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, 2019

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 Incorporation or Organization)					(I.R.S. Employer 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)

_________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, par value $0.000001 per share	YELP	New York Stock Exchange LLC

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 every Interactive Data File required to be submitted 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 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	☐	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, 2019, there were 70,201,693 shares issued and outstanding of the registrant’s common stock, par value $0.000001 per share.

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, 2019 and December 31, 2018	2
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018	3
	Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2019 and 2018	4
	Condensed Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended September 30, 2019 and 2018	5
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	35
Part II.	Other Information
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	56
Item 3.	Defaults Upon Senior Securities	56
Item 4.	Mine Safety Disclosures	56
Item 5.	Other Information	56
Item 6.	Exhibits	57
Signatures		58

___________________________________

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. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled “Risk Factors” included under Part II, Item 1A below. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

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 Reservations, Yelp Waitlist or 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. Although we take steps to exclude such activity and, as a result, do not believe it has had a material impact on our reported metrics, our efforts may not successfully account for all such activity.

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, 2019			December 31, 2018
Assets
Current assets:
Cash and cash equivalents	$	123,402		$	332,764
Short-term marketable securities	258,414			423,096
Accounts receivable (net of allowance for doubtful accounts of $7,779 and $8,685 at September 30, 2019 and December 31, 2018, respectively)	101,441			87,305
Prepaid expenses and other current assets	16,042			17,104
Total current assets	499,299			860,269
Long-term marketable securities	34,964			—
Property, equipment and software, net	113,935			114,800
Operating lease right-of-use assets	207,852			—
Goodwill	103,459			105,620
Intangibles, net	10,778			13,359
Restricted cash	22,127			22,071
Other non-current assets	36,355			59,444
Total assets	$	1,028,769		$	1,175,563
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	3,139		$	6,540
Accrued liabilities	71,739			54,522
Operating lease liabilities — current	57,013			—
Deferred revenue	4,222			3,843
Total current liabilities	136,113			64,905
Operating lease liabilities — long-term	186,056			—
Other long-term liabilities	4,036			35,140
Total liabilities	326,205			100,045
Commitments and contingencies (Note 13)
Stockholders' equity:
Common stock, $0.000001 par value, 200,000,000 shares authorized – 70,199,923 and 81,996,839 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively	—			—
Additional paid-in capital	1,220,048			1,139,462
Accumulated other comprehensive loss	(13,297		)	(11,021		)
Accumulated deficit	(504,187		)	(52,923		)
Total stockholders' equity	702,564			1,075,518
Total liabilities and stockholders' equity	$	1,028,769		$	1,175,563

See Notes to Condensed Consolidated Financial Statements.

2

YELP INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2019			2018		2019			2018
Net revenue	$	262,474		$	241,096	$	745,371		$	699,033
Costs and expenses:
Cost of revenue (exclusive of depreciation and amortization shown separately below)	16,514			14,177		45,754			43,618
Sales and marketing	127,655			121,759		374,016			362,054
Product development	56,661			53,764		169,302			158,046
General and administrative	39,703			30,302		101,927			90,892
Depreciation and amortization	12,391			10,713		36,507			31,250
Total costs and expenses	252,924			230,715		727,506			685,860
Income from operations	9,550			10,381		17,865			13,173
Other income, net	3,063			3,921		11,645			9,950
Income before income taxes	12,613			14,302		29,510			23,123
(Provision for) benefit from income taxes	(2,552		)	684		(5,781		)	281
Net income attributable to common stockholders	$	10,061		$	14,986	$	23,729		$	23,404
Net income per share attributable to common stockholders
Basic	$	0.14		$	0.18	$	0.31		$	0.28
Diluted	$	0.14		$	0.17	$	0.30		$	0.26
Weighted-average shares used to compute net income per share attributable to common stockholders
Basic	70,773			84,008		75,975			83,865
Diluted	73,712			88,724		79,315			89,271

See Notes to Condensed Consolidated Financial Statements.

