YELP INC

12. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

CIPA Action

On October 12, 2016, a putative class action lawsuit asserting claims under the California Invasion of Privacy Act was filed against the Company (the “CIPA Action”) in the Superior Court of California for the County of San Francisco (the “Superior Court”), in which the plaintiff sought statutory damages and other relief based on alleged unlawful call recording. The Company filed a motion for summary judgment on the basis that it had never recorded the plaintiff, which the Superior Court granted. The plaintiff appealed and, in October 2020, the California Court of Appeal for the First District (the “Court of Appeal”) reversed the decision of the Superior Court, holding that the recording of only the Company’s consenting sales representatives could violate CIPA, even if the plaintiff was not recorded. The California Supreme Court subsequently denied review of the Court of Appeal’s decision and the case was remanded to the Superior Court. On January 18, 2023, the Superior Court granted the plaintiffs’ motion for class certification. In February 2023, the Company filed a petition for a writ with the Court of Appeal seeking reversal of the Superior Court’s class certification decision. The Court of Appeal summarily denied the writ petition on May 25, 2023, following which the Company filed a petition with the California Supreme Court on June 2, 2023 seeking an order directing the Court of Appeal to review the merits of the Company’s writ petition. On July 17, 2023, the Company reached a preliminary agreement with the plaintiffs to settle the CIPA Action for $15.0 million, which payment the Company expected to be partially funded by insurance proceeds. The parties executed a settlement agreement, which the plaintiff presented to the Superior Court for approval. On April 10, 2024, the Superior Court granted final approval of the settlement, which resolved all claims asserted against the Company in the CIPA Action without any liability or wrongdoing attributed to it.

The Company assesses, in conjunction with its legal counsel, the need to record a liability for litigation and contingencies, which it will accrue when it believes a loss is probable and the amount can be reasonably estimated. As of March 31, 2024, the Company believed the loss was probable and the payment amount of $15.0 million represented a reasonable estimate of loss contingency. The Company recorded a $4.0 million accrual for loss contingency related to the CIPA Action as of December 31, 2022 and an additional accrual of $11.0 million during 2023, resulting in a $15.0 million accrual for loss contingency within accounts payable and accrued liabilities on the Company’s condensed consolidated balance sheet as of March 31, 2024. The accrual for loss contingency was released upon the settlement payment of $15.0 million in the three months ended June 30, 2024. The receivable for loss recovery that was recorded in 2023 for the anticipated insurance proceeds of $3.9 million was released upon receipt of the proceeds on January 18, 2024.

Other Legal Proceedings

The Company is subject to other legal proceedings arising in the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty, the Company currently does not believe that the final outcome of any of these other matters will have a material effect on the Company’s business, financial position, results of operations or cash flows.

Indemnification Agreements

In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of the breach of such agreements, services to be provided by the Company or from intellectual property infringement claims made by third parties.

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

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

Revolving Credit Facility

On April 28, 2023, the Company entered into a Revolving Credit and Guaranty Agreement with certain lenders and JPMorgan Chase Bank, N.A., as administrative and collateral agent, which provides for afive-year $125.0 million senior secured revolving credit facility (the “2023 credit facility”). The 2023 credit facility replaced the Company’s previous $75.0 million revolving credit facility entered into on May 5, 2020 with Wells Fargo Bank, N.A. (the “2020 credit facility”), which terminated concurrently with the establishment of the 2023 credit facility. The 2023 credit facility includes a letter of credit sub-limit of $25.0 million, a bilateral letter of credit facility of $25.0 million and an accordion option, which, if exercised, would allow the Company to increase the aggregate commitments by up to $250.0 million, plus additional amounts if the Company is able to satisfy a leverage test, subject to certain conditions. The commitments under the 2023 credit facility expire on April 28, 2028.

Loans under the 2023 credit facility bear interest, at the Company’s election, at either (a) an adjusted term Secured Overnight Financing Rate plus 0.10% plus a margin of 1.25% -1.50%, depending on the Company’s total leverage ratio, or (b) an alternative base rate plus a margin of 0.25% -0.50%, depending on the Company’s total leverage ratio. The Company is required to pay a commitment fee on the undrawn portion of the aggregate commitments that accrues at 0.20% -0.25% per annum, depending on the Company’s total leverage ratio, as well as a letter of credit fee on any outstanding letters of credit that accrues at 1.25% -1.50% per annum, depending on the Company’s total leverage ratio.

