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, 2020

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, California 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 30, 2020, there were 73,996,090 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, 2020 and December 31, 2019	3
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019	4
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2020 and 2019	5
	Condensed Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended September 30, 2020 and 2019	6
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	38
Part II.	Other Information
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	63
Item 3.	Defaults Upon Senior Securities	63
Item 4.	Mine Safety Disclosures	63
Item 5.	Other Information	63
Item 6.	Exhibits	64
Signatures		65

___________________________________

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.

1

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.

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

YELP INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

	September 30, 2020		December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	590,789	$	170,281
Short-term marketable securities	—		242,000
Accounts receivable (net of allowance for doubtful accounts of $11,316 and $7,686 at September 30, 2020 and December 31, 2019, respectively)	84,813		106,832
Prepaid expenses and other current assets	18,590		14,196
Total current assets	694,192		533,309
Long-term marketable securities	—		53,499
Property, equipment and software, net	105,488		110,949
Operating lease right-of-use assets	176,603		197,866
Goodwill	106,772		104,589
Intangibles, net	14,240		10,082
Restricted cash	826		22,037
Other non-current assets	40,829		38,369
Total assets	$	1,138,950	$	1,070,700
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities	$	103,378	$	72,333
Operating lease liabilities — current	54,396		57,507
Deferred revenue	4,731		4,315
Total current liabilities	162,505		134,155
Operating lease liabilities — long-term	155,297		174,756
Other long-term liabilities	5,520		6,798
Total liabilities	323,322		315,709
Commitments and contingencies (Note 12)
Stockholders' equity:
Common stock, $0.000001 par value, 200,000,000 shares authorized – 73,976,487 and 71,185,468 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively	—		—
Additional paid-in capital	1,358,804		1,259,803
Accumulated other comprehensive loss	(9,576)		(11,759)
Accumulated deficit	(533,600)		(493,053)
Total stockholders' equity	815,628		754,991
Total liabilities and stockholders' equity	$	1,138,950	$	1,070,700

See Notes to Condensed Consolidated Financial Statements.

3

YELP INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net revenue	$	220,807	$	262,474	$	639,738	$	745,371
Costs and expenses:
Cost of revenue (exclusive of depreciation and amortization shown separately below)	13,193		16,514		41,865		45,754
Sales and marketing	101,301		127,655		334,887		374,016
Product development	53,022		56,661		174,104		169,302
General and administrative	30,887		39,703		100,825		101,927
Depreciation and amortization	12,544		12,391		37,484		36,507
Restructuring	535		—		3,847		—
Total costs and expenses	211,482		252,924		693,012		727,506
Income (loss) from operations	9,325		9,550		(53,274)		17,865
Other income, net	399		3,063		3,277		11,645
Income (loss) before income taxes	9,724		12,613		(49,997)		29,510
Provision for (benefit from) income taxes	10,744		2,552		(9,484)		5,781
Net (loss) income attributable to common stockholders	$	(1,020)	$	10,061	$	(40,513)	$	23,729
Net (loss) income per share attributable to common stockholders
Basic	$	(0.01)	$	0.14	$	(0.56)	$	0.31
Diluted	$	(0.01)	$	0.14	$	(0.56)	$	0.30
Weighted-average shares used to compute net (loss) income per share attributable to common stockholders
Basic	73,514		70,773		72,495		75,975
Diluted	73,514		73,712		72,495		79,315

See Notes to Condensed Consolidated Financial Statements.

4

YELP INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net (loss) income	$	(1,020)	$	10,061	$	(40,513)	$	23,729
Other comprehensive income (loss):
Foreign currency translation adjustments	2,269		(2,134)		2,183		(2,276)
Other comprehensive income (loss)	2,269		(2,134)		2,183		(2,276)
Comprehensive income (loss)	$	1,249	$	7,927	$	(38,330)	$	21,453

See Notes to Condensed Consolidated Financial Statements.