3

YELP INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Net income	$	10,061		$	14,986		$	23,729		$	23,404
Other comprehensive loss:
Foreign currency translation adjustments	(2,134		)	(193		)	(2,276		)	(1,811		)
Foreign currency adjustments to net income upon liquidation of investment in foreign entities	—			—			—			30
Other comprehensive loss	(2,134		)	(193		)	(2,276		)	(1,781		)
Comprehensive income	$	7,927		$	14,793		$	21,453		$	21,623

See Notes to Condensed Consolidated Financial Statements.

4

YELP INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2019

(In thousands, except share data)

(Unaudited)

					Additional						Accumulated Other			Retained			Total
	Common Stock				Paid-In			Treasury			Comprehensive			Earnings			Stockholders'
	Shares		Amount		Capital			Stock			Loss			(Accumulated Deficit)			Equity
Balance as of June 30, 2018	83,792,697		$	—	$	1,086,727		$	—		$	(10,032	)	$	21,739		$	1,098,434
Issuance of common stock upon exercises of employee stock options	237,981		—		5,614			—			—			—			5,614
Issuance of common stock upon vesting of restricted stock units ("RSUs")	504,681		—		—			—			—			—			—
Issuance of common stock for employee stock purchase plan	—		—		—			—			—			—			—
Stock-based compensation (inclusive of capitalized stock-based compensation)	—		—		30,380			—			—			—			30,380
Shares withheld related to net share settlement of equity awards	—		—		(13,522		)	—			—			—			(13,522		)
Purchases of treasury stock	—		—		—			(6,205		)	—			—			(6,205		)
Retirement of common stock	(160,338	)	—		—			6,205			—			(6,205		)	—
Foreign currency adjustments	—		—		—			—			(193		)	—			(193		)
Net income	—		—		—			—			—			14,986			14,986
Balance as of September 30, 2018	84,375,021		$	—	$	1,109,199		$	—		$	(10,225	)	$	30,520		$	1,129,494
Balance as of June 30, 2019	71,931,789		$	—	$	1,194,486		$	(5,952	)	$	(11,163	)	$	(430,916	)	$	746,455
Issuance of common stock upon exercises of employee stock options	225,364		—		4,615			—			—			—			4,615
Issuance of common stock upon vesting of RSUs	527,233		—		—			—			—			—			—
Issuance of common stock for employee stock purchase plan	—		—		—			—			—			—			—
Stock-based compensation (inclusive of capitalized stock-based compensation)	—		—		31,140			—			—			—			31,140
Shares withheld related to net share settlement of equity awards	—		—		(10,193		)	—			—			—			(10,193		)
Purchases of treasury stock	—		—		—			(77,380		)	—			—			(77,380		)
Retirement of common stock	(2,484,463	)	—		—			83,332			—			(83,332		)	—
Foreign currency adjustments	—		—		—			—			(2,134		)	—			(2,134		)
Net income	—		—		—			—			—			10,061			10,061
Balance as of September 30, 2019	70,199,923		$	—	$	1,220,048		$	—		$	(13,297	)	$	(504,187	)	$	702,564

See Notes to Condensed Consolidated Financial Statements.

5

YELP INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2019

(In thousands, except share data)

(Unaudited)