The 2023 credit facility contains customary conditions to borrowing, events of default and covenants, including covenants that restrict the Company’s ability to incur indebtedness, grant liens, make distributions, pay dividends, repurchase shares, make investments and engage in transactions with the Company’s affiliates, in each case subject to certain exceptions. The 2023 credit facility also requires the Company to maintain a total leverage ratio of no greater than 3.75 to 1.00, subject to an increase up to 4.25 to 1.00 for a certain period following significant acquisitions, and an interest coverage ratio of no less than 3.00 to 1.00. The obligations under the 2023 credit facility are secured by liens on substantially all of the Company’s domestic assets, including certain domestic intellectual property assets and the equity of its domestic subsidiaries, as well as a portion of the equity interests the Company holds directly in its foreign subsidiaries.

As of September 30, 2024, the Company had $14.0 million of letters of credit outstanding under the 2023 credit facility sub-limit, which were moved from the 2020 credit facility. The letters of credit are primarily related to lease agreements for certain office locations and are required to be maintained and issued to the landlords of each facility. No loans were outstanding under the 2023 credit facility and the Company was in compliance with all conditions and covenants thereunder as of September 30, 2024.

13. STOCKHOLDERS’ EQUITY

The following table presents the number of shares authorized and issued as of September 30, 2024 and December 31, 2023 (in thousands):

Stock Repurchase Program

As of September 30, 2024, the Company’s board of directors had authorized the Company to repurchase up to an aggregate of $1.95 billion of its outstanding common stock, $393.3 million of which remained available as of September 30, 2024. The Company may purchase shares at management’s discretion in the open market, in privately negotiated transactions, in transactions structured through investment banking institutions or a combination of the foregoing.

During the nine months ended September 30, 2024, the Company repurchased on the open market 4,979,329 shares for an aggregate purchase price of $188.4 million and retired 4,895,875 shares. As of September 30, 2024, the Company had a treasury stock balance of 83,454 shares, which were excluded from its outstanding share count as of such date and subsequently retired in October 2024.

During the nine months ended September 30, 2023, the Company repurchased on the open market and subsequently retired 4,481,278 shares for an aggregate purchase price of $150.0 million. Although there wereno shares of treasury stock as of September 30, 2023, the treasury stock balance included animmaterial amount of excise tax imposed by the Inflation Reduction Act of 2022 on stock repurchases, net of shares issued, during the nine months then ended.

Equity Incentive Plans

Stock Options

A summary of stock option activity for the nine months ended September 30, 2024 is as follows:

Aggregate intrinsic value represents the difference between the closing price of the Company’s common stock as quoted on the New York Stock Exchange on a given date and the exercise price of outstanding, in-the-money options. The total intrinsic value of options exercised waszero and $0.6 million for the three months ended September 30, 2024 and 2023, respectively, and $0.3 million and $6.1 million for the nine months ended September 30, 2024 and 2023, respectively.

There wereno options granted during the nine months ended September 30, 2024 and 2023.

As of September 30, 2024, total unrecognized compensation costs related to nonvested stock options were approximately $0.3 million, which the Company expects to recognize over a weighted-average time period of 0.9 years.

RSUs

RSUs include PRSUs that are subject to either (a) a market condition or (b) the achievement of performance goals. As the PRSU activity during the nine months ended September 30, 2024 was not material, it is presented together with the RSU activity in the table below. A summary of RSU and PRSU activity for the nine months ended September 30, 2024 is as follows (in thousands, except per share amounts):

(1)Includes 1,606,914 shares that vested but were not issued due to the Company’s use of net share settlement for payment of employee taxes.

(2)Includes 875,846 PRSUs.

