ITEM 1. FINANCIAL STATEMENTS

See notes to condensed consolidated financial statements.

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(1) The structure of the Company’s common stock changed in the year ended December 31, 2016. Refer to Note 12 for details.

See notes to condensed consolidated financial statements.

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See notes to condensed consolidated financial statements.

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See notes to condensed consolidated financial statements.

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YELP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. DESCRIPTION OF BUSINESS AND BASIS FOR PRESENTATION

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

Yelp connects people with great local businesses by bringing “word of mouth” online and providing a platform for businesses and consumers to engage and transact. Yelp’s platform is transforming the way people discover local businesses; every day, millions of consumers visit its website or use its mobile app to find great local businesses to meet their everyday needs. Businesses of all sizes use the Yelp platform to engage with consumers at the critical moment when they are deciding where to spend their money.

Basis of Presentation

The accompanying interim condensed consolidated financial statements are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on March 1, 2017 (the “Annual Report”). The unaudited condensed consolidated balance sheet as of December 31, 2016 included herein was derived from the audited consolidated financial statements as of that date, but does not include all disclosures required by GAAP, including certain notes to the financial statements.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements.

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

Significant Accounting Policies

There have been no material changes to the Company’s significant accounting policies from those described in the Annual Report.

Recent Accounting Pronouncements Not Yet Effective

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

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

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

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

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

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

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.

The lease agreements for certain of the Company’s offices require the Company to maintain letters of credit issued to the landlords of each facility. Each letter of credit is subject to renewal annually until the applicable lease expires and is collateralized by restricted cash. As of June 30, 2017 and December 31, 2016, the Company had letters of credit totaling $18.5 million and $17.3 million, respectively, which primarily related to such leases, and which are included in restricted cash.

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3. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

Level 1 —Observable inputs, such as quoted prices in active markets,

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

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

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

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

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

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

Depreciation expense was approximately $8.3 million and $6.8 million for the three months ended June 30, 2017 and 2016, respectively, and approximately $16.5 million and $13.3 million for the six months ended June 30, 2017 and 2016, respectively.

6. INTANGIBLE ASSETS AND GOODWILL

The Company’s goodwill is the result of its acquisitions of other businesses, and represents the excess of purchase consideration over the fair value of assets and liabilities acquired. The Company performed its annual goodwill impairment analysis during the three months ended September 30, 2016 and concluded that goodwill was not impaired, as the fair value of each reporting unit exceeded its carrying value.

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

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

Amortization expense was $2.3 million and $1.7 million for the three months ended June 30, 2017 and 2016, respectively, and $4.3 million and $3.4 million for the six months ended June 30, 2017 and 2016, respectively.

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As of June 30, 2017, the estimated future amortization of purchased intangible assets for (i) the remaining six months of 2017, (ii) each of the succeeding four years, and (iii) thereafter is as follows (in thousands):

7. ACQUISITIONS

Nowait, Inc.

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

The acquisition was accounted for as a business combination in accordance with Accounting Standards Codification Topic 805, “Business Combinations” (“ASC 805”), with the results of Nowait’s operations included in the Company’s consolidated financial statements from February 28, 2017. The Company’s allocation of the purchase price is preliminary as the amounts related to identifiable intangible assets and the effects of any net working capital adjustments are still being finalized. Any material measurement period adjustments will be recorded retroactively to the acquisition date. The purchase price allocation, subject to finalization during the measurement period, is as follows (in thousands):

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Estimated useful lives and the amount assigned to each class of intangible assets acquired are as follows:

The intangible assets are being amortized on a straight-line basis, which reflects the pattern in which the economic benefits of the intangible assets are being utilized. The goodwill results from the Company’s opportunity to drive daily engagement in its key restaurant vertical by allowing consumers to move more quickly from search and discovery to transacting at a local business. None of the goodwill is deductible for tax purposes.

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

The condensed consolidated statements of operations for the three and six months ended June 30, 2017 include $1.1 million and $1.3 million of revenue attributable to Nowait, respectively, and $2.4 million and $3.2 million of net loss attributable to Nowait, respectively.

Turnstyle Analytics Inc.

On April 3, 2017, the Company acquired all of the equity interests in Turnstyle Analytics Inc. (“Turnstyle”) for approximately $21 million, of which approximately $1 million represents compensation cost due to a continuous service requirement and the remainder represents purchase consideration. Of the total consideration paid in connection with the acquisition, $3 million is being held in escrow for an 18-month period after the closing to secure the Company’s indemnification rights. The key factor underlying the acquisition was to obtain a customer retention and loyalty product in the form of a location-based marketing and analytics platform that provides Wi-Fi as a digital marketing tool to expand its product offerings for local businesses.

