Edgar Filing: YELP INC

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the Quarterly Period Ended September 30, 2017
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

(Registrant’s 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 (§232.405 of this chapter) 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth 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 ☐
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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 October 31, 2017, there were 82,889,825 shares of registrant’s common stock, par value $0.000001 per share, issued and outstanding.

YELP INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS



		Page
Part I.	Financial Information
Item 1.	Financial Statements (Unaudited).
	Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016.	2
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2017 and 2016.	3
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2017 and 2016.	4
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016.	5
	Notes to Condensed Consolidated Financial Statements.	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	37
Item 4.	Controls and Procedures.	38
Part II.	Other Information
Item 1.	Legal Proceedings.	40
Item 1A.	Risk Factors.	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	59
Item 3.	Defaults Upon Senior Securities.	59
Item 4.	Mine Safety Disclosures.	60
Item 5.	Other Information.	60
Item 6.	Exhibits.	60
Signatures		61

___________________________________

Unless the context suggests otherwise, references in this Quarterly Report on Form 10-Q (the “Quarterly Report”) to “Yelp,” the “Company,” “we,” “us” and “our” refer to Yelp Inc. and, where appropriate, its subsidiaries.

Unless the context otherwise indicates, where we refer in this 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 versions of our website dedicated to both desktop- and mobile-based browsers, as well as the U.S. and international versions of our website.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report contains forward-looking statements that involve risks, uncertainties and 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,” “may,” “might,” “plan,” “project,” “seek,” “should,” “target,” “will,” “would” and similar expressions or variations intended to identify forward-looking statements. These statements are based on the beliefs and assumptions of our management, which are in turn 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 discussed in the section entitled “Risk Factors” included under Part II, Item 1A below. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

NOTE REGARDING METRICS

We review a number of performance metrics to evaluate our business, measure our performance, identify trends in our business, prepare financial projections and make strategic decisions. Please see the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics” for information on how we define our key metrics. Unless otherwise stated, these metrics do not include metrics from Yelp Eat24, Yelp Reservations, Yelp Nowait, Turnstyle or from our business owner products.

While our metrics are based on what we believe to be reasonable calculations, there are inherent challenges in measuring usage across our large user base. Certain of our performance metrics, including the number of unique devices accessing our mobile app, are tracked with internal company tools, which are not independently verified by any third party and have a number of limitations. For example, our metrics may be affected by mobile applications that automatically contact our servers for regular updates with no discernible user action involved; this activity can cause our system to count the device associated with the app as an app unique device in a given period.

Our metrics that are calculated based on data from third parties — the number of desktop and mobile website unique visitors — are subject to similar limitations. 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. In addition, because these traffic metrics are tracked based on unique cookie identifiers, 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 unique visitors may not accurately reflect the number of people actually visiting our website.

Our measures of traffic and other key metrics may also differ from estimates published by third parties (other than those whose data we use to calculate such 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. From time to time, we may discover inaccuracies in our metrics or make adjustments to improve their accuracy, including adjustments that may result in the recalculation of our historical metrics. We believe that any such inaccuracies or adjustments are immaterial unless otherwise stated.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

YELP INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)



	September 30, 2017			December 31, 2016
Assets
Current assets:
Cash and cash equivalents	$	362,401		$	272,201
Short-term marketable securities	195,768			207,332
Accounts receivable (net of allowance for doubtful accounts of $7,000 and $4,992 at September 30, 2017 and December 31, 2016, respectively)	68,483			68,725
Prepaid expenses and other current assets	15,694			12,921
Assets held for sale	143,873			—
Total current assets	786,219			561,179
Property, equipment and software, net	94,348			92,440
Intangibles, net	17,815			32,611
Goodwill	107,186			170,667
Restricted cash	18,595			17,317
Other non-current assets	2,952			10,992
Total assets	$	1,027,115		$	885,206
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable – trade	$	2,269		$	2,003
Accounts payable – merchant share	878			18,352
Accrued liabilities	48,320			36,730
Deferred revenue	3,667			3,314
Liabilities held for sale	25,170			—
Total current liabilities	80,304			60,399
Long-term liabilities	21,515			17,621
Total liabilities	101,819			78,020
Commitments and contingencies (Note 12)
Stockholders' equity
Common stock, $0.000001 par value - 200,000,000 and 200,000,000 shares authorized, 82,741,466 and 79,429,833 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively	—			—
Additional paid-in capital	1,001,633			892,983
Accumulated other comprehensive loss	(9,107		)	(15,576		)
Accumulated deficit	(67,230		)	(70,221		)
Total stockholders' equity	925,296			807,186
Total liabilities and stockholders' equity	$	1,027,115		$	885,206

See notes to condensed consolidated financial statements.

YELP INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Net revenue	$	222,380		$	186,232		$	628,567		$	518,273
Costs and expenses:
Cost of revenue (exclusive of depreciation and amortization shown separately below)	19,312			14,594			54,282			44,759
Sales and marketing	113,041			99,274			327,559			289,304
Product development	45,834			36,369			127,793			101,689
General and administrative	26,694			24,876			78,969			70,109
Depreciation and amortization	10,656			9,159			31,470			25,912
Restructuring and integration	35			—			286			—
Total costs and expenses	215,572			184,272			620,359			531,773
Income (loss) from operations	6,808			1,960			8,208			(13,500		)
Other income, net	1,371			327			2,933			952
Income (loss) before income taxes	8,179			2,287			11,141			(12,548		)
Provision for income taxes	(232		)	(217		)	(417		)	(385		)
Net income (loss) attributable to common stockholders (1)	$	7,947		$	2,070		$	10,724		$	(12,933	)
Net income (loss) per share attributable to common stockholders (1)
Basic	$	0.10		$	0.03		$	0.13		$	(0.17	)
Diluted	$	0.09		$	0.02		$	0.12		$	(0.17	)
Weighted-average shares used to compute net income (loss) per share attributable to common stockholders (1)
Basic	82,259			77,521			81,041			76,627
Diluted	87,433			82,917			86,097			76,627

(1) The structure of the Company’s common stock changed during the year ended December 31, 2016. Refer to Note 13 for details.

See notes to condensed consolidated financial statements.

YELP INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Net income (loss)	$	7,947	$	2,070	$	10,724	$	(12,933	)
Other comprehensive income:
Foreign currency translation adjustments	1,866		674		6,469		1,469
Other comprehensive income	1,866		674		6,469		1,469
Comprehensive income (loss)	$	9,813	$	2,744	$	17,193	$	(11,464	)

See notes to condensed consolidated financial statements.

YELP INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



	Nine Months Ended September 30,
	2017			2016
OPERATING ACTIVITIES:
Net income (loss)	$	10,724		$	(12,933	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	31,470			25,912
Provision for doubtful accounts and sales returns	13,448			12,139
Stock-based compensation	75,007			62,396
Other adjustments	411			1,314
Changes in operating assets and liabilities:
Accounts receivable	(16,971		)	(24,167		)
Prepaid expenses and other assets	(2,106		)	3,638
Accounts payable, accrued expenses and other liabilities	15,628			13,193
Deferred revenue	350			295
Net cash provided by operating activities	127,961			81,787
INVESTING ACTIVITIES:
Purchases of marketable securities	(179,557		)	(221,771		)
Maturities of marketable securities	191,000			212,500
Purchase of cost-method investment	—			(8,000		)
Acquisitions of businesses, net of cash received	(50,544		)	—
Purchases of property, equipment and software	(7,892		)	(17,798		)
Capitalized website and software development costs	(12,236		)	(10,596		)
Other investing activities	(1,209		)	(927		)
Net cash used in investing activities	(60,438		)	(46,592		)
FINANCING ACTIVITIES:
Proceeds from issuance of common stock for employee stock-based plans	29,556			18,055
Cash used for common stock repurchases	(7,743		)	—
Net cash provided by financing activities	21,813			18,055
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	864			28
CHANGE IN CASH AND CASH EQUIVALENTS	90,200			53,278
CASH AND CASH EQUIVALENTS—Beginning of period	272,201			171,613
CASH AND CASH EQUIVALENTS—End of period	$	362,401		$	224,891
SUPPLEMENTAL DISCLOSURES OF OTHER CASH FLOW INFORMATION:
Cash paid for income taxes, net	$	82		$	688
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Purchases of property, equipment and software recorded in accounts payable, accrued expenses and other liabilities	$	3,555		$	4,373
Goodwill measurement period adjustment	(178		)	146

See notes to condensed consolidated financial statements.