					Additional						Accumulated Other			Retained			Total
	Common Stock				Paid-In			Treasury			Comprehensive			Earnings			Stockholders'
	Shares		Amount		Capital			Stock			Loss			(Accumulated Deficit)			Equity
Balance as of December 31, 2017	83,724,916		$	—	$	1,038,017		$	(46	)	$	(8,444	)	$	79,170		$	1,108,697
Issuance of common stock upon exercises of employee stock options	737,986		—		14,696			—			—			—			14,696
Issuance of common stock upon vesting of RSUs	1,470,127		—		—			—			—			—			—
Issuance of common stock for employee stock purchase plan	195,987		—		7,139			—			—			—			7,139
Stock-based compensation (inclusive of capitalized stock-based compensation)	—		—		90,567			—			—			—			90,567
Shares withheld related to net share settlement of equity awards	—		—		(41,220		)	—			—			—			(41,220		)
Purchases of treasury stock	—		—		—			(72,008		)	—			—			(72,008		)
Retirement of common stock	(1,753,995	)	—		—			72,054			—			(72,054		)	—
Foreign currency adjustments	—		—		—			—			(1,781		)	—			(1,781		)
Net income	—		—		—			—			—			23,404			23,404
Balance as of September 30, 2018	84,375,021		$	—	$	1,109,199		$	—		$	(10,225	)	$	30,520		$	1,129,494
Balance as of December 31, 2018	81,996,839		$	—	$	1,139,462		$	—		$	(11,021	)	$	(52,923	)	$	1,075,518
Issuance of common stock upon exercises of employee stock options	399,320		—		8,276			—			—			—			8,276
Issuance of common stock upon vesting of RSUs	1,510,144		—		—			—			—			—			—
Issuance of common stock for employee stock purchase plan	288,529		—		7,537			—			—			—			7,537
Stock-based compensation (inclusive of capitalized stock-based compensation)	—		—		97,810			—			—			—			97,810
Shares withheld related to net share settlement of equity awards	—		—		(33,037		)	—			—			—			(33,037		)
Purchases of treasury stock	—		—		—			(474,993		)	—			—			(474,993		)
Retirement of common stock	(13,994,909	)	—		—			474,993			—			(474,993		)	—
Foreign currency adjustments	—		—		—			—			(2,276		)	—			(2,276		)
Net income	—		—		—			—			—			23,729			23,729
Balance as of September 30, 2019	70,199,923		$	—	$	1,220,048		$	—		$	(13,297	)	$	(504,187	)	$	702,564

See Notes to Condensed Consolidated Financial Statements.

6

YELP INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine Months Ended September 30,
	2019			2018
Operating Activities
Net income attributable to common stockholders	$	23,729		$	23,404
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	36,507			31,250
Provision for doubtful accounts	15,259			19,285
Stock-based compensation	91,006			85,732
Noncash lease cost	31,379			—
Deferred income taxes	(673		)	—
Other adjustments	(2,559		)	(2,793		)
Changes in operating assets and liabilities:
Accounts receivable	(29,395		)	(24,956		)
Prepaid expenses and other assets	(2,312		)	(2,085		)
Operating lease liabilities	(31,002		)	—
Accounts payable, accrued liabilities and other liabilities	17,329			(13,722		)
Net cash provided by operating activities	149,268			116,115
Investing Activities
Purchases of marketable securities	(396,648		)	(572,788		)
Maturities of marketable securities	530,597			460,800
Release of escrow deposit	28,750			—
Purchases of property, equipment and software	(29,950		)	(33,937		)
Other investing activities	383			64
Net cash provided by (used in) investing activities	133,132			(145,861		)
Financing Activities
Proceeds from issuance of common stock for employee stock-based plans	15,813			21,835
Repurchases of common stock	(474,993		)	(71,993		)
Taxes paid related to the net share settlement of equity awards	(32,784		)	(41,081		)
Net cash used in financing activities	(491,964		)	(91,239		)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	258			197
Change in cash, cash equivalents and restricted cash	(209,306		)	(120,788		)
Cash, cash equivalents and restricted cash — Beginning of period	354,835			566,404
Cash, cash equivalents and restricted cash — End of period	$	145,529		$	445,616
Supplemental Disclosures of Other Cash Flow Information
Cash paid for income taxes, net of refunds	$	5,702		$	28,820
Supplemental Disclosures of Noncash Investing and Financing Activities
Purchases of property, equipment and software recorded in accounts payable and accrued liabilities	$	1,856		$	2,393
Tax liability related to net share settlement of equity awards included in accrued liabilities	$	896		$	1,679
Operating lease right-of-use assets obtained in exchange for new operating lease liabilities	$	6,325		$	—

See Notes to Condensed Consolidated Financial Statements.

7

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 consumers with great local businesses. Yelp's trusted local platform delivers significant value to both consumers and businesses by helping each discover and interact with the other: its content and transaction capabilities help consumers save time and money, while its advertising and other products help businesses gain visibility and engage with its large audience of purchase-oriented consumers.