5

YELP INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2020

(In thousands, except share data)

(Unaudited)

				Additional				Accumulated Other				Total
	Common Stock			Paid-In		Treasury		Comprehensive		Accumulated		Stockholders'
	Shares	Amount		Capital		Stock		Loss		Deficit		Equity
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 restricted stock units ("RSUs")	527,233	—		—		—		—		—		—
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)
Repurchases of common 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
Balance as of June 30, 2020	73,121,229	$	—	$	1,325,745	$	—	$	(11,845)	$	(532,580)	$	781,320
Issuance of common stock upon exercises of employee stock options	63,031	—		812		—		—		—		812
Issuance of common stock upon vesting of RSUs	792,227	—		—		—		—		—		—
Stock-based compensation (inclusive of capitalized stock-based compensation)	—	—		32,247		—		—		—		32,247
Foreign currency adjustments	—	—		—		—		2,269		—		2,269
Net loss	—	—		—		—		—		(1,020)		(1,020)
Balance as of September 30, 2020	73,976,487	$	—	$	1,358,804	$	—	$	(9,576)	$	(533,600)	$	815,628

See Notes to Condensed Consolidated Financial Statements.

6

YELP INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2020

(In thousands, except share data)

(Unaudited)

				Additional				Accumulated Other				Total
	Common Stock			Paid-In		Treasury		Comprehensive		Accumulated		Stockholders'
	Shares	Amount		Capital		Stock		Loss		Deficit		Equity
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)
Repurchases of common 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
Balance as of December 31, 2019	71,185,468	$	—	$	1,259,803	$	—	$	(11,759)	$	(493,053)	$	754,991
Cumulative effect adjustment upon adoption of ASU 2016-13										(34)		(34)
Issuance of common stock upon exercises of employee stock options	285,388	—		3,606		—		—		—		3,606
Issuance of common stock upon vesting of RSUs	2,071,934	—		—		—		—		—		—
Issuance of common stock for employee stock purchase plan	433,697	—		8,014		—		—		—		8,014
Stock-based compensation (inclusive of capitalized stock-based compensation)	—	—		99,133		—		—		—		99,133
Shares withheld related to net share settlement of equity awards	—	—		(11,752)		—		—		—		(11,752)
Foreign currency adjustments	—	—		—		—		2,183		—		2,183
Net loss	—	—		—		—		—		(40,513)		(40,513)
Balance as of September 30, 2020	73,976,487	$	—	$	1,358,804	$	—	$	(9,576)	$	(533,600)	$	815,628

See Notes to Condensed Consolidated Financial Statements.

7

YELP INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine Months Ended September 30,
	2020		2019
Operating Activities
Net (loss) income attributable to common stockholders	$	(40,513)	$	23,729
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization	37,484		36,507
Provision for doubtful accounts	26,802		15,259
Stock-based compensation	92,590		91,006
Noncash lease cost	31,545		31,379
Deferred income taxes	(6,505)		(673)
Other adjustments, net	1,316		(2,559)
Changes in operating assets and liabilities:
Accounts receivable	(4,783)		(29,395)
Prepaid expenses and other assets	1,552		(2,312)
Operating lease liabilities	(34,284)		(31,002)
Accounts payable, accrued liabilities and other liabilities	23,181		17,329
Net cash provided by operating activities	128,385		149,268
Investing Activities
Sales and maturities of marketable securities — available-for-sale	290,395		—
Purchases of marketable securities — held-to-maturity	(87,438)		(396,648)
Maturities of marketable securities — held-to-maturity	93,200		530,597
Release of escrow deposit	—		28,750
Purchases of property, equipment and software	(24,072)		(29,950)
Other investing activities	329		383
Net cash provided by investing activities	272,414		133,132
Financing Activities
Proceeds from issuance of common stock for employee stock-based plans	11,620		15,813
Repurchases of common stock	—		(474,993)
Taxes paid related to the net share settlement of equity awards	(12,557)		(32,784)
Other financing activities	(433)		—
Net cash used in financing activities	(1,370)		(491,964)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(132)		258
Change in cash, cash equivalents and restricted cash	399,297		(209,306)
Cash, cash equivalents and restricted cash — Beginning of period	192,318		354,835
Cash, cash equivalents and restricted cash — End of period	$	591,615	$	145,529
Supplemental Disclosures of Other Cash Flow Information
Cash paid for income taxes, net	$	109	$	5,702
Supplemental Disclosures of Noncash Investing and Financing Activities
Purchases of property, equipment and software recorded in accounts payable and accrued liabilities	$	2,168	$	1,856
Tax liability related to net share settlement of equity awards included in accounts payable and accrued liabilities	$	—	$	896
Operating lease right-of-use assets obtained in exchange for new operating lease liabilities	$	11,833	$	6,325

See Notes to Condensed Consolidated Financial Statements.