YELP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. DESCRIPTION OF BUSINESS AND BASIS FOR PRESENTATION

Yelp Inc. was incorporated in Delaware on September 3, 2004. Except where specifically noted or the context otherwise requires, the use of terms such as the “Company” and “Yelp” in these Notes to Condensed Consolidated Financial Statements refers to Yelp Inc. and its subsidiaries.

Yelp connects people with great local businesses by bringing “word of mouth” online and providing a platform for businesses and consumers to engage and transact. Yelp’s platform is transforming the way people discover local businesses; every day, millions of consumers visit its website or use its mobile app to find great 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 the applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on March 1, 2017 (the “Annual Report”). The unaudited condensed consolidated balance sheet as of December 31, 2016 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.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments of a normally recurring nature necessary for the fair presentation of the interim periods presented.

Significant Accounting Policies

Except as set forth below, there have been no material changes to the Company’s significant accounting policies from those described in the Annual Report.

Stock Repurchases—The Company accounts for repurchases of its common stock by recording the cost to repurchase those shares to treasury stock, a separate component of stockholders' equity. Upon retirement, the carrying amount of treasury shares is removed with a corresponding reduction to par value of common stock, with any excess of the cost incurred to repurchase shares over their par value recorded as an adjustment to accumulated deficit on the date of retirement.

Assets and Liabilities Held for Sale—The Company considers an asset to be held for sale when: management approves and commits to a formal plan to actively market the asset for sale at a reasonable price in relation to its fair value; the asset is available for immediate sale in its present condition; an active program to locate a buyer and other actions required to complete the sale have been initiated; the sale of the asset is expected to be completed within one year; and it is unlikely that significant changes will be made to the plan. Upon designation as held for sale, the Company records the carrying value of the assets at the lower of its carrying value or its estimated fair value, less costs to sell. The Company ceases to record depreciation and amortization expense associated with assets upon their designation as held for sale.

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”). ASU 2014-09 supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605),” and requires entities to recognize revenue when they transfer promised goods or services to customers, in an amount that reflects the consideration that the entity expects to be entitled to in exchange for such goods or services. As currently issued and amended, ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Company will adopt this standard effective January 1, 2018.

The new standard permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of the initial application of the guidance recognized at the date of adoption (modified retrospective method). The Company currently anticipates adopting the standard using the full retrospective method and does not anticipate a significant change in revenue recognition from the previous standard. The Company currently expenses contract acquisition costs as incurred and expects that the requirement to defer incremental contract acquisition costs and recognize them over the contract period or expected customer life will result in the recognition of deferred costs on its balance sheets. The Company is still in the process of completing its analysis on the impact this guidance will have on its consolidated financial statements, related disclosures and its internal controls over financial reporting. The Company does not expect that this guidance will have a material impact on its consolidated financial statements, with the exception of contract acquisition costs, which will be deferred and amortized over the expected life of the contract, rather than recognized in the period in which they are incurred.

In February 2016, FASB issued Accounting Standards Update No. 2016-02, “Leases” (“ASU 2016-02”). The new guidance generally requires an entity to recognize on its balance sheet operating and financing lease liabilities and corresponding right-of-use assets, as well as to recognize the expenses on its statements of operations in a manner similar to that required under current accounting rules. The standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2018 and early adoption is permitted. The new standard requires a modified retrospective transition for existing leases to each prior reporting period presented. The Company is currently evaluating the impact of the adoption of ASU 2016-02 on its consolidated financial statements.

In August 2016, FASB issued Accounting Standards Update No. 2016-15, “Statement of Cash Flows (Subtopic 230)” (“ASU 2016-15”). The new guidance provides clarity around the cash flow classification for specific issues in an effort to reduce the current and potential future diversity in practice. The standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2017 and early adoption is permitted. The Company is currently evaluating the impact of the adoption of ASU 2016-15 on its consolidated financial statements and anticipates adopting this standard for the first interim period within the annual reporting period beginning after December 15, 2017.

In November 2016, FASB issued Accounting Standards Update No. 2016-18, “Statement of Cash Flows (Subtopic 230)” (“ASU 2016-18”). The new guidance requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. The standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2017 and early adoption is permitted. The Company is currently evaluating the impact of the adoption of ASU 2016-18 on its consolidated financial statements and anticipates adopting this standard for the first interim period within the annual reporting period beginning after December 15, 2017.

In January 2017, FASB issued Accounting Standards Update No. 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). This new guidance simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Entities will now perform goodwill impairment tests by comparing fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2019 and early adoption is permitted. The Company is currently evaluating the impact and timing of the adoption of ASU 2017-04, but expects that it will not have a material impact on its consolidated financial statements.

In March 2017, FASB issued Accounting Standards Update No. 2017-08, “Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities” (“ASU 2017-08”). This new guidance requires entities to amortize purchased callable debt securities held at a premium to the earliest call date. The standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2018 and early adoption is permitted. The Company does not expect the adoption of ASU 2017-08 to have a material impact on its consolidated financial statements.

Principles of Consolidation

These unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated upon consolidation.

Use of Estimates

The preparation of the Company’s unaudited interim condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities 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 condensed consolidated financial statements; therefore, actual results could differ from management’s estimates.

2. CASH AND CASH EQUIVALENTS

Cash and cash equivalents as of September 30, 2017 and December 31, 2016 consisted of the following (in thousands):



	September 30, 2017		December 31, 2016
Cash and cash equivalents
Cash	$	196,234	$	119,778
Cash equivalents	166,167		152,423
Total cash and cash equivalents	$	362,401	$	272,201

As of September 30, 2017 and December 31, 2016, the Company had letters of credit collateralized fully by bank deposits which total $18.6 million and $17.3 million, respectively. These letters of credit primarily relate to lease agreements for certain of the Company’s offices, which are required to be maintained and issued to the landlords of each facility. Each letter of credit is subject to renewal annually until the applicable lease expires. As the bank deposits have restrictions on their use, they are classified as restricted cash.

3. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s 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 1—Observable inputs, such as quoted prices in active markets,

Level 2—Inputs other than quoted prices in active markets that are observable either directly or indirectly, or

Level 3—Unobservable inputs in which there are little or no market data, which require the Company to develop its own assumptions.

This hierarchy requires the Company to use observable market data, when available, to minimize the use of unobservable inputs when determining fair value. The Company’s money market funds are classified within Level 1 of the fair value hierarchy because they are valued using quoted prices in active markets. The Company’s commercial paper, corporate bonds, agency bonds and agency discount notes are classified within Level 2 of the fair value hierarchy because they have been valued using inputs other than quoted prices in active markets that are observable directly or indirectly.