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, 2018, filed with the SEC on March 1, 2019 (the "Annual Report").

The unaudited condensed consolidated balance sheet as of December 31, 2018 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, except as set forth under "Recently Adopted Accounting Pronouncements" below.

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.

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.

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.

Leases—The Company leases its office facilities under operating lease agreements that expire from 2019 to 2029, some of which include options to renew at the Company's sole discretion. If exercised, such options would extend the lease terms by up to ten years. Additionally, certain lease agreements contain options to terminate the leases, which require 6 to 12 months prior written notice to the landlord. The Company does not have any finance lease agreements.

The Company recognizes on its condensed consolidated balance sheet operating lease liabilities representing the present value of future lease payments, and an associated operating lease right-of-use asset for any operating lease with a term greater than one year. The Company recognizes the amortization of the right-of-use asset each month within lease expense. The Company has elected to use the practical expedient for short-term leases, and therefore does not record operating lease right-of-use assets or lease liabilities associated with leases with durations of 12 months or less.

8

When recording the present value of lease liabilities, a discount rate is required. The Company has concluded that the rates implicit in the various operating lease agreements are not readily determinable. As a result, the Company instead uses its incremental borrowing rate, which is calculated based on hypothetical borrowings to fund each respective lease over the lease term, as of the lease commencement date, assuming that borrowings are secured by the various leased properties. The incremental borrowing rates are determined based on an assessment of the Company’s implied credit rating, using ratings scales from reputable rating agencies that consider a number of qualitative and quantitative factors. Market rates are derived as of the lease commencement dates with reference to companies with the same debt rating that operate in a similar industry to the Company.

The Company does not recognize its renewal options as part of its right-of-use assets and lease liabilities until it is reasonably certain that it will exercise such renewal options.

Recently Adopted Accounting Pronouncements

Lease Accounting—In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2016-02, "Leases (Topic 842)" ("ASC 842"). ASC 842 supersedes the previous accounting guidance for leases included within Accounting Standards Codification 840, "Leases" ("ASC 840"). The new guidance generally requires an entity to recognize on its balance sheet operating and finance lease liabilities and corresponding right-of-use assets, as well as to recognize the associated lease expenses on its statements of operations in a manner similar to that required under ASC 840.

The Company adopted and began applying ASC 842 on January 1, 2019 in accordance with Accounting Standards Update No. 2018-11, "Targeted Improvements to ASC 842" using a modified retrospective approach. Based on its lease portfolio in place at the time of adoption, the Company determined that a cumulative-effect adjustment to the opening balance of accumulated deficit was not needed because there was no difference between the operating lease expense recorded to its condensed consolidated statement of operations following its adoption of ASC 842 and the amount that would have been recorded under ASC 840. The Company will continue to disclose comparative reporting periods prior to January 1, 2019 under ASC 840.

The Company has elected to use the practical expedient available under ASC 842 to not record operating lease right-of-use assets or lease liabilities associated with leases with durations of 12 months or less. The Company will record those leases on a straight line basis to its consolidated statements of operations over the lease terms. The Company recorded operating lease right-of-use assets and lease liabilities for all of its leases that met the definition of a lease under ASC 842 and that had terms of greater than 12 months upon its adoption of ASC 842.

The Company has elected not to take the package of practical expedients permitted under the transition guidance within the new standard, which allows an entity to not reassess whether any expired or existing contracts contain leases, the lease classification for any expired or existing leases, and treatment of initial direct costs for any existing leases. Additionally, the Company did not elect the hindsight practical expedient to determine the lease terms for existing leases.

The most significant changes as a result of ASC 842 were the Company's recognition on its condensed consolidated balance sheet upon adoption on January 1, 2019 of operating lease right-of-use assets of $233.0 million, current operating lease liabilities of $55.2 million and long-term operating lease liabilities of $212.5 million. These balances consist of the Company's office lease portfolio and, to a much lesser extent, its computer equipment lease portfolio. The Company de-recognized deferred rent liabilities associated with its office lease portfolio of $34.8 million upon adoption.