8

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, 2019, filed with the SEC on February 28, 2020 and amended on April 29, 2020 (the "Annual Report").

The unaudited condensed consolidated balance sheet as of December 31, 2019 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.

In early March 2020, COVID-19 — the disease caused by a novel strain of the coronavirus — was declared a global pandemic by the World Health Organization. Governments and municipalities around the world, including in the United States, have implemented extensive measures in an effort to control the spread of COVID-19, including travel restrictions, limitations on business activity, quarantines and shelter-in-place orders. Due to the COVID-19 pandemic and the uncertainty of the extent of the impacts, many of the estimates and assumptions required increased judgment and carry a higher degree of variability and volatility than they did prior to the pandemic. As events continue to evolve and additional information becomes available, these estimates may materially change in future periods.

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.

Marketable Securities—The Company considers highly liquid treasury notes, U.S. agency securities, corporate debt securities, money market funds and other funds with maturities of more than three months to be marketable securities. Securities with less than one year to maturity are included in short-term marketable securities, and all other securities are

9

classified as long-term marketable securities. The Company has a policy that generally requires its securities to be investment grade (i.e. rated ‘A+’ or higher by bond rating firms) with the objective of minimizing the potential risk of principal loss. The Company determines the classification of its marketable securities based on its investment strategy.

Marketable securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity, and it has an established history of holding investments to maturity. Held-to-maturity securities are stated at amortized cost and are periodically assessed for impairment. Amortized costs of debt securities are adjusted for amortization of premiums and accretion of discounts to maturity, and these adjustments are included in interest income.

Marketable securities are classified as available-for-sale when the Company has established a practice of selling investments prior to maturity, or if the Company does not have the intent to hold securities to maturity to allow flexibility in response to liquidity needs. In the event that the Company classifies its investments as available-for-sale, it will only return to classifying investments as held-to-maturity once it has reestablished a practice and intent of holding investments to maturity.

Available-for-sale securities are stated at fair value as of each balance sheet date and are periodically assessed for impairment. For the Company's available-for-sale securities, an investment is impaired if the fair value of the investment is less than its amortized cost basis. In assessing whether a credit loss exists, the Company compares the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. If the present value of expected cash flows is less than the amortized cost basis of the security, an allowance for credit loss is recorded as a component of other income (expense), net. Any remaining unrealized losses are recorded to other comprehensive income (loss). The Company determines any realized gains or losses on the sale of marketable securities on a specific identification method and records such gains and losses as a component of other income (expense), net. Amortization of premiums and accretion of discounts are included in interest income.

If the Company has the intent to sell an available-for-sale security in an unrealized loss position or it is more likely than not that it will be required to sell the security prior to recovery of its amortized cost basis, any previously recorded allowance is reversed and the entire difference between the amortized cost basis of the security and its fair value is recognized in the condensed consolidated statements of operations.

Allowance for Doubtful Accounts—The Company maintains an allowance for doubtful accounts receivable. The allowance reflects the Company's best estimate of probable losses associated with the accounts receivable balance. It is based upon historical experience and loss patterns, the number of days that billings are past due, an evaluation of the potential risk of loss associated with delinquent accounts based on the credit risk of those accounts, known delinquent accounts, as well as current conditions and reasonable and supportable economic forecasts. When new information becomes available that allows the Company to more accurately estimate the allowance, it makes an adjustment, which is considered a change in accounting estimate. The carrying value of accounts receivable approximates their fair value.

Goodwill—Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired. The carrying amount of goodwill is reviewed at least annually, or more frequently if events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable. The Company has the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company determines that it is more likely than not that its fair value is less than the carrying amount, or opts not to perform a qualitative assessment, then the Company will compare the 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 carrying value of goodwill will be written down to fair value. No impairment charges associated with goodwill have been recorded by the Company to date.