The aggregate fair value as of the vest date of RSUs and PRSUs that vested during the nine months ended September 30, 2024 and 2023 was $139.8 million and $147.9 million, respectively. As of September 30, 2024, the Company had approximately $245.3 million of unrecognized stock-based compensation expense related to RSUs and PRSUs, which it expects to recognize over the remaining weighted-average vesting period of approximately 2.0 years.

Employee Stock Purchase Plan

There were 387,968 shares purchased by employees under the Employee Stock Purchase Plan (“ESPP”) at a weighted-average purchase price per share of $31.42 during the nine months ended September 30, 2024, andno shares were purchased by employees under the ESPP during the three months ended September 30, 2024. There were 2,295 and 382,627 shares purchased by employees under the ESPP at a weighted-average purchase price per share of $28.48 and $28.69 during the three and nine months ended September 30, 2023, respectively. The Company recognized stock-based compensation expense related to the ESPP of $0.8 million and $0.9 million during the three months ended September 30, 2024 and 2023, respectively, and $2.8 million and $2.7 million during the nine months ended September 30, 2024 and 2023, respectively.

Stock-Based Compensation

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

The Company capitalized $3.3 million and $2.2 million of stock-based compensation expense as website and internal-use software development costs and, to a lesser extent, implementation costs incurred related to cloud computing arrangements that are service contracts in the three months ended September 30, 2024 and 2023, respectively, and $9.2 million and $7.5 million in the nine months ended September 30, 2024 and 2023, respectively.

14. OTHER INCOME, NET

Other income, net for the three and nine months ended September 30, 2024 and 2023 consisted of the following (in thousands):

(1)Represents the release of a reserve related to a one-time payroll tax credit.

15. INCOME TAXES

The Company is subject to income taxes in the United States as well as other tax jurisdictions in which it conducts business. Earnings from non-U.S. activities are subject to local country income taxes. The provision for income taxes for the nine months ended September 30, 2024 was $32.3 million, which was due to $33.0 million of U.S. federal, state and foreign income tax expense, partially offset by $0.7 million of net discrete tax benefit primarily related to stock-based compensation. The benefit from income taxes for the nine months ended September 30, 2023 was $0.5 million, which was due to $20.1 million of net discrete tax benefit primarily related to: the 2022 federal and state tax provision to return adjustments, which mainly resulted from the release of Internal Revenue Service guidance related to the requirement to capitalize and amortize certain research and development expenses under the U.S. Tax Cuts and Jobs Act; a one-time litigation settlement loss contingency in connection with the agreement to settle the CIPA Action as detailed in Note 12, “Commitments and Contingencies”; and the tax benefit related to stock-based compensation. These tax benefits were partially offset by $19.6 million of U.S. federal, state and foreign income tax expense.

Accounting for income taxes for interim periods generally requires the provision for income taxes to be determined byapplying an estimate of the annual effective tax rate for the full fiscal year to income or loss before income taxes, excluding unusual or infrequently occurring discrete items, for the reporting period. For the three and nine months ended September 30, 2024, the difference between the effective tax rate and the federal statutory tax rate primarily related to tax credits, offset by stock-based compensation and other non-deductible expenses. For the three and nine months ended September 30, 2023, the difference between the effective tax rate and the federal statutory tax rate primarily related to tax credits, offset by stock-based compensation.

As of September 30, 2024, the Company had $38.7 million of unrecognized tax benefits that, if recognized, would affect the Company’s effective tax rate.

As of September 30, 2024, the Company estimated that it had accumulated undistributed earnings generated by its foreign subsidiaries of approximately $35.9 million. Any taxes due with respect to such earnings or the excess of the amount for financial reporting over the tax basis of the Company’s foreign investments would generally be limited to foreign and state taxes. The Company has not recognized a deferredtax liability related to unremitted foreign earnings, as it intends to indefinitely reinvest these earnings, and expects future U.S. cash generation to be sufficient to meet future U.S. cash needs.

