Yelp(YELP) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides Yelp Inc.'s unaudited condensed consolidated financial statements and management's discussion and analysis for the period ended September 30, 2023 ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) This section presents Yelp Inc.'s unaudited condensed consolidated financial statements for the period ended September 30, 2023, including the balance sheets, statements of operations, comprehensive income, stockholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, financial instrument details, and other relevant financial information Condensed Consolidated Balance Sheets This section presents a snapshot of the company's assets, liabilities, and equity at specific points in time Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | |:---|:---|:---| | Total Assets | $1,027,318 | $1,015,922 | | Total Liabilities | $287,744 | $305,598 | | Total Stockholders' Equity | $739,574 | $710,324 | - Total assets increased by $11.4 million, primarily driven by an increase in accounts receivable and short-term marketable securities, partially offset by decreases in prepaid expenses and other current assets[19] - Total liabilities decreased by $17.8 million, mainly due to a reduction in operating lease liabilities, while stockholders' equity increased by $29.25 million[19] Condensed Consolidated Statements of Operations This section details the company's revenues, expenses, and net income over specific reporting periods Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | |:---|:---|:---|:---|:---|\ | Net Revenue | $345,122 | $308,891 | $994,686 | $884,403 | | Total Costs and Expenses | $303,249 | $295,467 | $940,658 | $859,434 | | Income from Operations | $41,873 | $13,424 | $54,028 | $24,969 | | Net Income Attributable to Common Stockholders | $58,216 | $9,108 | $71,767 | $16,202 | | Basic EPS | $0.84 | $0.13 | $1.03 | $0.23 | | Diluted EPS | $0.79 | $0.13 | $0.98 | $0.22 | - Net revenue increased by 12% YoY for both the three and nine months ended September 30, 2023[21] - Net income attributable to common stockholders saw significant growth, increasing by 539% YoY to $58.2 million for the three months and 343% YoY to $71.8 million for the nine months ended September 30, 2023[21] Condensed Consolidated Statements of Comprehensive Income This section reports net income and other comprehensive income or loss, reflecting all changes in equity from non-owner sources Condensed Consolidated Statements of Comprehensive Income Highlights (in thousands) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | |:---|:---|:---|:---|:---|\ | Net Income Attributable to Common Stockholders | $58,216 | $9,108 | $71,767 | $16,202 | | Other Comprehensive (Loss) Income | ($1,402) | ($4,967) | $267 | ($9,534) | | Comprehensive Income | $56,814 | $4,141 | $72,034 | $6,668 | - Comprehensive income significantly increased to $56.8 million for the three months and $72.0 million for the nine months ended September 30, 2023, compared to the prior-year periods, driven by higher net income and reduced other comprehensive losses[23] Condensed Consolidated Statements of Stockholders' Equity This section outlines changes in stockholders' equity, including net income, stock repurchases, and stock-based compensation - Total stockholders' equity increased from $710.3 million at December 31, 2022, to $739.6 million at September 30, 2023, primarily due to net income and additional paid-in capital from stock-based compensation, partially offset by stock repurchases[26][28] - The company repurchased 4,481,278 shares for $150.0 million during the nine months ended September 30, 2023[28] Condensed Consolidated Statements of Cash Flows This section summarizes the cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | |:---|:---|:---|\ | Net Cash Provided by Operating Activities | $227,110 | $147,836 | | Net Cash Used in Investing Activities | ($46,465) | ($111,307) | | Net Cash Used in Financing Activities | ($183,232) | ($182,024) | | Change in Cash, Cash Equivalents and Restricted Cash | ($1,684) | ($148,525) | - Net cash provided by operating activities increased by $79.3 million YoY, primarily due to higher cash collection from customers and timing of income tax payments[30] - Net cash used in investing activities decreased by $64.8 million YoY, mainly due to a decrease in net purchases