Stock-Based Compensation—The Company accounts for stock-based employee compensation plans under the fair value recognition and measurement provisions, which require all stock-based payments to employees, including grants of stock options, restricted stock awards, restricted stock units ("RSUs"), performance-based restricted stock units ("PRSUs") and issuances under its 2012 Employee Stock Purchase Plan, as amended ("ESPP"), to be measured based on the grant-date fair value of the awards. The Company accounts for forfeitures as they occur.

The fair value of options granted to employees is estimated on the grant date using the Black-Scholes-Merton option valuation model. This valuation model for stock-based compensation expense requires the Company to make assumptions and judgments about the variables used in the calculation, including the expected term (weighted-average period of time that the options granted are expected to be outstanding), the expected volatility in the fair market value of the Company’s common stock, a risk-free interest rate and expected dividends. No compensation cost is recorded for options that do not vest. The Company uses the simplified calculation of expected life as the contractual term for options of 10 years is longer than the Company has been publicly traded. Expected volatility is based on an average of the historical volatilities of the common stock of several entities with characteristics similar to those of the Company. The risk-free rate is based on the U.S. Treasury yield

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curve in effect at the time of grant for periods corresponding with the expected life of the option. The Company uses the straight-line method for expense attribution.

The fair value of RSUs is measured using the closing price of the Company's common stock on the New York Stock Exchange on the grant date. The Company uses the straight-line method for expense attribution. No compensation cost is recorded for RSUs that do not vest. In May 2020, the Company changed its method of settling the employee tax liabilities associated with the vesting of RSUs from withholding a portion of the vested shares and covering such taxes with cash from its balance sheet ("Net Share Withholding"), to selling a portion of the vested shares to cover taxes ("Sell-to-Cover").

The Company has two types of PRSUs outstanding — awards for which the vesting is subject to both a time-based vesting schedule and either (a) a market condition or (b) the achievement of performance goals.

For the awards subject to a market condition, the Company uses a Monte Carlo model to determine the fair value of the PRSUs. The Company uses the accelerated method for expense attribution. Compensation costs are recorded if the service condition is met regardless of whether the market performance condition is satisfied. No compensation cost is recorded if the service condition is not met.

For the awards subject to performance goals, compensation costs are recorded when the Company concludes that it is probable that the performance conditions will be achieved. The Company performs an analysis in each reporting period to determine the probability that the performance goals will be met, and recognizes a cumulative catch-up adjustment to compensation cost for changes in its probability assessment in subsequent reporting periods, if required, until the performance period has expired. The fair value of the PRSUs is measured using the closing price of the Company's common stock on the New York Stock Exchange on the grant date. The Company uses the accelerated method for expense attribution. No compensation cost is recorded if the service condition is not met.

Recently Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2016-13, "Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13"). ASU 2016-13 requires certain types of financial instruments, including trade receivables and held-to-maturity investments measured at amortized cost, to be presented as the net amount expected to be collected based on historical events, current conditions and forecast information. The Company adopted and began applying ASU 2016-13 on January 1, 2020 by recording a cumulative-effect adjustment to retained earnings. This adjustment recorded an allowance related to expected credit losses on the Company's held-to-maturity debt securities, which was subsequently reversed upon its change in investment strategy in March 2020. This allowance took into consideration the composition and credit quality of the financial instruments, their respective historical credit loss activity, and reasonable and supportable economic forecasts and conditions at the time of adoption. The adoption did not have a material impact on the Company's 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"). ASU 2017-04 simplified the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the new standard, entities perform goodwill impairment tests by comparing the 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 Company adopted ASU 2017-04 on January 1, 2020 and the adoption did not 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 amended Accounting Standards Codification 820, "Fair Value Measurement." ASU 2018-13 modified the disclosure requirements for fair value measurements by removing, modifying and adding certain disclosures. The Company adopted ASU 2018-13 on January 1, 2020 and the adoption did not 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"). ASU 2018-15 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 which to recognize as assets. 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. The Company adopted ASU 2018-15 prospectively and began applying it on January 1, 2020. The adoption did not have a material impact on the Company's financial statements.

