Yelp Reports Third Quarter 2018 Financial Results

Business Wire 8-Nov-2018 4:05 PM

Reports Net Revenue of $241 Million, Net Income of $15 Million and Adjusted EBITDA of $50 Million

Yelp Inc. (NYSE:YELP), the company that connects people with great local businesses, today posted its financial results for the quarter ended September 30, 2018 in the Q3 2018 Shareholder Letter on its Investor Relations website at www.yelp-ir.com.

"Although we achieved our adjusted EBITDA outlook for the third quarter, revenue was lower than we anticipated," said Jeremy Stoppelman, Yelp's co-founder and chief executive officer. "While the shift to non-term advertising has opened our sales funnel, it has also made our results more sensitive to short-term operational issues. We have begun to address a number of the issues that impacted our third quarter results; however, we expect them to affect our fourth quarter results as well, as reflected in our Business Outlook. We remain positive about the move to more flexible and dynamic advertising terms, as we believe the shift greatly increases our long-term sales opportunity and opens up additional levers to expand Yelp's sales reach and profit margins."

Quarterly Conference Call

Yelp will host a live Q&A session today at 2:00 p.m. PT to discuss the third quarter 2018 financial results and the outlook for the fourth quarter of 2018, full year 2018, and full year 2019. The webcast of the Q&A can be accessed on the Yelp Investor Relations website at www.yelp-ir.com. A replay of the webcast will be available at the same website until November 16, 2018.

About Yelp

Yelp Inc. (www.yelp.com) connects people with great local businesses. With unmatched local business information, photos and review content, Yelp provides a platform for consumers to discover, interact and transact with local businesses of all sizes. Yelp was founded in San Francisco in July 2004.

Yelp intends to make future announcements of material financial and other information through its Investor Relations website. Yelp will also, from time to time, disclose this information through press releases, filings with the Securities and Exchange Commission, conference calls or webcasts, as required by applicable law.

Non-GAAP Financial Measures

This press release and statements made during the above referenced webcast may include information relating to EBITDA, Adjusted EBITDA and Adjusted EBITDA margin, each of which the Securities and Exchange Commission has defined as a "non-GAAP financial measure."

We define EBITDA as net income (loss), adjusted to exclude: provision for (benefit from) income taxes; other income, net; and depreciation and amortization.

We define Adjusted EBITDA as net income (loss), adjusted to exclude: provision for (benefit from) income taxes; other income, net; depreciation and amortization; stock-based compensation expense; any gain (loss) on the disposal of a business unit; and restructuring and integration costs. We define Adjusted EBITDA margin as Adjusted EBITDA divided by net revenue.

EBITDA, Adjusted EBITDA and Adjusted EBITDA margin are key measures used by Yelp management and the board of directors to understand and evaluate core operating performance and trends, to prepare and approve Yelp's annual budget and to develop short- and long-term operational plans. The presentation of this financial information, which is not prepared under any comprehensive set of accounting rules or principles, is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with generally accepted accounting principles in the United States ("GAAP").

EBITDA and Adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of Yelp's financial results as reported under GAAP. Some of these limitations are:

  • although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
  • EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, Yelp's working capital needs;
  • Adjusted EBITDA does not consider the potentially dilutive impact of equity-based compensation;
  • EBITDA and Adjusted EBITDA do not reflect tax payments that may represent a reduction in cash available to Yelp;
  • Adjusted EBITDA does not take into account any restructuring and integration costs; and
  • other companies, including those in Yelp's industry, may calculate EBITDA and Adjusted EBITDA differently, which reduces their usefulness as comparative measures.

Because of these limitations, you should consider EBITDA, Adjusted EBITDA and Adjusted EBITDA margin alongside other financial performance measures, including various cash flow metrics, Net income (loss) and Yelp's other GAAP results.