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The acquisition was accounted for as a business combination in accordance with ASC 805, with the results of Turnstyle’s operations included in the Company’s consolidated financial statements from April 3, 2017. The Company’s allocation of the purchase price is preliminary as the amounts related to identifiable intangible assets and the effects of any net working capital adjustments are still being finalized. Any material measurement period adjustments will be recorded retroactively to the acquisition date. The purchase price allocation, subject to finalization during the measurement period, is as follows (in thousands):

Estimated useful lives and the amount assigned to each class of intangible assets acquired are as follows:

The intangible assets are being amortized on a straight-line basis, which reflects the pattern in which the economic benefits of the intangible assets are being utilized. The goodwill results from the Company’s opportunity to expand its product offerings to local businesses through the Turnstyle marketing and analytics platform. None of the goodwill is deductible for tax purposes.

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

Following the acquisition date, $0.4 million of revenue and $0.6 million of net loss attributable to Turnstyle was included in the condensed consolidated statement of operations for the three months ended June 30, 2017.

Pro Forma Financial Information

The unaudited pro forma financial information in the tables below summarizes the combined results of operations for (a) the Company and Nowait, (b) the Company and Turnstyle and (c) the Company with Nowait and Turnstyle, as though the respective combinations had occurred as of January 1, 2016, and includes the accounting effects resulting from the acquisitions, including amortization charges from acquired intangible assets and changes in depreciation due to differing asset values and depreciation lives.

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The unaudited pro forma financial information, as presented below, is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the combinations had taken place as of January 1, 2016 (in thousands, except per share data):

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

Other long-term liabilities primarily comprise deferred tax liabilities.

11. COMMITMENTS AND CONTINGENCIES

Office Facility Leases —The Company leases its office facilities under operating lease agreements that expire from 2017 to 2025. Certain lease agreements provide for rental payments on a graduated basis. The Company recognizes rent expense on a straight-line basis over the lease period. Rental expense was $9.9 million and $9.1 million for the three months ended June 30, 2017 and 2016, respectively, and $19.7 million and $17.6 million for the six months ended June 30, 2017 and 2016, respectively.

The Company has subleased certain office facilities under operating lease agreements that expire in 2021. The Company recognizes sublease rentals as a reduction in rental expense on a straight-line basis over the lease period. Sublease rental income was $0.5 million and $0.5 million for the three months ended June 30, 2017 and 2016, respectively, and $1.0 million and $1.0 million for the six months ended June 30, 2017 and 2016, respectively.

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

In August 2014, two putative class action lawsuits alleging violations of federal securities laws were filed in the U.S. District Court for the Northern District of California, naming as defendants the Company and certain of its officers. The lawsuits allege violations of the Exchange Act by the Company and certain of its officers for allegedly making materially false and misleading statements regarding the Company’s business and operations between October 29, 2013 and April 3, 2014. These cases were subsequently consolidated and, in January 2015, the plaintiffs filed a consolidated complaint seeking unspecified monetary damages and other relief. Following the court’s dismissal of the consolidated complaint on April 21, 2015, the plaintiffs filed a first amended complaint on May 21, 2015. On November 24, 2015, the court dismissed the first amended complaint with prejudice, and entered judgment in the Company’s favor on December 28, 2015. The plaintiffs have appealed this decision to the U.S. Court of Appeals for the Ninth Circuit, and a hearing has been scheduled for September 11, 2017.

On April 23, 2015, a putative class action lawsuit was filed by former Eat24 Hours.com, Inc. (“Eat24”) employees in the Superior Court of California for San Francisco County, naming as defendants the Company and Eat24. The lawsuit asserts that the defendants failed to permit meal and rest periods for certain current and former employees working as Eat24 customer support specialists, and alleges violations of the California Labor Code, applicable Industrial Welfare Commission Wage Orders and the California Business and Professions Code. The plaintiffs seek monetary damages in an unspecified amount and injunctive relief. On May 29, 2015, plaintiffs filed a first amended complaint asserting an additional cause of action for penalties under the Private Attorneys General Act. In January 2016, the Company reached a preliminary agreement to settle this matter, which the court preliminarily approved on June 27, 2016. The settlement received final court approval on December 5, 2016 and the $0.6 million settlement amount was paid on February 8, 2017.

