as well as appropriately estimate and plan our expenses;
|
● |
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;
|
● |
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;
|
● |
expand successfully
in existing markets, enter new markets and manage our international
expansion; |
● |
successfully develop
and deploy new features and products; |
● |
manage and integrate
successfully any acquisitions of businesses, solutions or technologies,
such as Eat24; |
● |
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, other personnel and operations; and
|
● |
effectively identify,
engage and manage third-party partners and service providers.
|
45
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 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 period to period as a result of a variety of factors,
many of which may be outside of our control. This volatility increases the
difficulty in predicting our future performance and means comparing our
operating results on a period-to-period basis may not be meaningful. In addition
to the other risk factors discussed in this section, factors that may contribute
to the volatility of our operating results include:
● |
changes in the
products we offer, such as our phase out of brand advertising
products; |
● |
changes in our
pricing policies and terms of contracts, whether initiated by us or as a
result of competition; |
● |
cyclicality and
seasonality, which may become more pronounced as our growth rate slows;
|
● |
the effects of
changes in search engine placement and prominence;
|
● |
the adoption of any
laws or regulations that adversely affect the growth, popularity or use of
the Internet, such as laws impacting Internet neutrality;
|
● |
the success of our
sales and marketing efforts; |
● |
costs associated with
defending intellectual property infringement and other claims and related
judgments or settlements; |
● |
interruptions in
service and any related impact on our reputation;
|
● |
the impact of
fluctuations in currency exchange rates; |
● |
changes in advertiser
budgets or the market acceptance of online advertising solutions;
|
● |
changes in consumer
behavior with respect to local businesses; |
● |
changes in our tax
rates or exposure to additional tax liabilities;
|
● |
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; and |
● |
the effects of
natural or man-made catastrophic events. |
46
*We have incurred
significant operating losses in the past, and we may not be able to generate
sufficient revenue to maintain profitability. Our recent growth rate will likely
not be sustainable, and a failure to maintain an adequate growth rate will
adversely affect our business and results of operations.
Since our inception, we have incurred significant operating
losses and, as of June 30, 2015, we had an accumulated deficit of approximately
$36.6 million. Although our revenues have grown rapidly in the last several
years, increasing from $12.1 million in 2008 to $377.5 million in 2014, we
expect that our revenue growth rate will decline 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. As a result, you should not rely on the
revenue growth of any prior quarterly or annual period, or the net income we
realized in 2014, 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.
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.
If our goodwill or
intangible assets become impaired, we may be required to record a significant
charge to earnings.
We have recorded a
significant amount of goodwill related to our acquisitions to date, and a
significant portion of the purchase price of any companies we acquire in the
future may be allocated to acquired goodwill and other intangible assets. Under
GAAP, we review our intangible assets for impairment when events or changes in
circumstances indicate the carrying value of our goodwill and other intangible
assets may not be recoverable. Goodwill is required to be tested for impairment
at least annually. Factors that may be considered include declines in our stock
price, market capitalization and future cash flow projections. If our
acquisitions do not yield expected returns, our stock price declines or any
other adverse change in market conditions occurs, a change to the estimation of
fair value could result. Any such change could result in an impairment charge to
our goodwill and intangible assets, particularly if such change impacts any of
our critical assumptions or estimates, and may have a negative impact on our
financial position and operating results.
47
We may require
additional capital to support business growth, and such capital might not be
available on acceptable terms, if at all.
We intend to continue to invest in our business and may require
or otherwise seek additional funds to respond to business challenges, including
the need to develop new features and products, enhance our existing services,
improve our operating infrastructure and acquire complementary businesses and
technologies. As a result, 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 our Class A common stock. Any
future debt financing we secure 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
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 intercompany transactions, are
intended to reduce our worldwide effective tax rate. For example, 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.
However, 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.
In addition, 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
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. As
we operate in numerous taxing jurisdictions, the application of tax laws can
also 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.
Changes in tax laws
or tax rulings, or the examination of our tax positions, could materially affect our financial position and results of
operations.
Tax laws are dynamic and
subject to change as new laws are passed and new interpretations of the law are
issued or applied. 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 that we intend to
eventually derive could be undermined due to changing tax laws. In particular,
the current U.S. administration and key members of Congress have made public
statements indicating that tax reform is a priority, resulting in uncertainty
not only with respect to 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. 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.