Forward-Looking Statements

This press release contains forward-looking statements relating to, among other things, Yelp's future performance that are based on its current expectations, forecasts and assumptions and that involve risks and uncertainties. These statements include, but are not limited to, statements regarding Yelp's:

  • ability to increase client acquisition through the sale of non-term contracts;
  • strategic and investment priorities, as well as its ability to execute against those priorities;
  • Plans to increase its focus on different product distribution channels;
  • ability to reduce purchase friction and efficiently expand its sales reach; and
  • plans and ability to generate stronger profitability.

Yelp's actual results could differ materially from those predicted or implied and reported results should not be considered as an indication of future performance. Factors that could cause or contribute to such differences include, but are not limited to Yelp's:

  • limited operating history in an evolving industry;
  • ability to generate sufficient revenue to maintain profitability, particularly in light of its significant ongoing sales and marketing expenses;
  • ability to generate and maintain sufficient high-quality content from its users; and
  • ability to maintain and expand its base of advertisers, particularly as an increasing portion of advertisers have the ability to cancel their advertising campaigns at any time.

Factors that could cause or contribute to such differences also include those factors that could affect Yelp's business, operating results and stock price included under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Yelp's most recent Annual Report on Form 10-K or Quarterly Report on Form 10-Q at www.yelp-ir.com or the SEC's website at www.sec.gov.

Undue reliance should not be placed on the forward-looking statements in this release, which are based on information available to Yelp on the date hereof. Such forward-looking statements do not include the potential impact of any acquisitions or divestitures that may be announced and/or completed after the date hereof. Yelp assumes no obligation to update such statements.

 
Yelp Inc.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
     
September 30, December 31,
  2018     2017  
Assets
Current assets:
Cash and cash equivalents $ 423,495 $ 547,850
Short-term marketable securities 414,002 273,366
Accounts receivable, net 81,835 76,173
Prepaid expenses and other current assets   17,567     15,700  
Total current assets 936,899 913,089
 
Long-term marketable securities - 25,032
Property, equipment and software, net 110,899 103,651
Goodwill 106,323 107,954
Intangibles, net 14,242 16,893
Restricted cash 22,121 18,554
Other non-current assets   42,773     40,428  
Total assets $ 1,233,257   $ 1,225,601  
 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 6,829 $ 9,033
Accrued liabilities 58,564 73,665
Deferred revenue   3,392     3,469  
Total current liabilities 68,785 86,167
Long-term liabilities   34,978     30,737  
Total liabilities   103,763     116,904  
 
Stockholders' equity
Common stock - -
Additional paid-in capital 1,109,199 1,038,017
Treasury stock - (46 )
Accumulated other comprehensive loss (10,225 ) (8,444 )
Retained earnings   30,520     79,170  
Total stockholders' equity   1,129,494     1,108,697  
Total liabilities and stockholders' equity $ 1,233,257   $ 1,225,601  
 

Yelp Inc.

Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

   
  Three Months Ended Nine Months Ended
September 30, September 30,
2018   2017 2018 2017
 
Net revenue $ 241,096 $ 223,287 $ 699,033 $ 631,406
 
Costs and expenses:
Cost of revenue(1) 14,177 19,312 43,618 54,282
Sales and marketing (1) 121,759 112,958 362,054 326,409
Product development (1) 53,764 45,834 158,046 127,793
General and administrative (1) 30,302 27,601 90,892 81,808
Depreciation and amortization 10,713 10,656 31,250 31,470
Restructuring and integration - 35 - 286
       
Total costs and expenses   230,715   216,396     685,860   622,048  
Income from operations 10,381 6,891 13,173 9,358
Other income, net   3,921   1,371     9,950   2,933  
Income before income taxes 14,302 8,262 23,123 12,291
Benefit from (provision for) income taxes   684   (232 )   281   (417 )
Net income attributable to common stockholders $ 14,986 $ 8,030   $ 23,404 $ 11,874  
 
Net income per share attributable to common stockholders:
Basic $ 0.18 $ 0.10   $ 0.28 $ 0.15  
Diluted $ 0.17 $ 0.09   $ 0.26 $ 0.14  
 