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On June 24, 2015, a former Eat24 sales employee filed a lawsuit, on behalf of herself and a putative class of current and former Eat24 sales employees, against Eat24 in the Superior Court of California for San Francisco County. The lawsuit alleges that Eat24 failed to pay required wages, including overtime wages, allow meal and rest periods and maintain proper records, and asserts causes of action under the California Labor Code, applicable Industrial Welfare Commission Wage Orders and the California Business and Professions Code. The plaintiff seeks monetary damages and penalties in unspecified amounts, as well as injunctive relief. On August 3, 2015, the plaintiff filed a first amended complaint asserting an additional cause of action for penalties under the Private Attorneys General Act. In January 2016, the Company reached a preliminary agreement to settle this matter, which the court preliminarily approved on August 29, 2016. The settlement received final court approval on February 1, 2017 and the $0.2 million settlement amount was paid on March 29, 2017.

Indemnification Agreements —In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of breach of such agreements, services to be provided by the Company or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with directors and certain officers and employees that will require the Company to, among other things, indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees.

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

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

12. STOCKHOLDERS’ EQUITY

Elimination of Dual-Class Common Stock Structure

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

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

Equity Incentive Plans

The Company has outstanding awards under three equity incentive plans: the Amended and Restated 2005 Equity Incentive Plan (the “2005 Plan”), the 2011 Equity Incentive Plan (the “2011 Plan”) and the 2012 Equity Incentive Plan, as amended (the “2012 Plan”). In July 2011, the Company adopted the 2011 Plan, terminated the 2005 Plan and provided that no further stock awards were to be granted under the 2005 Plan. All outstanding stock awards under the 2005 Plan continue to be governed by their existing terms. Upon the effectiveness of the underwriting agreement in connection with the Company’s initial public offering (“IPO”), the Company terminated the 2011 Plan and all shares that were reserved under the 2011 Plan but not issued were assumed by the 2012 Plan. No further awards will be granted pursuant to the 2011 Plan. All outstanding stock awards under the 2011 Plan continue to be governed by their existing terms. Under the 2012 Plan, the Company has the ability to issue incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock units (“RSUs”), restricted stock awards (“RSAs”), performance units and performance shares. Additionally, the 2012 Plan provides for the grant of performance cash awards to employees, directors and consultants.

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Stock Options

Stock options granted under the 2012 Plan are granted at a price per share not less than the fair value of a share of the Company’s common stock at date of grant. Options granted to date generally vest over a four-year period, on one of four schedules: (a) 25% vesting at the end of one year and the remaining shares vesting monthly thereafter; (b) 10% vesting over the first year, 20% vesting over the second year, 30% vesting over the third year and 40% vesting over the fourth year; (c) ratably on a monthly basis; or (d) 35% vesting over the first year, 40% vesting over the second year and 25% vesting over the third year. Options granted are generally exercisable for up to 10 years. The Company issues new shares when stock options are exercised.

A summary of stock option activity for the six months ended June 30, 2017 is as follows:

Aggregate intrinsic value represents the difference between the closing price of the Company’s common stock on a given date and the exercise price of outstanding, in-the-money options. The total intrinsic value of options exercised was approximately $5.5 million and $3.2 million for the three months ended June 30, 2017 and 2016, respectively, and $10.4 million and $4.8 million for the six months ended June 30, 2017 and 2016, respectively.

The weighted-average grant date fair value of options granted was $14.61 and $9.18 per share for the three months ended June 30, 2017 and 2016, respectively, and $15.52 and $9.42 per share for the six months ended June 30, 2017 and 2016, respectively.

As of June 30, 2017, total unrecognized compensation costs related to unvested stock options was approximately $24.6 million, which is expected to be recognized over a weighted-average time period of 2.6 years.

RSUs

The cost of RSUs is determined using the fair value of the Company’s common stock on the date of grant. RSUs generally vest over a four-year period, on one of three schedules: (a) 25% vesting at the end of one year and the remaining vesting quarterly or annually thereafter; (b) 10% vesting over the first year, 20% vesting over the second year, 30% vesting over the third year and 40% vesting over the fourth year; or (c) ratably on a quarterly basis.

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

As of June 30, 2017, the Company had approximately $232.5 million of unrecognized stock-based compensation expense related to RSUs, which is expected to be recognized over the remaining weighted-average vesting period of approximately 2.82 years.