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Recent Accounting Pronouncements Not Yet Effective

In December 2019, the FASB issued Accounting Standards Update No. 2019-12, Income Taxes (Topic 740): "Simplifying the Accounting for Income Taxes" ("ASU 2019-12"), which simplifies the accounting for income taxes by removing certain exceptions to the general principles for recording income taxes, while also simplifying certain recognition and allocation approaches to accounting for income taxes. ASU 2019-12 will be effective for the first interim period within annual periods beginning after December 15, 2020 on a prospective basis, and early adoption is permitted. The Company is currently evaluating the impact of ASU 2019-12 on its consolidated financial statements and related disclosures.

2. CASH, CASH EQUIVALENTS AND RESTRICTED CASH

Cash, cash equivalents and restricted cash as of September 30, 2020 and December 31, 2019 consisted of the following (in thousands):

	September 30, 2020		December 31, 2019
Cash	$	80,698	$	43,581
Cash equivalents	510,091		126,700
Total cash and cash equivalents	$	590,789	$	170,281
Restricted cash	826		22,037
Total cash, cash equivalents and restricted cash	$	591,615	$	192,318

The increase in cash equivalents during the nine months ended September 30, 2020 was primarily driven by the Company's change in its investment strategy to preserve liquidity as a result of COVID-19. During the six months ended June 30, 2020, the Company sold securities prior to maturity for proceeds of $253.4 million and reinvested these funds along with $73.0 million from maturities and redemptions into money market funds, which are recorded as cash equivalents. See Note 4, "Marketable Securities" for further details.

As of December 31, 2019, the Company had letters of credit collateralized fully by bank deposits that totaled $22.0 million. These letters of credit primarily related to lease agreements for certain of the Company’s offices, which were required to be maintained and issued to the landlords of each facility. Each letter of credit was subject to renewal annually until the applicable lease expires. As the bank deposits had restrictions on their use, they were classified as restricted cash on the Company's condensed consolidated balance sheet.

In May 2020, the Company moved approximately $21.5 million of these letters of credit under a sub-limit included in its credit agreement with Wells Fargo Bank, National Association, which it entered into on May 5, 2020 (the "Credit Agreement"). Following this transfer, the restrictions on the Company's use of the bank deposits previously used to collateralize its letters of credit were lifted and, as a result, such funds are no longer classified as restricted cash. See Note 12, "Commitments and Contingencies" for further details on the Credit Agreement.

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.

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. Prior to their sale during the six months ended June 30, 2020, the Company's commercial paper, corporate bonds, U.S. government bonds and agency bonds were classified within Level 2 of the fair value hierarchy because they were valued using inputs other than quoted prices in active markets that are observable directly or indirectly. See Note 4, "Marketable Securities" for further details.

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The Company's long-lived and indefinite-lived assets such as property, equipment and software, goodwill and other intangible assets are measured at fair value on a non-recurring basis if the assets are determined to be impaired. The Company recognized an immaterial impairment charge related to its intangible assets during the three months ended March 31, 2020. See Note 7, "Goodwill and Intangible Assets" for further details. The Company estimated the fair value of these intangible assets using an income approach that relied on assumptions made by management using both internal and external data; as a result, these intangible assets are classified within Level 3 of the fair value hierarchy.

The following table represents the fair value of the Company’s financial instruments, including those measured at fair value on a recurring basis, as of September 30, 2020 and December 31, 2019 as well as those held-to-maturity as of December 31, 2019 (in thousands):

	September 30, 2020								December 31, 2019
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	510,091	$	—	$	—	$	510,091	$	126,700	$	—	$	—	$	126,700
Marketable securities:
Commercial paper	—		—		—		—		—		130,472		—		130,472
Corporate bonds	—		—		—		—		—		85,611		—		85,611
Agency bonds	—		—		—		—		—		79,750		—		79,750
Total cash equivalents and marketable securities	$	510,091	$	—	$	—	$	510,091	$	126,700	$	295,833	$	—	$	422,533

4. MARKETABLE SECURITIES

In March 2020, the Company changed its investment strategy in response to uncertainties resulting from the COVID-19 pandemic to allow for more flexibility in preserving liquidity. As a result of this change, the classification of the Company's investments changed from held-to-maturity to available-for-sale. The amortized cost of marketable securities transferred from held-to-maturity to available-for-sale was $300.2 million. As a result of the transfer, the Company reversed the allowance for credit loss that had been previously recorded upon adoption of ASU 2016-13 and measured the securities at fair value as of the transfer date by recording an immaterial allowance for credit loss to other income, net and the remaining adjustment as an immaterial unrealized loss recorded to other comprehensive income.