The following table represents the Company’s financial instruments measured at fair value as of September 30, 2017 and December 31, 2016 (in thousands):



	September 30, 2017								December 31, 2016
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash Equivalents:
Money market funds	$	158,171	$	—	$	—	$	158,171	$	152,423	$	—	$	—	$	152,423
Commercial paper	—		7,996		—		7,996		—		—		—		—
Short-term Marketable Securities:
Agency bonds	—		127,953		—		127,953		—		152,394		—		152,394
Commercial paper	—		41,818		—		41,818		—		45,894		—		45,894
Agency discount notes	—		15,949		—		15,949		—		—		—		—
Corporate bonds	—		9,993		—		9,993		—		9,006		—		9,006
Total cash equivalents and short-term marketable securities	$	158,171	$	203,709	$	—	$	361,880	$	152,423	$	207,294	$	—	$	359,717

4. MARKETABLE SECURITIES

The amortized cost, gross unrealized gains and losses, and fair value of securities held-to-maturity, all of which mature within one year, as of September 30, 2017 and December 31, 2016 were as follows (in thousands):



	September 30, 2017
Short-term marketable securities:	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Agency bonds	$	128,005	$	1	$	(53	)	$	127,953
Commercial paper	41,817		1		—			41,818
Agency discount notes	15,948		1		—			15,949
Corporate bonds	9,998		—		(5		)	9,993
Total marketable securities	$	195,768	$	3	$	(58	)	$	195,713

	December 31, 2016
Short-term marketable securities:	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Agency bonds	$	152,429	$	18	$	(53	)	$	152,394
Commercial paper	45,894		—		—			45,894
Corporate bonds	9,009		—		(3		)	9,006
Total marketable securities	$	207,332	$	18	$	(56	)	$	207,294

The following tables present gross unrealized losses and fair values for those securities that were in an unrealized loss position as of September 30, 2017 and December 31, 2016, aggregated by investment category and the length of time that the individual securities have been in a continuous loss position (in thousands):



	September 30, 2017
	Less Than 12 Months					12 Months or Greater				Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Agency bonds	$	122,948	$	(53	)	$	—	$	—	$	122,948	$	(53	)
Corporate bonds	9,993		(5		)	—		—		9,993		(5		)
Total	$	132,941	$	(58	)	$	—	$	—	$	132,941	$	(58	)

	December 31, 2016
	Less Than 12 Months					12 Months or Greater				Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Agency bonds	$	92,018	$	(53	)	$	—	$	—	$	92,018	$	(53	)
Corporate bonds	8,006		(3		)	—		—		8,006		(3		)
Total	$	100,024	$	(56	)	$	—	$	—	$	100,024	$	(56	)

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 nine months ended September 30, 2017 and 2016, the Company did not recognize any other-than-temporary impairment loss.

5. PROPERTY, EQUIPMENT AND SOFTWARE, NET

Property, equipment and software, net as of September 30, 2017 and December 31, 2016 consisted of the following (in thousands):



	September 30, 2017			December 31, 2016
Capitalized website and internal-use software development costs	$	77,327		$	61,515
Leasehold improvements	64,209			60,101
Computer equipment	31,504			28,551
Furniture and fixtures	15,150			14,162
Telecommunication	3,852			3,457
Software	1,201			1,079
Total	193,243			168,865
Less accumulated depreciation	(98,895		)	(76,425		)
Property, equipment and software, net	$	94,348		$	92,440

Depreciation expense was approximately $9.2 million and $7.5 million for the three months ended September 30, 2017 and 2016, respectively, and approximately $25.8 million and $20.8 million for the nine months ended September 30, 2017 and 2016, respectively.

6. INTANGIBLE ASSETS AND GOODWILL

The Company’s goodwill is the result of its acquisitions of other businesses, and represents the excess of purchase consideration over the fair value of assets and liabilities acquired. The Company performed its annual goodwill impairment analysis during the three months ended September 30, 2017 and concluded that goodwill was not impaired, as the fair value of each reporting unit exceeded its carrying value.

The changes in carrying amount of goodwill during the nine months ended September 30, 2017 were as follows (in thousands):



Balance as of December 31, 2016	$	170,667
Additions upon business combinations	42,007
Goodwill measurement period adjustment	(178		)
Effect of currency translation	5,458
Goodwill reclassified to assets held for sale	(110,768		)
Balance as of September 30, 2017	$	107,186

Goodwill associated with asset group held for sale consisted of Eat24, LLC, a wholly owned subsidiary of the Company ("Eat24"), reclassified as assets held for sale as of September 30, 2017. Refer to Note 9 for details.

Intangible assets at September 30, 2017 and December 31, 2016 consisted of the following (dollars in thousands):



	September 30, 2017
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Weighted Average Remaining Life
Business relationships	$	9,919	$	(655	)	$	9,264	10.5	years
Developed technology	7,834		(1,752		)	6,082		4.3	years
Domains and data licenses	2,869		(1,719		)	1,150		2.5	years
Trademarks	999		(285		)	714		2.4	years
Content	3,961		(3,476		)	485		1.9	years
User relationships	146		(26		)	120		2.5	years
Total	$	25,728	$	(7,913	)	$	17,815

	December 31, 2016
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Weighted Average Remaining Life
Business relationships	$	17,400	$	(2,741	)	$	14,659	10.1	years
Developed technology	9,280		(4,122		)	5,158		3.1	years
Domains and data licenses	2,804		(1,340		)	1,464		3.0	years
Trademarks	3,338		(1,861		)	1,477		2.1	years
Content	3,674		(2,581		)	1,093		2.0	years
User relationships	12,000		(3,240		)	8,760		5.1	years
Advertiser relationships	1,549		(1,549		)	—		0.0	years
Total	$	50,045	$	(17,434	)	$	32,611

Amortization expense was $1.4 million and $1.7 million for the three months ended September 30, 2017 and 2016, respectively, and $5.7 million and $5.1 million for the nine months ended September 30, 2017 and 2016, respectively. As of September 30, 2017, the estimated future amortization of purchased intangible assets for (i) the remaining three months of 2017, (ii) each of the succeeding four years, and (iii) thereafter is as follows (in thousands):



Year Ending December 31,	Amount
2017 (from October 1, 2017)	$	920
2018	3,534
2019	3,278
2020	2,402
2021	2,262
Thereafter	5,419
Total amortization	$	17,815

7. ACQUISITIONS

Nowait, Inc.

On February 28, 2017, the Company acquired Nowait, Inc. (“Nowait”). In connection with the acquisition, all outstanding capital stock and warrants to purchase capital stock of Nowait — including the 20% equity investment in Nowait the Company acquired in July 2016 (see Note 8) — were converted into the right to receive an aggregate of approximately $40 million in cash. Of the total amount of consideration paid in connection with the acquisition, $8 million is being held in escrow for a two-year period after the closing to secure the Company’s indemnification rights. The key purpose underlying the acquisition was to secure waitlist system and seating tool technology. The Company utilized an income approach to determine the valuation of the Company’s

existing equity investment in Nowait as of the acquisition date. The carrying value of the Company’s investment approximated its fair value.

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 Nowait’s operations included in the Company’s consolidated financial statements from February 28, 2017. The Company’s allocation of the purchase price is preliminary as the amounts related to identifiable intangible assets 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 28, 2017
Fair value of purchase consideration
Cash:
Distributed to Nowait stockholders	$	31,892
Held in escrow account	7,945
Total purchase consideration	39,837
Fair value of net assets acquired:
Cash and cash equivalents	$	1,004
Intangible assets	12,670
Goodwill	25,959
Other assets	1,065
Total assets acquired	40,698
Liabilities assumed	(861		)
Total liabilities assumed	(861		)
Net assets acquired	$	39,837

Estimated useful lives and the amount assigned to each class of intangible assets acquired are as follows (dollars in thousands):



Intangible Asset Type	Amount Assigned		Useful Life
Enterprise restaurant relationships	$	8,500	12.0 years
Acquired technology	2,900		5.0 years
Trademarks	610		3.0 years
Local restaurant relationships	600		5.0 years
User relationships	60		3.0 years
Weighted average			9.6 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 Company’s opportunity to drive daily engagement in its key restaurant vertical by allowing consumers to move more quickly from search and discovery to transacting at a local business. None of the goodwill is deductible for tax purposes.

For the three months ended September 30, 2017, the Company recorded no acquisition-related transaction costs and for the nine months ended September 30, 2017, the Company recorded acquisition-related transaction costs of approximately $0.1 million, which were included in general and administrative expenses in the accompanying condensed consolidated statement of operations.

The condensed consolidated statements of operations for the three and nine months ended September 30, 2017 include $1.3 million and $2.6 million of revenue attributable to Nowait, respectively, and $1.9 million and $5.1 million of net loss attributable to Nowait, respectively.

Turnstyle Analytics Inc.