Callable Debt Securities—In March 2017, the 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 Company adopted ASU 2017-08 effective January 1, 2019 using the modified retrospective method. The Company does not hold any callable debt securities at a premium upon the adoption date, and, accordingly, no adjustment to opening retained earnings was required.

Non-employee Share-Based Payment Accounting—In June 2018, the FASB issued Accounting Standards Update No. 2018-07, "Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting" ("ASU 2018-07"). This new guidance changes the accounting for non-employee share-based payments to align with the accounting for employee stock compensation. The Company adopted ASU 2018-07 effective January 1, 2019, and the adoption did not have a material impact on its consolidated financial statements.

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Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income—In February 2018, the FASB issued Accounting Standards Update No. 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" ("ASU 2018-02"). This new guidance permits a company to reclassify the income tax effects of the U.S. Tax Cuts and Jobs Act on items within accumulated other comprehensive income to retained earnings. ASU 2018-02 is effective for all entities for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. The Company adopted ASU 2018-02 effective January 1, 2019 and elected to not reclassify the income tax effects of the U.S. Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings.

Recent Accounting Pronouncements Not Yet Effective

In June 2016, the FASB issued Accounting Standards Update No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). This guidance requires certain types of financial instruments, including trade receivables and held-to-maturity investments measured at amortized cost, to be presented at the net amount expected to be collected based on historical events, current conditions and forecast information. 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 impact on the Company's consolidated financial statements will depend on the composition and credit quality of its financial instruments, the historical credit loss activity of that portfolio, and reasonable and supportable economic forecast and conditions at the time of adoption. Considering such factors as of September 30, 2019, the adoption of ASU 2016-13 would not have a material impact on its consolidated financial statements.

In January 2017, the 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. Under the new standard, entities will perform goodwill impairment tests by comparing fair value of a reporting unit with its carrying amount, and will 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 does not expect the adoption of ASU 2017-04 to have a material impact on its consolidated financial statements.

In August 2018, the FASB issued Accounting Standards Update No. 2018-13, "Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement" (“ASU 2018-13”), which amends Accounting Standards Codification 820, "Fair Value Measurement." ASU 2018-13 modifies the disclosure requirements for fair value measurements by removing, modifying and adding certain disclosures. 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 does not expect the adoption of ASU 2018-13 to have a material impact on its consolidated financial statements.

In August 2018, the FASB issued Accounting Standards Update No. 2018-15, "Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract" ("ASU 2018-15"). This new guidance requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in Accounting Standards Codification 350-40 to determine which implementation costs to defer and recognize as an asset. ASU 2018-15 generally aligns the guidance on recognizing implementation costs incurred in a cloud computing arrangement that is a service contract with that for implementation costs incurred to develop or obtain internal-use software, including hosting arrangements that include an internal-use software license. ASU 2018-15 is effective for the first interim period within annual reporting periods beginning after December 15, 2019 and early adoption is permitted. The Company is currently assessing the impact of ASU 2018-15 on its consolidated financial statements.

2. CASH, CASH EQUIVALENTS AND RESTRICTED CASH

Cash, cash equivalents and restricted cash as of September 30, 2019 and December 31, 2018 consisted of the following (in thousands):

	September 30, 2019		December 31, 2018
Cash	$	31,729	$	81,055
Cash equivalents	91,673		251,709
Total cash and cash equivalents	$	123,402	$	332,764
Restricted cash	22,127		22,071
Total cash, cash equivalents and restricted cash	$	145,529	$	354,835

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As of September 30, 2019 and December 31, 2018, the Company had letters of credit collateralized fully by bank deposits that totaled $22.1 million and $22.1 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 on the Company's condensed consolidated balance sheets.

3. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s investments in money market accounts are recorded as cash equivalents at fair value on the condensed consolidated balance sheets. All other financial instruments are classified as held-to-maturity investments and, accordingly, are recorded at amortized cost; however, the Company is required to determine the fair value of these investments on a recurring basis to identify any potential impairment. The accounting guidance for fair value measurements prioritizes the inputs used in measuring fair value in the following hierarchy:

Level 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, U.S. government bonds and agency bonds are classified within Level 2 of the fair value hierarchy because they have been valued using inputs other than quoted prices in active markets that are observable directly or indirectly.