of marketable securities[30] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements 1. DESCRIPTION OF BUSINESS AND BASIS FOR PRESENTATION This section describes Yelp Inc.'s business operations and the accounting principles used for financial statement presentation - Yelp Inc. operates as a trusted local resource for consumers and a partner for businesses, offering extensive ratings and reviews and advertising solutions across the United States, United Kingdom, Canada, Ireland, and Germany[33] - The interim condensed consolidated financial statements are unaudited and prepared in accordance with GAAP and SEC regulations, with certain disclosures condensed or omitted[34] 2. CASH, CASH EQUIVALENTS AND RESTRICTED CASH This section details the composition and changes in the company's cash, cash equivalents, and restricted cash balances Cash, Cash Equivalents and Restricted Cash (in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | |:---|:---|:---|\ | Cash | $96,050 | $56,304 | | Cash Equivalents | $209,053 | $250,075 | | Total Cash and Cash Equivalents | $305,103 | $306,379 | | Restricted Cash | $351 | $759 | | Total Cash, Cash Equivalents and Restricted Cash | $305,454 | $307,138 | - Total cash, cash equivalents, and restricted cash remained relatively stable, decreasing slightly from $307.1 million at December 31, 2022, to $305.5 million at September 30, 2023[41] 3. MARKETABLE SECURITIES This section provides information on the company's marketable securities, including their fair value and unrealized gains or losses Marketable Securities Fair Value (in thousands) | Category | Sep 30, 2023 Fair Value | Dec 31, 2022 Fair Value | |:---|:---|:---|\ | Cash Equivalents (U.S. government securities) | $4,865 | $2,524 | | Short-term Marketable Securities | $121,468 | $94,244 | | Total | $126,333 | $96,768 | - The fair value of total marketable securities increased from $96.8 million at December 31, 2022, to $126.3 million at September 30, 2023, primarily driven by increased investments in U.S. government securities and corporate bonds[43] - As of September 30, 2023, the company held $103.3 million in securities with unrealized losses, with $26.9 million in a continuous loss position for 12 months or greater[45] 4. FAIR VALUE MEASUREMENTS This section outlines the fair value hierarchy and measurements for the company's financial instruments - The company classifies its financial instruments, including money market funds and available-for-sale debt securities, into a fair value hierarchy (Level 1, 2, or 3) based on the observability of inputs[48][49] Fair Value of Financial Instruments (in thousands) | Category | Sep 30, 2023 Total | Dec 31, 2022 Total | |:---|:---|:---|\ | Money market funds (Level 1) | $178,473 | $247,551 | | U.S. government securities (Level 2) | $4,865 | — | | Commercial paper (Level 2) | — | $2,524 | | Marketable securities (Level 2) | $121,468 | $94,244 | | Other investments (Level 2) | $10,000 | $10,000 | | Total | $314,806 | $354,319 | 5. PREPAID EXPENSES AND OTHER CURRENT ASSETS This section details the components and changes in prepaid expenses and other current assets Prepaid Expenses and Other Current Assets (in thousands) | Category | Sep 30, 2023 | Dec 31, 2022 | |:---|:---|:---|\ | Prepaid expenses | $15,846 | $14,632 | | Certificates of deposit | $10,000 | $10,000 | | Non-trade receivables | $4,566 | $31,338 | | Other current assets | $9,323 | $7,497 | | Total | $39,735 | $63,467 | - Prepaid expenses and other current assets decreased by $23.7 million, primarily due to a significant reduction in non-trade receivables following the release of a loss recovery receivable related to litigation[55] 6. PROPERTY, EQUIPMENT AND SOFTWARE, NET This section presents the net book value of the company's property, equipment, and software, including depreciation and impairment Property, Equipment and Software, Net (in thousands) | Category | Sep 30, 2023 | Dec 31, 2022 | |:---|:---|:---|\ | Capitalized website and internal-use software development costs | $251,774 | $229,638 | | Leasehold improvements | $57,707 | $60,407 | | Computer equipment | $48,751 | $50,920 | | Total Property, Equipment and Software, Net | $72,373 | $77,224 | - Net property, equipment and software decreased by $4.85 million, primarily due to an impairment of $1.0 million on leasehold improvements from abandoned office