Employee Stock Purchase Plan

The ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions of up to 15% of their eligible compensation, subject to any plan limitations, during designated offering periods. At the end of each offering period, employees are able to purchase shares at 85% of the fair market value of the Company’s common stock on the last day of the offering period.

There were 228,299 shares purchased by employees under the ESPP at a weighted-average purchase price of $23.73 per share during the three and six months ended June 30, 2017. There were 200,953 shares purchased by employees under the ESPP at a weighted-average purchase price of $22.26 per share during the three and six months ended June 30, 2016. The Company recognized $0.5 million and $0.5 million of stock-based compensation expense related to the ESPP in the three months ended June 30, 2017 and 2016, respectively, and $1.0 million and $0.7 million in the six months ended June 30, 2017 and 2016, respectively.

The Company capitalized $1.7 million and $1.2 million of stock-based compensation expense as website development costs in the three months ended June 30, 2017 and 2016, respectively, and $3.0 million and $2.0 million in the six months ended June 30, 2017 and 2016, respectively.

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14. INCOME TAXES

The Company is subject to income tax in the United States as well as other tax jurisdictions in which it conducts business. Earnings from non-U.S. activities are subject to local country income tax. The Company recorded an income tax provision of $0.1 million and an income tax benefit of $1.3 million for the three months ended June 30, 2017 and 2016, respectively, and an income tax provision of $0.2 million for each of the six months ended June 30, 2017 and 2016. The tax provision for the six months ended June 30, 2017 is due to $0.1 million in U.S. state and foreign income tax expense and $0.1 million of discrete income tax expense. The tax provision for the six months ended June 30, 2016 is due to $0.1 million in U.S. federal and state and foreign income tax provision and $0.1 million of discrete expense.

Accounting for income taxes for interim periods generally requires the provision for income taxes to be determined by applying an estimate of the annual effective tax rate for the full fiscal year to “ordinary” income or loss (pretax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period. For the three and six months ended June 30, 2017, a discrete effective tax rate method was used in jurisdictions where a small change in estimated ordinary income has a significant impact on the annual effective tax rate. The primary difference between the effective tax rate and the federal statutory tax rate relates to the valuation allowances on certain of the Company’s net operating losses, foreign tax rate differences, meals and entertainment, tax credits, and stock-based compensation expense. Jurisdictions where no benefit is recorded on forecasted losses were excluded from the consolidated effective tax rate. As of June 30, 2017, the total amount of gross unrecognized tax benefits was $12.3 million, $11.5 million of which is subject to a full valuation allowance and would not affect the Company’s effective tax rate if recognized. As of June 30, 2017, the Company had an immaterial amount related to the accrual of interest and penalties. During the three and six months ended June 30, 2017, the Company’s gross unrecognized tax benefits increased by $0.8 million and $2.0 million, respectively, an immaterial amount of which would affect the Company’s effective tax rate if recognized.

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

It is the intention of the Company to permanently reinvest the earnings from 10036773 Canada Inc., Turnstyle Analytics, Inc., Darwin Social Marketing Inc., Yelp UK Ltd. and Yelp Ireland Holding Company Limited and its subsidiaries. The Company does not provide for U.S. income taxes of foreign subsidiaries as such earnings are to be reinvested indefinitely. As of June 30, 2017, the Company estimates $2.5 million of cumulative foreign earnings upon which U.S. income taxes have not been provided.

15. NET INCOME (LOSS) PER SHARE

Basic and diluted net loss per share attributable to common stockholders for periods prior to the Conversion are presented in conformity with the “two-class method” required for participating securities. Prior to the Conversion, shares of Class A and Class B common stock were the only outstanding equity in the Company. The rights of the holders of Class A and Class B common stock were identical, except with respect to voting and conversion. Each share of Class A common stock was entitled to one vote per share and each share of Class B common stock was entitled to ten votes per share. Shares of Class B common stock were convertible into Class A common stock at any time at the option of the stockholder, and were automatically converted upon sale or transfer to Class A common stock, subject to certain limited exceptions, and in connection with certain other conversion events.

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Under the two-class method, basic net loss per share is computed using the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed using the weighted-average number of shares of common stock and, if dilutive, potential shares of common stock outstanding during the period. The Company’s potential shares of common stock consist of the incremental shares of common stock issuable upon the exercise of stock options, shares issuable upon the vesting of RSUs and, to a lesser extent, unvested shares subject to RSAs and purchases related to the ESPP. The dilutive effect of these potential shares of common stock is reflected in diluted earnings per share by application of the treasury stock method. The computation of the diluted net loss per share of Class A common stock assumes the conversion of Class B common stock, while the diluted net loss per share of Class B common stock does not assume the conversion of Class B common stock.