On April 3, 2017, the Company acquired all of the equity interests in Turnstyle Analytics Inc. (“Turnstyle”) for approximately $21 million, approximately $1 million of which represents compensation cost due to a continuous service requirement, and the

remainder of which represents purchase consideration. Of the total consideration paid in connection with the acquisition, $3 million is being held in escrow for an 18-month period after the closing to secure the Company’s indemnification rights. The key factor underlying the acquisition was to obtain a customer retention and loyalty product in the form of a location-based marketing and analytics platform that provides Wi-Fi as a digital marketing tool to expand its product offerings for local businesses.

The acquisition was accounted for as a business combination in accordance with ASC 805, with the results of Turnstyle’s operations included in the Company’s consolidated financial statements from April 3, 2017. The Company’s allocation of the purchase price is preliminary as the amounts related to identifiable intangible assets 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):



	April 3, 2017
Fair value of purchase consideration
Cash:
Distributed to Turnstyle stockholders	$	16,648
Held in escrow account	3,093
Total purchase consideration	$	19,741
Fair value of net assets acquired:
Cash and cash equivalents	$	30
Intangible assets	4,252
Goodwill	16,048
Other assets	250
Total assets acquired	20,580
Deferred tax liability	(450		)
Liabilities assumed	(389		)
Total liabilities assumed	(839		)
Net assets acquired	$	19,741

Estimated useful lives and the amount assigned to each class of intangible assets acquired are as follows (dollars in thousands):



Intangible Asset Type	Amount Assigned		Useful Life
Acquired technology	$	3,250	5.0 years
Business relationships	672		5.0 years
Trademarks	250		3.0 years
User relationships	80		3.0 years
Weighted average			4.9 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 Company’s opportunity to expand its product offerings to local businesses through the Turnstyle marketing and analytics platform. None of the goodwill is deductible for tax purposes.

For the three and nine months ended September 30, 2017, the Company recorded acquisition-related transaction costs of zero and $0.3 million, respectively, which were included in general and administrative expenses in the accompanying condensed consolidated statement of operations.

The condensed consolidated statements of operations for the three and nine months ended September 30, 2017 include $0.4 million and $0.8 million of revenue attributable to Turnstyle, respectively, and $4.0 million and $4.6 million of net loss attributable to Turnstyle, respectively.

Pro Forma Financial Information

The unaudited pro forma financial information in the tables below summarizes the combined results of operations for (a) the Company and Nowait, (b) the Company and Turnstyle, and (c) the Company with Nowait and Turnstyle, as though the respective combinations had occurred as of January 1, 2016, and includes the accounting effects resulting from the acquisitions, including 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 combinations had taken place as of January 1, 2016 (in thousands, except per share data):

Nowait, Inc.



	Pro Forma
	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Net revenue	$	222,380	$	187,334	$	629,341	$	521,442
Net income (loss)	7,947		588		9,682		(18,824		)
Basic net income (loss) per share attributable to common stockholders	0.10		0.01		0.12		(0.25		)
Diluted net income (loss) per share attributable to common stockholders	0.09		0.01		0.11		(0.25		)

Turnstyle Analytics Inc.



	Pro Forma
	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Net revenue	$	222,380	$	186,539	$	628,894	$	519,031
Net income (loss)	7,947		1,560		10,578		(14,377		)
Basic net income (loss) per share attributable to common stockholders	0.10		0.02		0.13		(0.19		)
Diluted net income (loss) per share attributable to common stockholders	0.09		0.02		0.12		(0.19		)

Combined



	Pro Forma
	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Net revenue	$	222,380	$	187,641	$	629,668	$	522,199
Net income (loss)	7,947		78		9,536		(20,268		)
Basic net income (loss) per share attributable to common stockholders	0.10		—		0.12		(0.26		)
Diluted net income (loss) per share attributable to common stockholders	0.09		—		0.11		(0.26		)

8. OTHER NON-CURRENT ASSETS

Other non-current assets as of September 30, 2017 and December 31, 2016 consisted of the following (in thousands):



	September 30, 2017		December 31, 2016
Cost-method investments	$	—	$	8,000
Other	2,952		2,992
Total other non-current assets	$	2,952	$	10,992

Cost-method investments represent the Company’s investment in the preferred stock of Nowait, which was completed on July 15, 2016. The Company acquired the entirety of Nowait on February 28, 2017 and the Company's original investment of $8.0 million was returned to it in the three months ended March 31, 2017 in connection with the acquisition. The remaining other non-current assets are primarily deferred tax assets.

9. ASSET GROUP HELD FOR SALE

On August 3, 2017, the Company and Eat24 entered into a Unit Purchase Agreement (the "Purchase Agreement") with Grubhub Inc. ("Grubhub") and Grubhub Holdings, Inc. ("Purchaser"), a wholly owned subsidiary of Grubhub. Pursuant to the Purchase Agreement, the Purchaser agreed to acquire all of the outstanding equity interests in Eat24 from the Company for $287.5 million in cash upon the terms and subject to the conditions set forth in the Purchase Agreement (the "Disposition"). The Company also agreed to transfer certain assets to Eat24 immediately prior to the closing of the Disposition, consisting of assets that are material to or necessary for the operation of Eat24 that were not then owned by Eat24. As a result, the assets and liabilities of Eat24 — including the assets to be transferred to Eat24 immediately prior to closing — were classified as held for sale in the three months ended September 30, 2017, and are separately identified on the condensed consolidated balance sheet as of September 30, 2017. No impairment charges were recorded as a result of this accounting treatment.

The Disposition was completed on October 10, 2017 (see Note 19). Because the Disposition had not yet been consummated as of September 30, 2017, the condensed consolidated statements of operations for the three and nine months ended September 30, 2017 include revenue and expenses attributable to Eat24 and do not include any gain or loss associated with the Disposition. Losses before provision for income taxes attributable to Eat24 for the three and nine months ended September 30, 2017 and 2016 are as follows (in thousands):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Loss before provision for income taxes	$	(2,656	)	$	(1,292	)	$	(11,037	)	$	(2,783	)

The condensed consolidated balance sheet as of September 30, 2017 includes the following Eat24 assets and liabilities (in thousands):




	September 30, 2017
Assets held for sale
Accounts receivable, net	$	5,319
Prepaid expenses and other current assets	749
Property and equipment, net	656
Goodwill	110,768
Intangible assets, net	26,381
Total assets held for sale	$	143,873
Liabilities held for sale
Accounts payable – trade	$	1,016
Accounts payable – merchant share	18,845
Accrued liabilities	5,309
Total liabilities held for sale	$	25,170

10. ACCRUED LIABILITIES

Accrued liabilities as of September 30, 2017 and December 31, 2016 consisted of the following (in thousands):



	September 30, 2017		December 31, 2016
Accrued compensation and related	$	22,114	$	12,892
Accrued marketing	3,819		4,633
Accrued tax liabilities	3,300		5,456
Other accrued expenses	19,087		13,749
Total accrued liabilities	$	48,320	$	36,730

11. LONG-TERM LIABILITIES

Long-term liabilities as of September 30, 2017 and December 31, 2016 consisted of the following (in thousands):



	September 30, 2017		December 31, 2016
Deferred rent	$	20,017	$	16,896
Other long-term liabilities	1,498		725
Total long-term liabilities	$	21,515	$	17,621

Other long-term liabilities primarily comprise deferred tax liabilities.

12. COMMITMENTS AND CONTINGENCIES

Office Facility Leases—The Company leases its office facilities under operating lease agreements that expire from 2017 to 2029. 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 $11.4 million and $9.3 million for the three months ended September 30, 2017 and 2016, respectively, and $31.0 million and $26.9 million for the nine months ended September 30, 2017 and 2016, respectively.

The Company has subleased certain office facilities under operating lease agreements that expire in 2021. The Company recognizes sublease rentals as a reduction in rental expense on a straight-line basis over the lease period. Sublease rental income was $0.5 million and $0.5 million for the three months ended September 30, 2017 and 2016, respectively, and $1.5 million and $1.5 million for the nine months ended September 30, 2017 and 2016, 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 Company’s 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 Exchange Act by the Company and certain of 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 court’s dismissal of the consolidated complaint on April 21, 2015, the plaintiffs filed a first amended complaint on May 21, 2015. On November 24, 2015, the court dismissed the first amended complaint with prejudice, and entered judgment in the Company’s favor on December 28, 2015. The plaintiffs have appealed this decision to the U.S. Court of Appeals for the Ninth Circuit, which heard the appeal on September 11, 2017. The Ninth Circuit has not yet issued a decision.