In addition, the taxing
authorities in the United States and other jurisdictions where we do business
regularly examine our income and other tax returns. For example, we are
currently under audit by the Internal Revenue Service for taxable year 2012. The
ultimate outcome of this or other examinations cannot be predicted with
certainty. Should the IRS or other taxing authorities assess additional taxes as
a result of examinations, we may be required to record charges to our
operations, which could harm our business, operating results and financial
condition.
48
*Our business and
results of operations may be harmed if we are deemed responsible for the
collection and remittance of state sales taxes for Eat24's restaurants.
If we are deemed an agent
for the restaurants in our Eat24 network under state tax law, we may be deemed
responsible for collecting and remitting sales taxes directly to certain states.
It is possible that one or more states could seek to impose sales, use or other
tax collection obligations on us with regard to such food sales. These taxes may
be applicable to past sales. A successful assertion that we should be collecting
additional sales, use or other taxes or remitting such taxes directly to states
could result in substantial tax liabilities for past sales and additional
administrative expenses, which would harm our business and results of
operations. In addition, we rely on the restaurants in our Eat24 network to
provide us with the correct sales tax rates for each individual order. If such
information proves incorrect, we may be liable for the under or over collection
of sales tax from Eat24 customers.
*We rely on data from
third parties to calculate certain of our key metrics. Real or perceived
inaccuracies in such metrics may harm our reputation and negatively affect our
business.
Certain of our key metrics
the number of our desktop unique visitors and mobile unique visitors are
calculated relying on data from third parties. While these numbers are based on
what we believe to be reasonable calculations for the applicable periods of
measurement, our third-party providers periodically encounter difficulties in
providing accurate data for such metrics as a result of a variety of factors,
including human and software errors. We expect these challenges to continue to
occur, and potentially to increase as our traffic grows. In addition, there are
inherent challenges in measuring usage across our large user base around the
world. For example, because these metrics are 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. As a result, the calculations of our
desktop unique visitors and mobile unique visitors may not accurately reflect
the number of people actually using our platform. In addition, our measures of
traffic and other key metrics may differ from estimates published by third
parties (other than those whose data we use to calculate our key metrics) or
from similar metrics of our competitors. We are continually seeking to improve
our ability to measure these key metrics, and regularly review our processes to
assess potential improvements to their accuracy. If our users, advertisers,
partners and stockholders do not perceive our metrics to be accurate
representations, or if we discover material inaccuracies in our metrics, our
reputation may be harmed.
Risks Related to
Regulatory Compliance and Legal Matters
*We are, and may be
in the future, 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, various businesses have sued
us alleging that we manipulate Yelp reviews in order to coerce them and other
businesses to pay for Yelp advertising. The nature of our business also exposes
us to claims relating to the information posted on our platform,
including claims for defamation, libel, negligence and copyright or trademark infringement, among others.
Businesses have in the past claimed, and may in the future claim, that we are
responsible for the 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. In some instances, we may elect or be compelled to
remove the content that is the subject of such claims, 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 content from our platform,
our products and services may become less useful to consumers and our traffic
may decline, which would have a negative impact on our business.
49
We are also regularly
exposed to claims based on allegations of infringement or other violations of
intellectual property rights. Companies in the Internet, technology and media
industries own large numbers of patent and other intellectual property rights,
and frequently enter into litigation. Various non-practicing entities that own
patents and other intellectual property rights also 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, and we are
presently involved in numerous patent lawsuits, including lawsuits involving
plaintiffs targeting multiple defendants in the same or similar suits. We do not
own any patents, and may be unable to deter competitors or others from pursuing
intellectual property infringement claims against us.
We expect other claims to
be made against us 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 any certainty. Even if the claims are without merit,
the costs associated with defending against them 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 may require us to stop offering certain features, purchase licenses or
modify our products and features while we develop non-infringing substitutes, or
otherwise involve significant settlement costs. The development of alternative
non-infringing technology or practices could require significant effort and
expense or may not be feasible. Even if claims do not result in litigation or
are resolved in our favor without significant cash settlements, such matters,
and the time and resources necessary to resolve them, could harm our business,
results of operations and reputation.
*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, 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. 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.