space and ongoing depreciation[58] 7. GOODWILL AND INTANGIBLE ASSETS This section provides information on the company's goodwill and intangible assets, including amortization and impairment assessments Goodwill and Intangible Assets (in thousands) | Category | Sep 30, 2023 | Dec 31, 2022 | |:---|:---|:---|\ | Goodwill | $101,927 | $102,328 | | Intangibles, net | $7,977 | $8,997 | | Total | $109,904 | $111,325 | - Goodwill decreased slightly due to currency translation effects, and no impairment was identified as of September 30, 2023[59][60] - Net intangible assets decreased by $1.02 million, primarily due to amortization, with estimated future amortization of $7.98 million remaining[63][64][66] 8. LEASES This section details the company's lease obligations, right-of-use assets, and associated lease costs and impairment charges Total Lease Cost, Net (in thousands) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | |:---|:---|:---|:---|:---|\ | Total Lease Cost, Net | $5,193 | $7,104 | $17,355 | $23,240 | - Total lease cost, net, decreased by $1.91 million for the three months and $5.89 million for the nine months ended September 30, 2023, primarily due to increased sublease income and reduced operating lease costs[68] - The company recognized impairment charges of $3.6 million and $10.5 million during the nine months ended September 30, 2023 and 2022, respectively, related to abandoned office space and subleases[71] 9. OTHER NON-CURRENT ASSETS This section outlines the components and changes in other non-current assets, such as deferred tax assets and contract costs Other Non-Current Assets (in thousands) | Category | Sep 30, 2023 | Dec 31, 2022 | |:---|:---|:---|\ | Deferred tax assets | $106,290 | $97,426 | | Deferred contract costs | $28,651 | $25,946 | | Other non-current assets | $12,063 | $10,617 | | Total | $147,004 | $133,989 | - Total other non-current assets increased by $13.0 million, mainly driven by an increase in deferred tax assets and deferred contract costs[73] 10. CONTRACT BALANCES This section provides details on contract balances, including accounts receivable, allowance for doubtful accounts, and deferred revenue Allowance for Doubtful Accounts (in thousands) | Metric | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | |:---|:---|:---|\ | Balance, beginning of period | $9,277 | $7,153 | | Provision for doubtful accounts | $26,664 | $18,249 | | Write-offs, net of recoveries | ($25,052) | ($16,663) | | Balance, end of period | $10,889 | $8,739 | - The allowance for doubtful accounts increased due to higher net revenue and increased customer delinquencies, reflecting the ordinary course of business[74] Deferred Revenue (in thousands) | Metric | Nine Months Ended Sep 30, 2023 | |:---|:---|\ | Balance, beginning of period | $5,200 | | Recognition of deferred revenue from beginning balance | ($4,723) | | Net increase in current period contract liabilities | $6,587 | | Balance, end of period | $7,064 | 11. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES This section details the company's accounts payable and various accrued liabilities Accounts Payable and Accrued Liabilities (in thousands) | Category | Sep 30, 2023 | Dec 31, 2022 | |:---|:---|:---|\ | Accounts payable | $6,673 | $14,525 | | Employee-related liabilities | $91,750 | $66,929 | | Accrued cost of revenue | $9,346 | $6,248 | | Accrued legal settlements | $15,000 | $26,250 | | Other accrued liabilities | $21,120 | $23,998 | | Total | $143,889 | $137,950 | - Total accounts payable and accrued liabilities increased by $5.94 million, primarily due to higher employee-related liabilities and accrued cost of revenue, partially offset by a decrease in accrued legal settlements[78] 12. COMMITMENTS AND CONTINGENCIES This section discloses the company's significant commitments and potential liabilities, including legal proceedings and credit facilities Legal Proceedings This section provides updates on significant legal actions and their potential financial implications for the company - The Securities Class Action and Derivative Action were settled in January 2023, with the company releasing a $22.25 million receivable and accrual[79][80][81] - A preliminary agreement was reached to settle the CIPA Action for $15.0 million, with an accrual of $15.0 million and a $3.9 million receivable for loss recovery recorded as of September 