As a result of its change in investment strategy, the Company liquidated its investment portfolio, which consisted of available-for-sale short- and long-term marketable securities, for proceeds of $253.4 million during the six months ended June 30, 2020. The Company recorded an immaterial amount of net realized gains to other income, net and reinvested the proceeds from the sales, along with $73.0 million from maturities and redemptions of marketable securities, into money market funds.

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

	December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Short-term marketable securities:
Commercial paper	$	130,464	$	17	$	(9)	$	130,472
Corporate bonds	85,396		225		(10)		85,611
Agency bonds	26,140		90		—		26,230
Total short-term marketable securities	242,000		332		(19)		242,313
Long-term marketable securities:
Agency bonds	53,499		21		—		53,520
Total long-term marketable securities	53,499		21		—		53,520
Total marketable securities	$	295,499	$	353	$	(19)	$	295,833

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The Company did not have any securities that were in an unrealized loss position as of September 30, 2020 due to the liquidation of its investment portfolio. The following table presents gross unrealized losses and fair values for those securities that were in an unrealized loss position as of December 31, 2019, aggregated by investment category and the length of time that the individual securities had been in a continuous loss position (in thousands):

	December 31, 2019
	Less Than 12 Months				12 Months or Greater				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Commercial paper	$	63,639	$	(9)	$	—	$	—	$	63,639	$	(9)
Corporate bonds	20,979		(10)		—		—		20,979		(10)
Total	$	84,618	$	(19)	$	—	$	—	$	84,618	$	(19)

Prior to the adoption of ASU 2016-13, the Company periodically reviewed its investment portfolio for other-than-temporary impairment. The Company considered such factors as the duration, severity and reason for the decline in value, and the potential recovery period. The Company also considered whether it was more likely than not that it would be required to sell the securities before the recovery of their amortized cost basis, and whether the amortized cost basis could not be recovered as a result of credit losses. During the three and nine months ended September 30, 2019, the Company did not recognize any other-than-temporary impairment loss.

5. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets as of September 30, 2020 and December 31, 2019 consisted of the following (in thousands):

	September 30, 2020		December 31, 2019
Prepaid expenses	$	9,612	$	10,188
Other current assets	8,978		4,008
Total prepaid expenses and other current assets	$	18,590	$	14,196

As of September 30, 2020, other current assets consisted primarily of $4.7 million of income tax and payroll tax receivables.

6. PROPERTY, EQUIPMENT AND SOFTWARE, NET

Property, equipment and software, net as of September 30, 2020 and December 31, 2019 consisted of the following (in thousands):

	September 30, 2020		December 31, 2019
Capitalized website and internal-use software development costs	$	164,488	$	140,886
Leasehold improvements	88,436		86,089
Computer equipment	46,049		43,626
Furniture and fixtures	18,271		18,403
Telecommunication	4,956		5,154
Software	1,687		1,687
Total	323,887		295,845
Less accumulated depreciation	(218,399)		(184,896)
Property, equipment and software, net	$	105,488	$	110,949

Depreciation expense was $11.9 million and $11.6 million for the three months ended September 30, 2020 and 2019, respectively, and $35.6 million and $33.9 million for the nine months ended September 30, 2020 and 2019, respectively.

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7. GOODWILL AND INTANGIBLE ASSETS

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 acquired and liabilities assumed. The Company performed its annual goodwill impairment analysis as of August 31, 2020 and concluded that goodwill was not impaired, as the fair value of the reporting unit exceeded its carrying value.