The application and
interpretation of these laws and regulations are often uncertain, particularly
in the new and rapidly evolving industry in which we operate. For example, we
rely on laws limiting the liability of providers of online services for
activities of their users and other third parties. These laws 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 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,
which may be inconsistent with the laws of the jurisdictions to which we are
currently subject. For example, the risk related to liability for third-party
actions may be greater in certain jurisdictions outside the United States where
our protection from such liability may be unclear.
50
It is also possible that
the interpretation and application of various laws and regulations 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). Similarly, our business could be adversely affected if new legislation
or regulations are adopted that require us to change our current 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 personal
information of their users. The U.S. government, including the White House, the
Federal Trade Commission, the Department of Commerce and many state governments
are reviewing the need for greater regulation of the collection, processing,
storage and use of information about consumer behavior on the Internet,
including regulation aimed at restricting certain targeted advertising
practices. The European Commission is also 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. Such changes could also 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 that 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 impact 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.
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 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. Various companies
that provide deal products similar to ours have been subject to allegations that
their deal products are subject to and violate the Credit CARD Act and various
state laws governing gift cards. 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. 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.
51
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.
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.
As a public company, 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 likely continue to increase, our
legal and financial compliance costs, make some activities more difficult,
time-consuming or costly, and place significant strain on our personnel, systems
and resources. 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. This could result in continuing uncertainty regarding compliance matters,
higher administrative expenses and a diversion of managements time and
attention. Further, if our compliance efforts 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 also 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.
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. As a
result, 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 capital stock. The current holders of our Class B common stock
collectively are 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. As of June 30, 2015, stockholders who
held shares of Class B common stock, including our founders, directors,
executive officers, employees and their affiliates, together beneficially owned
shares representing approximately 59% of the voting power of our outstanding
capital stock. 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, which may include
existing founders, officers, directors and their affiliates. 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.
52
*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, 2014 and June 30, 2015, our Class A common stocks
daily closing price ranged from $38.22 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; |
● |
actions of securities
analysts who cover our company, such as publishing research or forecasts
about our business (and our performance against such forecasts), changing
in the rating of our Class A common stock or ceasing coverage of our
company; |
● |
investor sentiment
with respect to our competitors, business partners and industry in
general; |
● |
reporting on our
business by the financial media, including television, radio and press
reports and blogs; |
● |
fluctuations in the
value of companies perceived by investors to be comparable to us;
|
● |
changes in the way we
measure our key metrics; |
● |
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 such as recessions, interest rate changes or
international currency fluctuations. |
Furthermore, the stock
markets have recently 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. 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 the federal securities laws for allegedly making
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 time and 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 future
gains on their investments.
53
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 appointment 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.
*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, 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 June 30, 2015, we had 65,753,489
shares of Class A common stock and 9,479,216 shares of Class B common stock
outstanding. Although a public market exists for our Class A common stock only,
shares of our 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).
54
ITEM 2. UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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.
Period |
|
Total Number
of Shares Purchased(1) |
|
Weighted Average Price
Paid per
Share |
|
Total
Number of
Shares Purchased
as Part
of Publicly Announced Plans or Programs |
|
Maximum Number
of Shares
that May Yet
Be Purchased Under the Plans or Programs |
April 1 April 30, 2015 |
|
|
|
|
|
|
|
|
|
May
1 May 31, 2015 |
|
4,892 |
|
$ |
46.43 |
|
|
|
|
June 1 June 30, 2015 |
|
|
|
|
|
|
|
|
|
Total |
|
4,892 |
|
$ |
46.43 |
|
|
|
|
(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.
55
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.
56
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: July 31, 2015 |
/s/ Rob
Krolik |
|
Rob
Krolik |
|
Chief Financial Officer |
|
(Principal Financial and Accounting Officer and Duly Authorized
Signatory) |
57
EXHIBIT
INDEX
|
|
|
|
Incorporated by Reference |
|
Filed 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 |
|
|
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 |
101.LAB |
|
XBRL Taxonomy Extension
Labels Linkbase Document. |
|
|
|
|
|
|
|
|
|
X |
101.PRE |
|
XBRL Taxonomy Extension
Presentation Linkbase Document. |
|
|
|
|
|
|
|
|
|
X |
|
|
|
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: July 31, 2015 |
|
/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: July 31, 2015 |
|
/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 June 30, 2015, 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 31st day of July,
2015.
/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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