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 29, 2015, plaintiffs filed a first amended complaint asserting an additional cause of action for penalties under the Private Attorneys General Act. In January

2016, the Company reached a preliminary agreement to settle this matter, which the court preliminarily approved on June 27, 2016. The settlement received final court approval on December 5, 2016 and the $0.6 million settlement amount was paid on February 8, 2017.

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 plaintiff seeks monetary damages and penalties in unspecified amounts, as well as injunctive relief. On August 3, 2015, the plaintiff filed a first amended complaint asserting an additional cause of action for penalties under the Private Attorneys General Act. In January 2016, the Company reached a preliminary agreement to settle this matter, which the court preliminarily approved on August 29, 2016. The settlement received final court approval on February 1, 2017 and the $0.2 million settlement amount was paid on March 29, 2017.

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.

Under the Purchase Agreement, the Company agreed to indemnify the Purchaser and certain related parties against certain losses arising out of Purchaser's acquisition of Eat24, including, but not limited to, any breach or inaccuracy of any representation or warranty made by the Company or Eat24 in the Purchase Agreement. The Company's indemnification obligations are subject to the terms and conditions set forth in the Purchase Agreement, and are capped at the purchase price received by the Company in the Disposition.

In addition, the Company has entered into indemnification agreements with directors and certain officers and employees that will require the Company to, among other things, indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees.

While the outcome of claims cannot be predicted with certainty, the Company does not believe that the outcome of any claims under the indemnification arrangements will have a material effect on the Company’s financial position, results of operations or cash flows.

Payroll Tax Audit—In June 2015, the U.S. Internal Revenue Service (“IRS”) began a payroll tax audit of the Company for 2013 and 2014. The Company has assessed the estimated range of such loss and, as of September 30, 2017, a liability of $0.5 million has been recorded. The Company expects the audits and any related assessments to be finalized in 2018.

13. STOCKHOLDERS’ EQUITY

Stock Repurchase Program

On July 31, 2017, the Company’s board of directors authorized a stock repurchase program under which the Company may repurchase up to $200.0 million of its outstanding common stock. The Company may purchase shares at management’s discretion in the open market, in privately negotiated transactions, in transactions structured through investment banking institutions, or a combination of the foregoing. During the three months ended September 30, 2017, the Company repurchased on the open market and subsequently retired 185,592 shares for an aggregate purchase price of approximately $7.7 million.

Elimination of Dual-Class Common Stock Structure

On September 22, 2016, all outstanding shares of the Company’s Class A common stock and Class B common stock automatically converted into a single class of common stock (the “Conversion”) pursuant to the terms of the Company’s amended and restated certificate of incorporation. On September 23, 2016, the Company filed a certificate with the Secretary of State of the State of Delaware effecting the retirement and cancellation of the Class A common stock and Class B common stock. This certificate of retirement had the additional effect of eliminating the authorized Class A and Class B shares, thereby reducing the Company’s total number of authorized shares of common stock from 500,000,000 to 200,000,000.

The following table presents the number of shares authorized and issued and outstanding as of the dates indicated:



	September 30, 2017		December 31, 2016
	Shares Authorized	Shares Issued and Outstanding	Shares Authorized	Shares Issued and Outstanding
Stockholders’ equity:
Common stock, $0.000001 par value	200,000,000	82,741,466	200,000,000	79,429,833
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 adopted the 2011 Plan, 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 Company’s initial public offering (“IPO”), the Company terminated the 2011 Plan and 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.

Stock Options

Stock options granted under the 2012 Plan are granted at a price per share not less than the fair value of a share of the Company’s common stock at date of grant. Options granted to date generally vest over a four-year period, on one of four schedules: (a) 25% vesting at the end of one year and the remaining shares vesting monthly thereafter; (b) 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; (c) ratably on a monthly basis; or (d) 35% vesting over the first year, 40% vesting over the second year and 25% vesting over the third year. Options granted are generally exercisable for up to 10 years. The Company issues new shares when stock options are exercised.

A summary of stock option activity for the nine months ended September 30, 2017 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 - December 31, 2016	8,018,941		$	21.71	6.10	$	147,673
Granted	920,850		34.60
Exercised	(1,216,110	)	19.85
Canceled	(210,770	)	47.08
Outstanding - September 30, 2017	7,512,911		$	22.88	5.85	$	162,770
Options vested and exercisable as of September 30, 2017	5,904,796		$	20.32	5.05	$	143,342

Aggregate intrinsic value represents the difference between the closing price of the Company’s common stock as quoted on the New York Stock Exchange on a given date and the exercise price of outstanding, in-the-money options. The total intrinsic value of options exercised was approximately $9.8 million and $10.2 million for the three months ended September 30, 2017 and 2016, respectively, and $20.2 million and $14.9 million for the nine months ended September 30, 2017 and 2016, respectively.

The weighted-average grant date fair value of options granted was $13.31 and $13.16 per share for the three months ended September 30, 2017 and 2016, respectively, and $15.35 and $9.60 per share for the nine months ended September 30, 2017 and 2016, respectively.

As of September 30, 2017, total unrecognized compensation costs related to unvested stock options was approximately $21.3 million, which is expected to be recognized over a weighted-average time period of 2.5 years.

RSUs

The cost of RSUs is determined using the fair value of the Company’s common stock on the date of grant. RSUs generally vest over a four-year period, on one of three schedules: (a) 25% vesting at the end of one year and the remaining vesting quarterly or annually thereafter; (b) 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; or (c) ratably on a quarterly basis.

A summary of RSU activity for the nine months ended September 30, 2017 is as follows:



	Restricted Stock Units
	Number of Shares		Weighted- Average Grant Date Fair Value
Unvested - December 31, 2016	7,090,465		$	32.43
Granted	3,762,717		35.14
Released	(2,086,837	)	33.63
Canceled	(1,188,887	)	33.34
Unvested - September 30, 2017	7,577,458		$	33.30

As of September 30, 2017, the Company had approximately $234.7 million of unrecognized stock-based compensation expense related to RSUs, which is expected to be recognized over the remaining weighted-average vesting period of approximately 2.8 years.

Employee Stock Purchase Plan

The ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions of up to 15% of their eligible compensation, subject to any plan limitations, during designated offering periods. At the end of each offering period, employees are able to purchase shares at 85% of the fair market value of the Company’s common stock on the last day of the offering period, based on the closing sales price of the Company's common stock as quoted on the New York Stock Exchange on such date.

There were no shares purchased by employees under the ESPP in the three months ended September 30, 2017 or 2016. Employees purchased 228,299 shares and 200,953 shares under the ESPP during the nine months ended September 30, 2017 and 2016, respectively, at weighted-average purchase prices of $23.73 per share and $22.26 per share, respectively. The Company recognized $0.5 million and $0.4 million of stock-based compensation expense related to the discounted share price provided to employees under the ESPP in the three months ended September 30, 2017 and 2016, respectively, and $1.5 million and $1.1 million in the nine months ended September 30, 2017 and 2016, respectively.

Stock-Based Compensation

The following table summarizes the effects of stock-based compensation expense related to stock-based awards in the condensed consolidated statements of operations during the periods presented (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Cost of revenue	$	993	$	764	$	2,931	$	1,572
Sales and marketing	7,305		7,191		21,434		20,376
Product development	11,976		9,284		34,428		25,727
General and administrative	5,035		5,321		16,214		14,721
Total stock-based compensation	$	25,309	$	22,560	$	75,007	$	62,396

The Company capitalized $1.5 million and $1.3 million of stock-based compensation expense as website development costs in the three months ended September 30, 2017 and 2016, respectively, and $4.6 million and $3.3 million in the nine months ended September 30, 2017 and 2016, respectively.