The following table represents the fair value of the Company’s financial instruments, including those measured at fair value on a recurring basis and those held-to-maturity, as of September 30, 2019 and December 31, 2018 (in thousands):

	September 30, 2019								December 31, 2018
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	91,673	$	—	$	—	$	91,673	$	221,173	$	—	$	—	$	221,173
Commercial paper	—		—		—		—		—		30,536		—		30,536
Marketable securities:
Commercial paper	—		129,500		—		129,500		—		175,070		—		175,070
Corporate bonds	—		85,154		—		85,154		—		131,496		—		131,496
Agency bonds	—		79,210		—		79,210		—		50,846		—		50,846
U.S. government bonds	—		—		—		—		—		65,502		—		65,502
Total cash equivalents and marketable securities	$	91,673	$	293,864	$	—	$	385,537	$	221,173	$	453,450	$	—	$	674,623

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4. MARKETABLE SECURITIES

The amortized cost, gross unrealized gains and losses, and fair value of marketable securities classified as held-to-maturity as of September 30, 2019 and December 31, 2018 were as follows (in thousands):

	September 30, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Short-term marketable securities:
Commercial paper	$	129,454	$	50	$	(4	)	$	129,500
Corporate bonds	74,865		247		—			75,112
Agency bonds	54,095		118		(1		)	54,212
Total short-term marketable securities	258,414		415		(5		)	258,824
Long-term marketable securities:
Agency bonds	25,000		2		(4		)	24,998
Corporate bonds	9,964		78		—			10,042
Total long-term marketable securities	34,964		80		(4		)	35,040
Total marketable securities	$	293,378	$	495	$	(9	)	$	293,864

	December 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Cash equivalents:
Commercial paper	$	30,536	$	—	$	—		$	30,536
Total cash equivalents	30,536		—		—			30,536
Short-term marketable securities:
Commercial paper	175,070		—		—			175,070
Corporate bonds	131,626		8		(138		)	131,496
U.S. government bonds	65,513		—		(11		)	65,502
Agency bonds	50,887		—		(41		)	50,846
Total short-term marketable securities	423,096		8		(190		)	422,914
Total marketable securities	$	453,632	$	8	$	(190	)	$	453,450

The following tables present gross unrealized losses and fair values for those securities that were in an unrealized loss position as of September 30, 2019 and December 31, 2018, aggregated by investment category and the length of time that the individual securities have been in a continuous loss position (in thousands):

	September 30, 2019
	Less Than 12 Months					12 Months or Greater				Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Commercial paper	$	41,817	$	(4	)	$	—	$	—	$	41,817	$	(4	)
Agency bonds	19,994		(5		)	—		—		19,994		(5		)
Total	$	61,811	$	(9	)	$	—	$	—	$	61,811	$	(9	)

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	December 31, 2018
	Less Than 12 Months					12 Months or Greater				Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Corporate bonds	$	121,566	$	(138	)	$	—	$	—	$	121,566	$	(138	)
U.S. government bonds	65,502		(11		)	—		—		65,502		(11		)
Agency bonds	50,846		(41		)	—		—		50,846		(41		)
Total	$	237,914	$	(190	)	$	—	$	—	$	237,914	$	(190	)

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, 2019 and 2018, the Company did not recognize any other-than-temporary impairment losses.

5. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets as of September 30, 2019 and December 31, 2018 consisted of the following (in thousands):

	September 30, 2019		December 31, 2018
Prepaid expenses	$	11,970	$	9,436
Other current assets	4,072		7,668
Total prepaid expenses and other current assets	$	16,042	$	17,104

6. PROPERTY, EQUIPMENT AND SOFTWARE, NET

Property, equipment and software, net as of September 30, 2019 and December 31, 2018 consisted of the following (in thousands):

	September 30, 2019		December 31, 2018
Capitalized website and internal-use software development costs	$	133,551	$	108,590
Leasehold improvements	85,983		83,811
Computer equipment	43,276		40,801
Furniture and fixtures	18,372