30, 2023[82][84] Revolving Credit Facility This section details the terms and status of the company's revolving credit facility, including available capacity and compliance - Yelp entered into a new five-year $125.0 million senior secured revolving credit facility on April 28, 2023, replacing the previous $75.0 million facility[88] - As of September 30, 2023, the company had $14.1 million in outstanding letters of credit and no loans, remaining in compliance with all covenants[91] 13. STOCKHOLDERS' EQUITY This section outlines changes in the company's stockholders' equity, including stock repurchases and equity incentive plans Stock Repurchase Program This section details the company's stock repurchase activities and remaining authorization under its program - The board authorized up to $1.45 billion in stock repurchases, with $131.7 million remaining available as of September 30, 2023[94] - During the nine months ended September 30, 2023, the company repurchased 4,481,278 shares for an aggregate of $150.0 million[94] Equity Incentive Plans This section provides information on the company's stock option and restricted stock unit activity under its equity incentive plans Stock Option Activity (in thousands, except per share data) | Metric | Dec 31, 2022 | Sep 30, 2023 | |:---|:---|:---|\ | Outstanding Shares | 3,543 | 2,619 | | Weighted-Average Exercise Price | $32.81 | $35.17 | | Aggregate Intrinsic Value | $7,507 | $20,466 | - Total unrecognized compensation costs for nonvested stock options were approximately $0.8 million, expected to be recognized over 1.5 years[98] - The aggregate fair value of vested RSUs and PRSUs was $147.9 million for the nine months ended September 30, 2023[104] Employee Stock Purchase Plan This section details employee stock purchases and related compensation expense under the company's ESPP - Employees purchased 382,627 shares under the ESPP at a weighted-average price of $28.69 during the nine months ended September 30, 2023[106] - Stock-based compensation expense related to the ESPP was $2.7 million for the nine months ended September 30, 2023[106] Stock-Based Compensation This section presents the total stock-based compensation expense recognized across various functional categories Stock-Based Compensation Expense (in thousands) | Category | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2023 | |:---|:---|:---|\ | Cost of revenue | $1,298 | $4,026 | | Sales and marketing | $9,200 | $26,921 | | Product development | $24,047 | $74,888 | | General and administrative | $8,922 | $27,469 | | Total | $43,467 | $133,304 | - Total stock-based compensation expense increased to $43.5 million for the three months and $133.3 million for the nine months ended September 30, 2023, reflecting higher compensation across all categories[108] 14. OTHER INCOME, NET This section details the components of other income, net, primarily driven by interest income Other Income, Net (in thousands) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | |:---|:---|:---|:---|:---|\ | Interest income, net | $5,187 | $2,007 | $13,850 | $2,558 | | Other non-operating income, net | $1,067 | $897 | $3,483 | $2,625 | | Total Other Income, Net | $6,154 | $2,691 | $17,264 | $4,947 | - Other income, net, significantly increased by $3.46 million for the three months and $12.32 million for the nine months ended September 30, 2023, primarily due to higher interest income from increased federal interest rates[111] 15. INCOME TAXES This section provides information on the company's income tax provision or benefit, effective tax rate, and unrecognized tax benefits - The company recorded a benefit from income taxes of $0.5 million for the nine months ended September 30, 2023, primarily due to net discrete tax benefits related to 2022 federal and state tax adjustments and a litigation settlement loss contingency[112] - The benefit from income taxes for the three and nine months ended September 30, 2023, increased due to a decrease in the annual effective tax rate, influenced by IRS guidance on research and development expenses[112][172] - As of September 30, 2023, the company had $33.6 million in unrecognized tax benefits and estimated accumulated undistributed foreign earnings of $23.3 million, which it intends to indefinitely reinvest[114] 16. NET INCOME PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS This section presents basic and diluted net income per share, along with weighted-average common shares outstanding Net Income Per Share Attributable to Common Stockholders | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | |:---|:---|:---|:---|:---|\ | Basic EPS | $0.84 | $0.13 | $1.03 | $0.23 | | Diluted EPS | $0.79 | $0.13 | $0.98 | $0.22 | | Weighted-average common shares outstanding (Basic) | 69,030 | 70,630 | 69,366 | 71,158 | | Weighted-average common shares outstanding (Diluted) | 73,566 | 72,658 | 72,920 | 73,577 | - Basic and diluted EPS saw substantial increases for both the three and nine months ended September 30, 2023, reflecting higher net income[118] 17. INFORMATION ABOUT REVENUE AND GEOGRAPHIC AREAS This section provides a breakdown of net revenue by product line and geographic region Net Revenue by Product Line (in thousands) | Product Line | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | |:---|:---|:---|:---|:---|\ | Advertising (Services) | $206,178 | $180,957 | $589,972 | $515,518 | | Advertising (Restaurants, Retail & Other) | $123,854 | $112,707 | $359,175 | $324,901 | | Transactions | $3,145 | $3,652 | $10,081 | $10,772 | | Other | $11,945 | $11,575 | $35,458 | $33,212 | | Total Net Revenue | $345,122 | $308,891 | $994,686 | $884,403 | - Advertising revenue from Services categories increased by 14% YoY for both the three and nine months, while Restaurants, Retail & Other advertising revenue grew by 10% and 11% respectively[123] Net Revenue by Geographic Region (in thousands) | Region | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | |:---|:---|:---|:---|:---|\ | United States | $342,600 | $306,773 | $987,535 | $878,293 | | All other countries | $2,522 | $2,118 | $7,151 | $6,110 | | Total Net Revenue | $345,122 | $308,891 | $994,686 | $884,403 | ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides an in-depth analysis of Yelp's financial performance, condition, and operational results for the quarter ended September 30, 2023. It covers key revenue drivers, expense trends, liquidity, and capital resources, highlighting strategic initiatives and their impact on financial outcomes Overview This section provides a high-level summary of Yelp's business model and key financial highlights for the reporting period - Yelp is a leading local resource connecting consumers with businesses through over 240 million ratings and reviews, generating substantial revenue from performance-based advertising products[131] Key Financial Performance (in millions) | Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 | |:---|:---|:---|:---|:---|\ | Net Revenue | $345.1 | $308.9 | $994.7 | $884.4 | | Net Income | $58.2 | $9.1 | $71.8 | $16.2 | | Adjusted EBITDA | $96.5 | $73.9 | $234.4 | $189.4 | - Strategic investments in product and marketing drove a 14% YoY increase in Services advertising revenue, with Home Services growing by approximately 20%[133] - Self-serve and Multi-location channels comprised the majority of advertising revenue, with Self-serve revenue increasing by approximately 25% YoY due to record customer acquisition[134] - Improvements to the ad system and formats led to a significant increase in click-through rates and ad clicks returning to YoY growth, while average CPC growth moderated to 4% YoY[135] Key Metrics This section analyzes key operational metrics, including advertising clicks, average cost per click, and paying advertising locations Ad Clicks and Average CPC This section details the year-over-year changes in advertising clicks and average cost per click Year-over-Year Changes in Ad Clicks and Average CPC | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | |:---|:---|:---|:---|:---|\ | Ad Clicks | 9% | (15)% | 3% | (8)% | | Average CPC | 4% | 36% | 11% | 29% | - Advertising revenue growth of 12% (Q3) and 13% (9M) was driven by increases in both ad clicks and average CPC, with ad clicks returning to growth due to ad system and format improvements[146] Advertising Revenue by Category This section breaks down advertising revenue by Services and Restaurants, Retail & Other categories Advertising Revenue by Category (in thousands, except percentages) | Category | Three Months Ended Sep 30, 2023 | % Change | Nine Months Ended Sep 30, 2023 | % Change | |:---|:---|:---|:---|:---|\ | Services | $206,178 | 14% | $589,972 | 14% | | Restaurants, Retail & Other | $123,854 | 10% | $359,175 | 11% | | Total Advertising Revenue | $330,032 | 12% | $949,147 | 13% | - Both Services and Restaurants, Retail & Other categories showed strong advertising revenue growth, contributing to the overall 12-13% increase in total advertising revenue[148] Paying Advertising Locations by Category This section presents the number of paying advertising locations categorized by Services and Restaurants, Retail & Other Paying Advertising Locations by Category (in thousands, except percentages) | Category | Three Months Ended Sep 30, 2023 | % Change | Nine Months Ended Sep 30, 2023 | % Change | |:---|:---|:---|:---|:---|\ | Services | 235 | (1)% | 237 | 3% | | Restaurants, Retail & Other | 326 | (2)% | 322 | (3)% | | Total Paying Advertising Locations | 561 | (2)% | 559 | (1)% | - Total paying advertising locations decreased slightly YoY for both the three and nine months, primarily due to lower-spend enterprise advertisers pausing their ad spend[151] Critical Accounting Policies and Estimates This section discusses the company's key accounting policies and estimates, noting any changes or significant judgments - The company's critical accounting policies and estimates, including revenue recognition, website and internal-use software development costs, and income taxes, remain unchanged from the Annual Report[153] - Macroeconomic conditions introduce increased judgment and variability in estimates, which may materially change in future periods[152] Results of Operations This section provides a detailed analysis of the company's net revenue, costs, expenses, and other financial results Net Revenue This section analyzes the company's net revenue performance by product line, including advertising and transactions Net Revenue by Product Line (in thousands) | Product Line | Three Months Ended Sep 30, 2023 | % Change | Nine Months Ended Sep 30, 2023 | % Change | |:---|:---|:---|:---|:---|\ | Advertising | $330,032 | 12% | $949,147 | 13% | | Transactions | $3,145 | (14)% | $10,081 | (6)% | | Other | $11,945 | 3% | $35,458 | 7% | | Total Net Revenue | $345,122 | 12% | $994,686 | 12% | - Advertising revenue increased due to higher ad clicks and average CPC, while transactions revenue decreased due to lower food takeout and delivery orders[158][159] - Other revenue increased, driven by growth in Yelp Fusion and Yelp Knowledge programs[160] Costs and Expenses This section details the company's operating costs and expenses across various functional categories Costs and Expenses (in thousands) | Expense Category | Three Months Ended Sep 30, 2023 | % Change | Nine Months Ended Sep 30, 2023 | % Change | |:---|:---|:---|:---|:---|\ | Cost of Revenue | $28,370 | 6% | $84,613 | 10% | | Sales and Marketing | $137,703 | 3% | $424,308 | 9% | | Product Development | $81,020 | 7% | $254,247 | 9% | | General and Administrative | $45,695 | (6)% | $145,609 | 15% | | Depreciation and Amortization | $10,461 | (8)% | $31,881 | (7)% | | Total Costs and Expenses | $303,249 | 3% | $940,658 | 9% | - Cost of revenue increased due to higher website infrastructure expense and merchant credit card fees[161] - Sales and marketing expenses increased due to higher average sales headcount and productivity, partially offset by reduced marketing spend and workplace operating costs[163] - General and administrative expenses decreased for the three months due to a non-recurring impairment charge in the prior year, but increased for the nine months due to a litigation settlement loss contingency and higher employee costs[166][167] Other Income, Net This section analyzes the components and drivers of the company's other income, net - Other income, net, increased significantly due to higher interest income from increased federal interest rates[170] (Benefit from) Provision for Income Taxes This section discusses the company's income tax benefit or provision and its effective tax rate - The company recorded a benefit from income taxes for the three and nine months ended September 30, 2023, primarily due to a decrease in the annual effective tax rate and discrete tax benefits from IRS guidance on R&D expenses[172] - The estimated effective GAAP tax rate for 2023 and beyond is 22% to 26%, subject to various factors including legislative reforms and stock price[174] Non-GAAP Financial Measures This section provides reconciliations and analysis