14. OTHER INCOME, NET

Other income, net for the three and nine months ended September 30, 2017 and 2016 consisted of the following (in thousands):



	Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2016			2017		2016
Interest income, net	$	991	$	478		$	2,431	$	1,203
Transaction gain (loss) on foreign exchange	323		(93		)	377		(66		)
Other non-operating income (loss), net	57		(58		)	125		(185		)
Other income, net	$	1,371	$	327		$	2,933	$	952

15. INCOME TAXES

The Company is subject to income tax in the United States as well as other tax jurisdictions in which it conducts business. Earnings from non-U.S. activities are subject to local country income tax. The Company recorded an income tax provision of $0.2 million for each of the three months ended September 30, 2017 and 2016, and an income tax provision of $0.4 million for each of the nine months ended September 30, 2017 and 2016. The tax provision for the nine months ended September 30, 2017 is due to $0.4 million in U.S. state and foreign income tax expense. The tax provision for the nine months ended September 30, 2016 is due to $0.3 million in U.S. federal and state and foreign income tax provision and $0.1 million of discrete expense.

Accounting for income taxes for interim periods generally requires the provision for income taxes to be determined by applying an estimate of the annual effective tax rate for the full fiscal year to “ordinary” income or loss (pretax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period. For the three and nine months ended September 30, 2017, a discrete effective tax rate method was used in jurisdictions where a small change in estimated ordinary income has a significant impact on the annual effective tax rate. The primary difference between the effective tax rate and the federal statutory tax rate relates to the valuation allowances on certain of the Company’s net operating losses, foreign tax rate differences, meals and entertainment, tax credits, and stock-based compensation expense. Jurisdictions where no benefit is recorded on forecasted losses were excluded from the consolidated effective tax rate. As of September 30, 2017, the total amount of gross unrecognized tax benefits was $13.6 million, $12.8 million of which is subject to a full valuation allowance and would not affect the Company’s effective tax rate if recognized. As of September 30, 2017, the Company had an immaterial amount related to the accrual of interest and penalties. During the three and nine months ended September 30, 2017, the Company’s gross unrecognized tax benefits increased by $1.3 million and $3.3 million, respectively, an immaterial amount of which would affect the Company’s effective tax rate if recognized.

In addition, the Company is subject to the continuous examination of its income tax returns by the IRS and other tax authorities. The Company’s federal and state income tax returns for fiscal years subsequent to 2003 remain open to examination. In the Company’s most significant foreign jurisdictions — Canada, Ireland, the United Kingdom and Germany — the tax years subsequent to 2010 remain open to examination. The Company regularly assesses the likelihood of adverse outcomes resulting from examinations to determine the adequacy of its provision for income taxes, and monitors the progress of ongoing discussions with tax authorities and the impact, if any, of the expected expiration of the statute of limitations in various taxing jurisdictions. The Company believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company’s tax audits are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs. Although the timing of the resolution or closure of audits is not certain, the Company believes it is reasonably possible that its unrecognized tax benefits could be reduced by an immaterial amount over the 12 months following December 31, 2016.

It is the intention of the Company to permanently reinvest the earnings from its foreign subsidiaries. The Company does not provide for U.S. income taxes of foreign subsidiaries as such earnings are to be reinvested indefinitely. As of September 30, 2017, the Company estimates $2.7 million of cumulative foreign earnings upon which U.S. income taxes have not been provided.

16. NET INCOME (LOSS) PER SHARE

Basic and diluted net loss per share attributable to common stockholders for periods prior to the Conversion are presented in conformity with the “two-class method” required for participating securities. Prior to the Conversion, shares of Class A and Class B common stock were the only outstanding equity in the Company. The rights of the holders of Class A and Class B common stock were identical, except with respect to voting and conversion. Each share of Class A common stock was entitled to one vote per share and each share of Class B common stock was entitled to ten votes per share. Shares of Class B common stock were

convertible into Class A common stock at any time at the option of the stockholder, and were automatically converted upon sale or transfer to Class A common stock, subject to certain limited exceptions, and in connection with certain other conversion events. Under the two-class method, basic net loss per share is computed using the weighted-average number of shares of common stock outstanding during the period. Diluted net loss 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 Company’s potential shares of common stock consist of the incremental shares of common stock issuable upon the exercise of stock options, shares issuable upon the vesting of RSUs and unvested shares subject to RSAs (if any), 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 loss per share of Class A common stock assumes the conversion of Class B common stock, while the diluted net loss 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 loss per share of Class A common stock, the undistributed earnings are equal to net loss for that computation.

On September 22, 2016, the Company’s Class A and Class B common stock converted into a single class of common stock. Because shares of Class A and Class B common stock were outstanding during the three and nine months ended September 30, 2016, the Company has disclosed earnings per common share for both classes of common stock for those reporting periods. Basic and diluted net loss per share attributable to common stockholders for periods after the Conversion, including the current reporting period, are presented based on the number of shares of common stock then outstanding.

The following table presents the calculation of basic and diluted net income (loss) per share (in thousands, except per share data):



	Three Months Ended September 30,
	2017		2016
	Common stock		Class A		Class B
Net income attributable to common stockholders	$	7,947	$	1,869	$	201
Basic Shares:
Weighted-average shares outstanding	82,259		69,978		7,543
Basic net income per share attributable to common stockholders:	$	0.10	$	0.03	$	0.03

	Three Months Ended September 30,
	2017		2016
	Common stock		Class A		Class B
Diluted net income per share attributable to common stockholders:
Numerator:
Allocation of undistributed earnings for basic computation	$	7,947	$	1,869	$	201
Reallocation of undistributed earnings as a result of conversion of Class B to Class A shares	—		201		—
Reallocation of undistributed earnings to Class B shares	—		—		39
Allocation of undistributed earnings	$	7,947	$	2,070	$	240
Denominator:
Number of shares used in basic calculation	82,259		69,978		7,543
Weighted-average effect of dilutive securities Conversion of Class B to Class A shares	—		7,543		—
Stock options	3,253		3,526		2,246
Restricted stock units	1,921		1,870		—
Number of shares used in diluted calculation	87,433		82,917		9,789
Diluted net income per share attributable to common stockholders	$	0.09	$	0.02	$	0.02



	Nine Months Ended September 30,
	2017		2016
	Common stock		Class A			Class B
Net income (loss) attributable to common stockholders	$	10,724	$	(11,639	)	$	(1,294	)
Basic Shares:
Weighted-average shares outstanding	81,041		68,961			7,666
Basic net income (loss) per share attributable to common stockholders:	$	0.13	$	(0.17	)	$	(0.17	)

	Nine Months Ended September 30,
	2017		2016
	Common stock		Class A			Class B
Diluted net income (loss) per share attributable to common stockholders:
Numerator:
Allocation of undistributed earnings (losses)	$	10,724	$	(11,639	)	$	(1,294	)
Denominator:
Number of shares used in basic calculation	81,041		68,961			7,666
Weighted-average effect of dilutive securities
Stock options	3,179		—			—
Restricted stock units	1,877		—			—
Number of shares used in diluted calculation	86,097		68,961			7,666
Diluted net income (loss) per share attributable to common stockholders	$	0.12	$	(0.17	)	$	(0.17	)

The following weighted-average stock-based instruments were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive for the periods presented (in thousands):



	Three Months Ended September 30,		Nine Months Ended September 30,
	2017	2016	2017	2016
Stock options	1,793	1,406	1,911	3,139
Restricted stock units and awards	871	1,240	978	2,414

17. INFORMATION ABOUT REVENUE AND GEOGRAPHIC AREAS

The Company considers operating segments to be components of the Company in which separate financial information is available that is evaluated regularly by the Company’s chief operating decision maker in deciding how to allocate resources and in assessing performance. The chief operating decision maker for the Company is the chief executive officer. The chief executive officer reviews financial information presented on a consolidated basis, accompanied by information about revenue by product line and geographic region for purposes of allocating resources and evaluating financial performance.