In addition, the Company is subject to the continuous examination of its income tax returns by the Internal Revenue Service and other tax authorities. The Company’s federal and state income tax returns for tax years subsequent to 2003 remain open to examination. In the Company’s foreign jurisdictions — Canada, Germany, Ireland and the United Kingdom — the tax years subsequent to 2018 remain open to examination. The Company regularly assesses the likelihood of adverse outcomes resulting from examinations to determine the adequacy of its provision for income taxes and monitors the progress of ongoing discussions with tax authorities and the impact, if any, of the expected expiration of the statute of limitations in various taxing jurisdictions. The Company believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company’s tax audits are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs. As of September 30, 2024, although the timing of the resolution or closure of audits is not certain, the Company believes it is reasonably possible that unrecognized tax benefits willnot be reduced within the next 12 months.

16. NET INCOME PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS

Basic net income (loss) per share attributable to common stockholders is computed using the weighted-average number of outstanding shares of common stock during the period. Diluted net income (loss) per share attributable to common stockholders is computed using the weighted-average number of outstanding shares of common stock and the effect of potentially dilutive securities outstanding during the period. Potentially dilutive securities include stock options, RSUs (including PRSUs) and, to a lesser extent, ESPP shares. If dilutive, such potentially dilutive securities are reflected in net income (loss) per share attributable to common stockholders using the treasury stock method.

The following tables present the calculation of basic and diluted net income per share attributable to common stockholders for the periods presented (in thousands, except per share data):

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

17. INFORMATION ABOUT REVENUE AND GEOGRAPHIC AREAS

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

The Company has determined that it has a single operating and reporting segment. When the Company communicates results externally, it disaggregates net revenue into major product lines and primary geographical markets, which is based on the billing address of the customer. The disaggregation of net revenue by major product lines is based on the type of service provided and also aligns with the timing of revenue recognition for each. To reflect the Company’s strategic focus on creating differentiated experiences for its Services categories and Restaurants, Retail & Other categories, the Company further disaggregates advertising revenue to reflect these two high-level category groupings. The Services categories consist of the following businesses: home, local, auto, professional, pets, events, real estate and financial services. The Restaurants, Retail & Other categories consist of the following businesses: restaurants, shopping, beauty & fitness, health and other.

Net Revenue

The following table presents the Company’s net revenue by major product line (and by category for advertising revenue) for the periods presented (in thousands):

(1)For the three and nine months ended September 30, 2024, other revenue includes revenue generated from transactions with consumers, which the Company reported separately as transactions revenue in prior periods. Prior-period amounts in the table above have been reclassified to conform to the current-period presentation.

During the three and nine months ended September 30, 2024 and 2023, no individual customer accounted for 10% or more of consolidated net revenue.

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

Long-Lived Assets

The following table presents the Company’s long-lived assets by major geographic region as of September 30, 2024 and December 31, 2023 (in thousands):

18. SUBSEQUENT EVENTS

On November 6, 2024, the Company and Rollins Merger Sub, Inc., a wholly owned subsidiary of the Company (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with auto services platform RepairPal, Inc. (“RepairPal”) and Fortis Advisors LLC, solely in its capacity as the securityholders’ representative.

Pursuant to the Merger Agreement, and upon the terms and subject to the conditions therein, Merger Sub will merge with and into RepairPal, with RepairPal continuing as the surviving corporation and a wholly owned subsidiary of the Company (the “Merger”). Upon consummation of the Merger, all outstanding capital stock and options and warrants to purchase capital stock of RepairPal will be converted into the right to receive an aggregate of $80 million in cash, subject to customary post-closing adjustments based on net working capital, indebtedness and third-party expenses. Of such amount, the following amounts will be held back to secure the Company’s right of indemnity under the Merger Agreement: (1) $8 million will be held back for a 15-month period after closing; (2) $2 million will be held back for a 24-month period after closing; and (3) $3.5 million will be held back until 30 days following the final, non-appealable resolution of certain legal matters. The Company will retain such holdback amounts, which will be classified as restricted cash.

Subject to customary closing conditions, the Company expects to close the Merger by the end of 2024.

The Company is currently in the process of valuing the assets expected to be acquired and liabilities expected to be assumed in its acquisition of RepairPal, which it expects to reflect in its financial statements for the year ending December 31, 2024.

The Company believes its acquisition of RepairPal will accelerate its efforts in Services by expanding its offerings in the auto services advertising vertical.