of non-GAAP financial measures, such as Adjusted EBITDA Adjusted EBITDA This section presents the reconciliation and analysis of Adjusted EBITDA, a key non-GAAP performance metric Adjusted EBITDA Reconciliation (in thousands) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | |:---|:---|:---|:---|:---|\ | Net Income | $58,216 | $9,108 | $71,767 | $16,202 | | (Benefit from) provision for income taxes | ($10,189) | $7,007 | ($475) | $13,714 | | Other income, net | ($6,154) | ($2,691) | ($17,264) | ($4,947) | | Depreciation and amortization | $10,461 | $11,417 | $31,881 | $34,165 | | Stock-based compensation | $43,467 | $38,632 | $133,304 | $119,753 | | Litigation settlement | — | — | $11,000 | — | | Asset impairment | — | $10,464 | $3,555 | $10,464 | | Fees related to shareholder activism | $671 | — | $671 | — | | Adjusted EBITDA | $96,472 | $73,937 | $234,439 | $189,351 | - Adjusted EBITDA increased by 30% YoY to $96.5 million for the three months and 24% YoY to $234.4 million for the nine months ended September 30, 2023, reflecting improved operating performance[179] Adjusted EBITDA Margin This section analyzes the company's Adjusted EBITDA margin, indicating operational efficiency Net Income Margin and Adjusted EBITDA Margin | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | |:---|:---|:---|:---|:---|\ | Net Income Margin | 17% | 3% | 7% | 2% | | Adjusted EBITDA Margin | 28% | 24% | 24% | 21% | - Adjusted EBITDA margin improved to 28% for the three months and 24% for the nine months ended September 30, 2023, indicating increased operational efficiency[179] Liquidity and Capital Resources This section discusses the company's financial liquidity, capital resources, and cash flow management Sources of Liquidity This section identifies the company's primary sources of cash and available credit facilities Liquidity Position (in millions) | Metric | Sep 30, 2023 | |:---|:---|\ | Cash and Cash Equivalents | $305.1 | | Marketable Securities | $121.5 | | Available under 2023 Credit Facility | $110.9 | - The company's primary liquidity sources are cash, cash equivalents, marketable securities, and cash generated from operations, supplemented by a $125.0 million revolving credit facility[181][183] Material Cash Requirements This section outlines the company's significant future cash obligations, including operating leases and purchase commitments - Future cash requirements include working capital, stock repurchases, tax payments for equity awards, operating lease costs, and purchases of property, equipment, and software[186] - Operating lease obligations total $105.0 million, with $42.8 million due within the next 12 months, partially offset by $31.1 million in sublease receipts[187] - Purchase obligations for goods and services (primarily website hosting) amount to approximately $211.0 million, with $47.9 million due within 12 months[187] Cash Flows This section summarizes the company's cash flows from operating, investing, and financing activities Cash Flow Summary (in thousands) | Activity | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | |:---|:---|:---|\ | Operating Activities | $227,110 | $147,836 | | Investing Activities | ($46,465) | ($111,307) | | Financing Activities | ($183,232) | ($182,024) | - Operating cash flow increased due to higher revenue and deferred tax payments. Investing cash flow decreased due to lower net purchases of marketable securities. Financing cash flow increased due to higher tax payments for equity awards and credit facility issuance costs[189][191][192] Stock Repurchase Program This section provides an update on the company's stock repurchase activities and remaining authorization - As of October 27, 2023, $108.5 million remained available under the $1.45 billion stock repurchase authorization[193] - The company repurchased $150.0 million of common stock during both the nine months ended September 30, 2023 and 2022[193] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Yelp Inc. is exposed to market risks, including interest rate, foreign exchange, and inflation risks, which have not materially changed from the prior year. The company operates both domestically and internationally, making it susceptible to these market fluctuations - The company's market risks, including interest rate, foreign exchange, and inflation, have not materially changed from the year ended