The Company has one business activity and there are no segment managers who are held accountable for operations, operating results or plans for levels or components below the consolidated unit level. Accordingly, the Company has determined that it has a single operating and reporting segment. Revenue by geography is based on the billing address of the customer.

Net Revenue

In reports filed prior to its Annual Report, the Company classified revenue from its “local” products — consisting of business listing and advertising products sold directly to businesses and Yelp Reservations — as local revenue, and classified revenue generated through partner arrangements, including resale of advertising products by certain partners, and monetization of remnant advertising inventory through third-party ad networks as other services revenue.

The Company now classifies revenue from all of its business listing and advertising products, including advertising and listings sold by partners, as advertising revenue. As a result, revenue generated through ad resales and monetization of remnant advertising

inventory through third-party ad networks is now classified as advertising revenue rather than other services revenue, and revenue from Yelp Reservations, a subscription service, is recognized as other services revenue. All disclosures relating to revenue by product have been updated to this revised classification for all periods presented.

The following table presents the Company’s net revenue by product line for the periods presented (in thousands) reflecting the changes to its revenue categories described above:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Net revenue by product:
Advertising	$	199,595	$	168,950	$	563,246	$	468,695
Transactions	18,524		15,910		55,024		45,926
Other services	4,261		1,372		10,297		3,652
Total net revenue	$	222,380	$	186,232	$	628,567	$	518,273

For purposes of comparison, the following table presents the Company’s net revenue by product line for the periods presented (in thousands) based on the revenue categories in effect prior to the three months ended December 31, 2016:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Net revenue by product:
Local	$	194,293	$	163,571	$	547,988	$	453,567
Transactions	18,524		15,910		55,024		45,926
Other services	9,563		6,751		25,555		18,780
Total net revenue	$	222,380	$	186,232	$	628,567	$	518,273

During the three and nine months ended September 30, 2017 and 2016, no individual customer accounted for 10% or more of consolidated net revenue.

The following table presents the Company’s net revenue by geographic region for the periods indicated (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
United States	$	218,735	$	182,290	$	618,086	$	507,403
All other countries	3,645		3,942		10,481		10,870
Total net revenue	$	222,380	$	186,232	$	628,567	$	518,273

Long-Lived Assets

The following table presents the Company’s long-lived assets by geographic region for the periods indicated (in thousands):



	September 30, 2017		December 31, 2016
United States	$	91,087	$	89,362
All other countries	3,261		3,078
Total long-lived assets	$	94,348	$	92,440

18. RESTRUCTURING AND INTEGRATION

The following table presents the Company’s restructuring and integration costs for the periods indicated (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Restructuring and integration	$	35	$	—	$	286	$	—

On November 2, 2016, the Company announced plans to significantly reduce sales and marketing activities in markets outside of the United States and Canada. The restructuring plan was substantially completed by December 31, 2016. The Company incurred zero and $0.3 million for the three and nine months ended September 30, 2017, respectively, in restructuring and integration costs associated with this plan related to severance costs for affected employees. The Company expects the remaining $0.2 million accrued restructuring and integration costs as of September 30, 2017 to be paid during the three months ending December 31, 2017. Any additional expense related to this restructuring plan incurred in the future is expected to be immaterial. No goodwill, intangible assets or other long-lived assets were impaired as a result of the restructuring plan.

19. SUBSEQUENT EVENTS

Sale of Eat24, LLC

On October 10, 2017, the Company completed its sale of all of the outstanding equity interests in Eat24 to the Purchaser pursuant to the Purchase Agreement (see Note 9). Immediately prior to the closing of the Disposition, the Company transferred certain assets to Eat24, which consisted of assets that are material to or necessary for the operation of the Eat24 business that were not then owned by Eat24.

The Company received approximately $251.7 million in cash at closing, representing the $287.5 million purchase price less a $7.0 million estimated working capital adjustment and $28.8 million paid into an escrow account, which will be held for an 18-month period after closing to secure the Purchaser's rights of indemnification under the Purchase Agreement. The purchase price remains subject to certain customary post-closing adjustments pursuant to the Purchase Agreement. The Company expects to recognize a gain associated with the sale of Eat24. The amount of that gain will be determined once the post-closing adjustments to the purchase price are finalized, and will be recorded during the three month period ending December 31, 2017. The tax impact of the gain will be less than the statutory tax rate due to the utilization of net operating losses and tax credits.

The Company recorded a valuation allowance against all of its U.S. deferred tax assets as of December 31, 2015, which it intends to maintain in full until there is sufficient evidence to support the reversal of all or some portion of the allowance. Based on the Company's earnings for the nine months ended September 30, 2017, anticipated future earnings, and the sale of Eat24, the Company believes there is a reasonable possibility that, within the 12 months following September 30, 2017, sufficient positive evidence may become available to support the reversal of a significant portion of the valuation allowance. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense during the period in which the release is recorded. However, the timing and amount of any valuation allowance release are subject to the level of profitability that the Company is able to achieve. Management will evaluate the Company's ability to realize its net deferred tax assets and the related valuation allowance on a quarterly basis.

Grubhub Partnership

Upon the closing of the Disposition (see Note 9), the Marketing Partnership Agreement (“Partnership Agreement”) entered into by the Company and Purchaser concurrently with the Purchase Agreement became effective. Under the Partnership Agreement, the Company agreed to integrate Grubhub’s restaurant network into the Yelp Platform to allow users of the Company’s website and mobile app to place orders for delivery or pickup through Grubhub’s food-ordering marketplace. The Partnership Agreement has an initial term of five years, and may renew for an additional two years upon the mutual agreement of the Company and Purchaser.



ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs, and involve risks and uncertainties. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those discussed in the section titled “Risk Factors” included under Part II, Item 1A and elsewhere in this Quarterly Report. See “Special Note Regarding Forward-Looking Statements” in this Quarterly Report.

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 great 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:

•

Network Effect. We plan to invest in marketing and product development aimed at both attracting more, and increasing the engagement of, consumers as we look to leverage our brand and benefit from network dynamics in Yelp communities. For example, in August 2017, we agreed to enter into a strategic partnership with Grubhub Holdings Inc., a wholly owned subsidiary of Grubhub Inc. ("Grubhub"), to expand our online ordering capabilities by integrating Grubhub's restaurant network onto the Yelp Platform ("Grubhub Partnership"). When implemented, we expect this integration to provide our users with a wider selection of restaurants and better delivery options, while improving our per-order profitability. The partnership became effective upon the closing of the sale of our Eat24 business to Grubhub on October 10, 2017 and we currently expect to have Grubhub's restaurant network integrated onto the Yelp Platform by mid-2018.

•

Enhance Monetization. We plan to continue to invest in initiatives to enhance our monetization opportunities in the United States and Canada. Initiatives we have invested in, and plan to continue to invest in, include aggressively growing our sales force and broadening our sales strategy, as well as expanding the Yelp Platform and business owner products and tools. For example, in the third quarter of 2017, we began scaling our Yelp WiFi Marketing and Yelp Nowait offerings, contributing to the tripling of other services revenue compared to the third quarter of 2016.

Our overall strategy is to invest for long-term growth. During the remainder of 2017, we expect to continue investing heavily in our sales and marketing efforts by growing our sales force, continuing our advertiser retention efforts and continuing our advertising campaigns, as well as to begin integrating Grubhub's restaurant network onto the Yelp Platform.

As of September 30, 2017, we had 5,281 full-time employees, comprising 5,036 salaried employees and 245 non-salaried support staff, which represents an increase of 16% compared to September 30, 2016. On October 10, 2017, 357 employees who worked primarily on Eat24 transferred their employment to Grubhub in connection with our sale of Eat24.

In July 2017, our board of directors authorized a stock repurchase program under which we may repurchase up to $200 million of our outstanding common stock. We repurchased on the open market and subsequently retired 185,592 shares for an aggregate purchase price of approximately $7.7 million during the three months ended September 30, 2017. We funded these repurchases, and expect to fund any future repurchases under the stock repurchase program, with cash available on our balance sheet.