The changes in carrying amount of goodwill during the nine months ended September 30, 2020 were as follows (in thousands):

Balance as of December 31, 2019	$	104,589
Effect of currency translation	2,183
Balance as of September 30, 2020	$	106,772

Intangible assets at September 30, 2020 and December 31, 2019 consisted of the following (dollars in thousands):

	September 30, 2020
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Remaining Life
Business relationships	$	9,918	$	(3,571)	$	6,347	8.0	years
Developed technology	7,709		(5,934)		1,775		1.5	years
Licensing agreements	6,129		(54)		6,075		9.4	years
Content	3,938		(3,938)		—		0.0	years
Domains and data licenses	2,869		(2,826)		43		2.0	years
Trademarks	877		(877)		—		0.0	years
User relationships	146		(146)		—		0.0	years
Total	$	31,586	$	(17,346)	$	14,240

	December 31, 2019
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Remaining Life
Business relationships	$	9,918	$	(2,841)	$	7,077	8.6	years
Developed technology	7,832		(4,959)		2,873		2.2	years
Content	3,814		(3,814)		—		0.0	years
Domain and data licenses	2,869		(2,748)		121		1.7	years
Trademarks	877		(872)		5		0.2	years
User relationships	146		(140)		6		0.2	years
Total	$	25,456	$	(15,374)	$	10,082

During the three months ended September 30, 2020, the Company recorded an intangible asset of $6.1 million related to a licensing agreement that was entered into with a third party. The Company accounted for this transaction as an asset acquisition of an intangible asset and will amortize the licensing agreement on a straight-line basis over its estimated useful life of 9.5 years.

Amortization expense was $0.6 million and $0.8 million for the three months ended September 30, 2020 and 2019, respectively, and $1.8 million and $2.6 million for the nine months ended September 30, 2020 and 2019, respectively.

No impairment charge was recorded during the three months ended September 30, 2020. The Company recorded an immaterial impairment charge related to developed technology during the three months ended March 31, 2020. No changes to the useful lives of any intangible assets were made.

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As of September 30, 2020, the estimated future amortization of purchased intangible assets for (i) the remaining three months of 2020, (ii) each of the succeeding five years, and (iii) thereafter was as follows (in thousands):    

Year Ending December 31,	Amount
2020 (from October 1, 2020)	$	719
2021	2,848
2022	1,676
2023	1,359
2024	1,353
2025	1,353
Thereafter	4,932
Total amortization	$	14,240

8. LEASES

The components of lease cost, net for the three and nine months ended September 30, 2020 and 2019 were as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Operating lease cost	$	13,714	$	13,544	$	41,512	$	40,878
Short-term lease cost (12 months or less)	369		291		1,070		938
Sublease income	(1,954)		(1,475)		(5,868)		(2,764)
Total lease cost, net	$	12,129	$	12,360	$	36,714	$	39,052

The Company's leases and subleases do not include any variable lease payments, residual value guarantees, related-party leases, or restrictions or covenants that would limit or prevent the Company's right to obtain substantially all of the economic benefits from use of the respective assets during the lease term.

The Company has subleased certain office facilities under operating lease agreements that expire in 2025. The sublease agreements do not contain any options to renew. The Company recognizes a majority of the sublease rental income as a reduction in rent expense on a straight-line basis over the lease period, with any sublease income in excess of the original lease cost recorded to other income, net.

Supplemental cash flow information related to leases for the nine months ended September 30, 2020 and 2019 was as follows (in thousands):

	September 30, 2020		September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	44,181	$	42,323

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As of September 30, 2020, maturities of lease liabilities for (i) the remaining three months of 2020, (ii) each of the succeeding five years, and (iii) thereafter were as follows (in thousands):

Year Ending December 31,	Operating Leases
2020 (from October 1, 2020)	$	14,858
2021	52,067
2022	46,400
2023	43,495
2024	41,263
2025	22,316
Thereafter	24,009
Total minimum lease payments	244,408
Less imputed interest	(34,715)
Present value of lease liabilities	$	209,693

As of September 30, 2020 and December 31, 2019, the weighted-average remaining lease terms and weighted-average discount rates were as follows:

	September 30, 2020	December 31, 2019
Weighted-average remaining lease term (years) — operating leases