Weighted-average shares used to compute net income per share attributable to common stockholders:
Basic   84,008   82,259     83,865   81,041  
Diluted   88,724   87,433     89,271   86,097  
 
 
(1) Includes stock-based compensation expense as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
2018 2017 2018 2017
Cost of revenue $ 1,162 $ 993 $ 3,345 $ 2,931
Sales and marketing 7,941 7,305 23,514 21,434
Product development 14,536 11,976 41,878 34,428
General and administrative   5,555   5,035     16,995   16,214  
Total stock-based compensation $ 29,194 $ 25,309   $ 85,732 $ 75,007  
 

Yelp Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

Nine Months Ended
September 30,
  2018       2017  
Operating activities
Net income attributable to common stockholders $ 23,404 $ 11,874
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 31,250 31,470
Bad debt expense 19,285 15,239
Stock-based compensation 85,732 75,007
Other adjustments (2,793 ) 280
 
Changes in operating assets and liabilities:
Accounts receivable (24,956 ) (19,810 )
Prepaid expenses and other assets (2,085 ) (2,077 )
Accounts payable, accrued expenses and other liabilities (13,647 ) 15,628
Deferred revenue   (75 )   350  
Net cash provided by operating activities   116,115     127,961  
 
Investing activities
Purchases of marketable securities (572,788 ) (179,557 )
Maturities of marketable securities 460,800 191,000
Acquisition of a business, net of cash received - (50,544 )
Purchases of property, equipment and software (18,699 ) (7,892 )
Capitalized website and software development costs (15,238 ) (12,236 )
Other investing activities   64     69  
Net cash used in investing activities   (145,861 )   (59,160 )
 
Financing activities
Proceeds from issuance of common stock for employee stock-based plans 21,835 29,556
Repurchases of common stock (71,993 ) (7,743 )
Taxes paid related to the net share settlement of equity awards   (41,081 )   -  
Net cash (used in) provided by financing activities   (91,239 )   21,813  
 
Effect of exchange rate changes on cash, cash equivalents and restricted cash 197 864
 
Change in cash, cash equivalents and restricted cash (120,788 ) 91,478
Cash, cash equivalents and restricted cash - Beginning of period   566,404     289,518  
Cash, cash equivalents and restricted cash - End of period $ 445,616   $ 380,996  
 
Yelp Inc.
Reconciliation of GAAP to Non-GAAP Financial Measures
(In thousands, except per share data)
(Unaudited)
           
Three Months Ended Nine Months Ended
September 30, September 30,
  2018     2017     2018     2017  
 
Reconciliation of GAAP net income to EBITDA and adjusted EBITDA:
 
GAAP net income $ 14,986 $ 8,030 $ 23,404 $ 11,874
(Benefit from) provision for income taxes (684 ) 232 (281 ) 417
Other income, net (3,921 ) (1,371 ) (9,950 ) (2,933 )
Depreciation and amortization   10,713     10,656     31,250     31,470  
EBITDA   21,094     17,547     44,423     40,828  
 
Stock-based compensation 29,194 25,309 85,732 75,007
Restructuring and integration costs   -     35     -     286  
Adjusted EBITDA $ 50,288   $ 42,891   $ 130,155   $ 116,121  
 
Net revenue $ 241,096 $ 223,287 $ 699,033 $ 631,406
Adjusted EBITDA margin

21%

 

19%

 

19%

 

18%

 

 

Yelp Inc.

Third Quarter Net Revenue Adjusted for Eat24

(In thousands)

(Unaudited)

       
Three Months Ended Nine Months Ended
September 30, September 30,
2018 2017 2018 2017
Net revenue as reported $ 241,096 $ 223,287 $ 699,033 $ 631,406
Eat24 revenue   -   (17,550 )   -   (52,079 )
Net revenue excluding Eat24 $ 241,096 $ 205,737   $ 699,033 $ 579,327  

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