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. Unless otherwise stated, these metrics do not include metrics for Yelp Eat24, Yelp Reservations, Yelp Nowait, Yelp WiFi Marketing or from our business owner products.

Reviews

Number of reviews represents the cumulative number of reviews submitted to Yelp since inception, as of the period end, including reviews that were not recommended or had been removed from our platform. In addition to the text of the review, each review includes a rating of one to five stars. We include 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 to users to evaluate businesses and individual reviewers. Because our automated recommendation software continually reassesses which reviews to recommend based on new information that becomes available, 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 business’s overall star rating. By clicking on a link on a reviewed business’s page on our website, users can access the reviews that are not currently 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 September 30, 2017, approximately 132.0 million reviews were available on business listing pages, including approximately 31.1 million reviews that were not recommended, after 10.1 million reviews had been removed from our platform, either by us for violation of our terms of service or by the users who contributed them. The following table presents the number of cumulative reviews as of the dates indicated:



	As of September 30,
	2017	2016

	(in thousands)
Reviews	142,036	115,259

Traffic

Traffic to our website and mobile app has three components: visitors to our non-mobile optimized website (our “desktop website”), visitors to our mobile-optimized website (our “mobile website”) and mobile devices accessing our mobile app. We use the following metrics to measure each of these traffic streams:

Desktop and Mobile Website Unique Visitors. We calculate 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, averaged over a given three-month period. Similarly, we calculate mobile website unique visitors as the number of “users” who have visited our mobile website at least once in a given month, averaged over a given three-month period.

Google Analytics, a product from Google Inc. that provides digital marketing intelligence, measures “users” based on unique cookie identifiers. Because the numbers of desktop unique visitors and mobile website unique visitors are therefore based on unique cookies, an individual who accesses our desktop website or mobile website from multiple devices with different cookies may be counted as multiple desktop unique visitors or mobile website unique visitors, as applicable, and multiple individuals who access our desktop website or mobile website from a shared device with a single cookie may be counted as a single desktop unique visitor or mobile website unique visitor.

App Unique Devices. We calculate app unique devices as the number of unique mobile devices using our mobile app in a given month, averaged over a given three-month period. Under this method of calculation, an individual who accesses our mobile app from multiple mobile devices will be counted as multiple app unique devices. Multiple individuals who access our mobile app from a shared device will be counted as a single app unique device.

We anticipate that our mobile traffic will be the driver of our growth for the foreseeable future.

The following table presents our traffic for the periods indicated:



	Three Months Ended September 30,
	2017	2016

	(in thousands)
Desktop Unique Visitors	83,592	71,409
Mobile Website Unique Visitors	73,508	72,040
App Unique Devices	30,162	24,900

As previously reported, a portion of our desktop traffic, as measured by Google Analytics, since the third quarter of 2016 has been attributable to a single robot. Because the traffic from this robot does not represent valid consumer traffic, we have adjusted

the number of desktop unique visitors we are reporting above to remove such traffic to provide greater accuracy and transparency. For additional information, please see the risk factor included under Part II, Item 1A under the heading “We rely on data from both internal tools and third parties to calculate certain of our performance metrics. Real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business.”

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 has visited our website and claimed the free business listing page for the business located at that address. The following table presents the number of cumulative claimed local business locations as of the dates presented:



	As of September 30,
	2017	2016

	(in thousands)
Claimed Local Business Locations	3,975	3,192

Paying Advertising Accounts

Paying advertising accounts comprise all business accounts from which we recognized advertising revenue in a given three-month period. As with our advertising revenue classification, paying advertising accounts excludes subscription services customers that are not also advertising customers. The following table presents the number of paying advertising accounts during the periods presented:



	Three Months Ended September 30,
	2017	2016

	(in thousands)
Paying Advertising Accounts	155	132

Non-GAAP Financial Measures

Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). However, we have also disclosed below EBITDA, adjusted EBITDA and non-GAAP net income, which are non-GAAP financial measures. We have included EBITDA, 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 EBITDA, adjusted EBITDA and non-GAAP net income can provide a useful measure for period-to-period comparisons of our primary business operations. Accordingly, we believe that EBITDA, 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.

EBITDA, 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, EBITDA, adjusted EBITDA and non-GAAP net income should not be viewed as substitutes for, or superior to, net income (loss) 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 EBITDA, adjusted EBITDA and non-GAAP net income do not reflect all cash capital expenditure requirements for such replacements or for new capital expenditure requirements;


•	EBITDA and adjusted EBITDA do 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;


•	EBITDA and adjusted EBITDA do not reflect the impact of valuation allowance recording or release;


•	EBITDA, adjusted EBITDA and non-GAAP net income do not take into account any restructuring costs; and


•	other companies, including companies in our industry, may calculate EBITDA, adjusted EBITDA and non-GAAP net income differently, which reduces their usefulness as comparative measures.

Because of these limitations, you should consider EBITDA, adjusted EBITDA and non-GAAP net income alongside other financial performance measures, including various cash flow metrics, net loss and our other GAAP results. The tables below present reconciliations of net income (loss) to EBITDA, adjusted EBITDA and non-GAAP net income, the most directly comparable GAAP financial measure in each case, for each of the periods indicated. Net income (loss) was $7.9 million and $2.1 million in the three months ended September 30, 2017 and 2016, respectively, and $10.7 million and ($12.9 million) in the nine months ended September 30, 2017 and 2016, respectively.

EBITDA and Adjusted EBITDA

EBITDA is a non-GAAP financial measure that we calculate as net income (loss), adjusted to exclude: provision for income taxes; other income, net; depreciation and amortization; and restructuring and integration costs. EBITDA was $17.5 million and $11.1 million for the three months ended September 30, 2017 and 2016, respectively, and $40.0 million and $12.4 million for the nine months ended September 30, 2017 and 2016, respectively.

Adjusted EBITDA is a non-GAAP financial measure that we calculate as net income (loss), adjusted to exclude: provision for income taxes; other income, net; depreciation and amortization; stock-based compensation expense; and restructuring and integration costs. Adjusted EBITDA was $42.8 million and $33.7 million for the three months ended September 30, 2017 and 2016, respectively, and $115.0 million and $74.8 million for the nine months ended September 30, 2017 and 2016, respectively.

The following is a reconciliation of net income (loss) to EBITDA and adjusted EBITDA:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016

	(in thousands)						(in thousands)
Reconciliation of GAAP net income (loss) to EBITDA and adjusted EBITDA:
GAAP net income (loss)	$	7,947		$	2,070		$	10,724		$	(12,933	)
Provision for income taxes	232			217			417			385
Other income, net	(1,371		)	(327		)	(2,933		)	(952		)
Depreciation and amortization	10,656			9,159			31,470			25,912
Restructuring and integration costs	35			—			286			—
EBITDA	17,499			11,119			39,964			12,412
Stock-based compensation	25,309			22,560			75,007			62,396
Adjusted EBITDA	$	42,808		$	33,679		$	114,971		$	74,808

Non-GAAP Net Income

Non-GAAP net income is a non-GAAP financial measure that we calculate as net income (loss), adjusted to exclude: stock-based compensation expense; amortization of intangibles; restructuring and integration costs; and the tax effect of stock-based compensation, amortization of intangibles, restructuring and integration costs and valuation allowance. Non-GAAP net income was $25.4 million and $18.4 million for the three months ended September 30, 2017 and 2016, respectively, and $63.3 million and $36.9 million for the six months ended September 30, 2017 and 2016, respectively. The following is a reconciliation of net income (loss) to non-GAAP net income:



	Three Months Ended September 30,					Nine Months Ended September 30,
	2017			2016		2017		2016

	(in thousands)					(in thousands)
Reconciliation of GAAP net income (loss) to non-GAAP net income:
GAAP net income (loss)	$	7,947		$	2,070	$	10,724	$	(12,933	)
Stock-based compensation	25,309			22,560		75,007		62,396
Amortization of intangible assets	1,441			1,706		5,719		5,148
Restructuring and integration costs	35			—		286		—
Tax adjustments (1)	(9,327		)