The undistributed earnings are allocated based on the contractual participation rights of the Class A and Class B common stock as if the earnings for the year have been distributed. As the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis. Further, as the conversion of Class B common stock is assumed in the computation of the diluted net loss per share of Class A common stock, the undistributed earnings are equal to net loss for that computation.

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

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

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

16. INFORMATION ABOUT REVENUE AND GEOGRAPHIC AREAS

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

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

Net Revenue

In reports filed prior to its Annual Report on Form 10-K for the year ended December 31, 2016, the Company classified revenue from its “local” products — consisting of business listing and advertising products sold directly to businesses and Yelp Reservations — as local revenue, and classified revenue generated through partner arrangements, including resale of advertising products by certain partners, and monetization of remnant advertising inventory through third-party ad networks as other services revenue.

The Company now classifies revenue from all of its business listing and advertising products, including advertising and listings sold by partners, as advertising revenue. As a result, revenue generated through ad resales and monetization of remnant advertising inventory through third-party ad networks is now classified as advertising revenue rather than other services revenue, and revenue from Yelp Reservations, a subscription service, is recognized as other services revenue. All disclosures relating to revenue by product have been updated to this revised classification for all periods presented.

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

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

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

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

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17. RESTRUCTURING AND INTEGRATION

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

On November 2, 2016, the Company announced plans to significantly reduce sales and marketing activities in markets outside of the United States and Canada. The restructuring plan was substantially completed by December 31, 2016. The Company incurred $0.1 million and $0.3 million for the three and six months ended June 30, 2017, respectively, in restructuring and integration costs associated with this plan related to severance costs for affected employees. The Company expects the remaining $0.3 million accrued restructuring and integration costs as of June 30, 2017 to be paid during the year ended December 31, 2017. Any additional expense related to this restructuring plan incurred in the future is expected to be immaterial. No goodwill, intangible assets or other long lived assets were impaired as a result of the restructuring plan.

18. SUBSEQUENT EVENTS

Proposed Sale of Eat24, LLC and Grubhub Partnership

On August 3, 2017, the Company and Eat24, LLC, a wholly owned subsidiary of the Company (“Eat24”), entered into a Unit Purchase Agreement (the "Purchase Agreement") with Grubhub Inc. ("Grubhub") and Grubhub Holdings, Inc. ("Purchaser"), a wholly owned subsidiary of Grubhub.

Pursuant to the Purchase Agreement, Purchaser agreed to acquire all of the outstanding equity interests in Eat24 from the Company for $287.5 million in cash upon the terms and subject to the conditions set forth in the Purchase Agreement (the "Acquisition"). The Company also agreed to transfer certain assets to Eat24 immediately prior to the closing of the Acquisition, which will consist of assets that are material to or necessary for the operation of the Eat24 business that are not then owned by Eat24.

The purchase price will be paid to the Company upon the closing of the Acquisition and will be subject to customary post-closing adjustments. The timing of the closing is dependent on a number of factors including, but not limited to, receipt of approval or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. Of the purchase amount, $28.8 million will be held in escrow for an 18-month period after closing to secure Purchaser’s indemnification rights. Any gain or loss resulting from the Acquisition will be determined and recognized as of the closing date.

Concurrently with the execution of the Purchase Agreement, the Company and Purchaser entered into a Marketing Partnership Agreement (“Partnership Agreement”) to expand the Company’s online ordering capabilities, which will become effective upon the closing of the Acquisition. Under the Partnership Agreement, following the closing of the Acquisition, the Company agreed to integrate Grubhub’s restaurant network into the Yelp Platform to allow users of the Company’s website and mobile app to place orders for delivery or pickup through Grubhub’s food-ordering marketplace. The Partnership Agreement has an initial term of five years, and may renew for an additional two years upon the mutual agreement of the Company and Purchaser.

Stock Repurchase Program

On July 31, 2017, the Company’s board of directors authorized a stock repurchase program under which the Company may repurchase of up to $200 million of its outstanding common stock. The Company may purchase shares at management’s discretion in the open market, in privately negotiated transactions, in transactions structured through investment banking institutions, or a combination of the foregoing. The program is not subject to any time limit and may be modified, suspended, or discontinued at any time. The Company expects to fund the stock repurchase program with cash available on its balance sheet.

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