December 31, 2022[196] ITEM 4. CONTROLS AND PROCEDURES Management, including the CEO and CFO, evaluated the effectiveness of Yelp's disclosure controls and procedures as of September 30, 2023, concluding they were effective at a reasonable assurance level. No material changes in internal control over financial reporting were identified during the quarter - Yelp's disclosure controls and procedures were evaluated as effective at the reasonable assurance level as of September 30, 2023[198] - No material changes in internal control over financial reporting occurred during the three months ended September 30, 2023[199] - Management acknowledges the inherent limitations of control systems, which can only provide reasonable, not absolute, assurance against errors and fraud[200] PART II. OTHER INFORMATION This section includes disclosures on legal proceedings, risk factors, equity security sales, and other relevant information ITEM 1. LEGAL PROCEEDINGS This section refers to the detailed legal proceedings discussed in Note 12 of the financial statements, confirming that the company does not believe other ordinary course legal matters will materially affect its financial position or results - Information on material legal proceedings is incorporated by reference from Note 12, 'Commitments and Contingencies,' in the financial statements[202] - The company does not anticipate that the final outcome of other ordinary course legal matters will have a material effect on its business, financial position, results of operations, or cash flows[202] ITEM 1A. RISK FACTORS This section updates the risk factors from the Annual Report, specifically highlighting new risks related to potential defaults on credit obligations under the 2023 credit facility. Non-compliance could lead to termination of commitments, enforcement of liens, and adverse impacts on the company's financial condition - No material changes to risk factors were identified, except for those related to the 2023 credit facility[203] - Defaulting on the 2023 credit facility could harm the business, revenue, and financial results, as it provides lenders with a first-priority lien on substantially all domestic assets and contains restrictive covenants[204] - Failure to comply with covenants could lead to termination of loan commitments, enforcement of liens, and acceleration of debt, potentially causing a material adverse effect on the company's financial condition[205] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES This section details the company's stock repurchase activities for the three months ended September 30, 2023, under its publicly announced program Issuer Purchases of Equity Securities This section details the company's stock repurchase activities for the three months ended September 30, 2023 Stock Repurchase Activity (in thousands, except price per share) | Period | Total Number of Shares Purchased | Average Price Paid per Share | |:---|:---|:---|\ | July 1 - July 31, 2023 | 631 | $39.34 | | August 1 - August 31, 2023 | 223 | $42.64 | | September 1 - September 30, 2023 | 363 | $43.16 | - As of October 27, 2023, $108.5 million remained available under the $1.45 billion stock repurchase program[210] ITEM 3. DEFAULTS UPON SENIOR SECURITIES The company reported no defaults upon senior securities for the period - There were no defaults upon senior securities[211] ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to Yelp Inc.'s operations - This item is not applicable[211] ITEM 5. OTHER INFORMATION This section discloses a Rule 10b5-1 trading plan entered into by the Chief Technology Officer for the sale of common stock and vested equity awards Rule 10b5-1 Trading Plans This section details Rule 10b5-1 trading plans established by company insiders - On August 18, 2023, Sam Eaton, CTO, entered into a Rule 10b5-1 trading plan to sell up to 45,034 shares of common stock and 44,094 shares of common stock that may vest during the plan period[212] - The plan is set to terminate by January 31, 2024, or when all shares are sold[212] ITEM 6. EXHIBITS This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including corporate governance documents, certifications, and XBRL data files - The report includes various exhibits such as the Amended and Restated Certificate of Incorporation, Bylaws, certifications (31.1, 31.2, 32.1), and Inline XBRL documents[214]