Yelp! Inc.

11/07/2025 | Press release | Distributed by Public on 11/07/2025 15:18

Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs, and involve risks and uncertainties. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those discussed in the section titled "Risk Factors" included under Part I, Item 1A in our Annual Report. See "Special Note Regarding Forward-Looking Statements" in this Quarterly Report.
Overview
As one of the best known Internet brands in the United States, Yelp is a trusted local resource for consumers and a partner in success for businesses of all sizes. Consumers trust us for the more than 280 million ratings and reviews available on our platform of businesses across a broad range of categories, while businesses advertise with us to reach our large audience of purchase-oriented and generally affluent consumers. We believe our ability to provide value to both consumers and businesses not only fulfills our mission to connect consumers with great local businesses, but also positions us well in the local, digital advertising market in the United States.
We generate substantially all of our revenue from the sale of performance-based advertising products, which our advertising platform matches to individual consumers through auctions priced on a CPC basis. In the three months ended September 30, 2025, our net revenue was $376.0 million, up 4% from the three months ended September 30, 2024, and we recorded net income of $39.3 million and adjusted EBITDA of $98.1 million. In the nine months ended September 30, 2025, our net revenue was $1.10 billion, up 5% from the nine months ended September 30, 2024, and we recorded net income of $107.8 million and adjusted EBITDA of $283.5 million. For information on how we define and calculate adjusted EBITDA, and a reconciliation of this non-GAAP financial measure to net income, see "Non-GAAP Financial Measures" below.
In the third quarter of 2025, our strategic investments in product innovation continued to drive progress on our revenue growth initiatives:
•Lead in Services. Advertising revenue from Services businesses increased by 7% year over year in the third quarter, driven by growth in the home services category as well as the auto services category, which includes revenue generated from RepairPal. Request-a-Quote projects increased by approximately 5% year over year. Excluding projects acquired through our paid search initiative, they increased by approximately 10% year over year, driven by improvements to the flow and our AI chatbot, Yelp Assistant. Yelp Assistant maintained strong momentum in the third quarter, as project submissions through this tool increased by nearly 400% year over year. More recently, we rolled out an enhanced version of Yelp Assistant that remembers important details and preferences from previously submitted projects, reducing friction for future submissions. We also recently began testing Yelp Assistant for logged-out users, which we believe will drive continued growth in project submissions.
•Drive advertiser value. In the third quarter, we focused on further optimizing advertisers' budgets by prioritizing the most relevant ad content for consumers searching for local businesses. Ad clicks declined by 11% year over year, primarily due to macroeconomic pressures and, to a lesser extent, competitive pressures in Restaurants, Retail & Other ("RR&O") categories and reduced spend on acquiring Services projects through paid search in the current-year period. Average CPC increased by 14% year over year in the second quarter, reflecting growth in Services advertiser demand and fewer clicks overall as we focused on improving the quality of our ad clicks. We continue to see opportunities to help businesses operate more efficiently by leveraging AI technologies and our trusted content. To that end, we recently launched two AI-powered call answering services - Yelp Host and Yelp Receptionist - that provide smarter, more human-like AI voice answering services tailored with information specific to individual businesses.
•Transform the consumer experience. We continued to invest in the consumer experience in the third quarter with a portfolio of product initiatives aimed at making Yelp even more engaging and useful to consumers. These products, which launched in October, included expanding Yelp Assistant to business pages in RR&O categories and introducing several AI-powered updates to make the search experience even more conversational and helpful for consumers, such as enabling natural-language questions through voice search.
In the third quarter, the Services categories continued to drive our business performance amid an uncertain macroeconomic environment, while RR&O businesses faced ongoing operating challenges. We expect heightened macroeconomic uncertainties and advertiser caution to persist in the fourth quarter. Together with typical seasonality in Services, we expect these trends to cause both net revenue and adjusted EBITDA to decrease sequentially in the fourth quarter, with expenses remaining relatively consistent with the third quarter.
Key Metrics
We regularly review a number of metrics, including the key metrics set forth below, to evaluate our business, measure our performance, identify trends in our business, prepare financial projections and make strategic decisions.
Ad Clicks and Average CPC
The amount of revenue we generate from our pay-for-performance advertising products is determined by the number of ad clicks we deliver to advertisers and the CPCs we charge for those ad clicks.
Ad clicksrepresent user interactions with our pay-for-performance advertising products, including clicks on advertisements on our website and mobile app, clicks on syndicated advertisements on third-party platforms and Request-a-Quote submissions, among others. Ad clicks include only user interactions that we are able to track directly, and therefore do not include user interactions with ads sold through our advertising partnerships. We do not expect the exclusion of such user interactions to materially affect this metric. We report the year-over-year percentage change in ad clicks as a measure of our success in monetizing more of our consumer activity and delivering more value to advertisers.
Average CPCis calculated as revenue from our performance-based ad products - excluding certain revenue adjustments that do not impact the outcome of an auction for an individual ad click, such as refunds, as well as revenue from our advertising partnerships - divided by the total number of ad clicks for a given period. Average CPC represents the average amount we charge advertisers for each ad click.
We believe that ad clicks and average CPC together reflect one of the most significant dynamics affecting our advertising revenue performance: the interplay of advertiser demand and consumer activity. At the level of an auction for an individual ad click, advertiser demand - consisting of advertiser budgets and the number of advertisers competing to purchase the ad click - intersects with the supply of consumer activity - consisting of the predicted levels of relevant consumer traffic and engagement - to determine CPC, with higher advertiser demand putting upward pressure on the CPC and higher consumer activity putting downward pressure on the CPC. In aggregate, advertiser demand consists of the number of business locations advertising with us (which we refer to as paying advertising locations, as discussed below) and the aggregate budget they allocate to purchasing our advertising products. Aggregate monetizable consumer activity depends on the levels of consumer traffic and engagement with our ads, the numbers of locations where we can display ads and other monetizable features, and our click-through rate, which is the ratio of ad clicks to the number of times the ads were displayed to consumers. The relative strengths of these factors in aggregate are reflected in average CPC.
Ad clicks and average CPC also provide important insight into the value we deliver to advertisers, which we believe is a significant factor in our ability to retain both revenue and customers. For example, a positive change in ad clicks for a given period combined with lower growth or a negative change in average CPC over the same period would indicate that we delivered more ad clicks at lower prices, thereby delivering more value to our advertisers; we would expect this to have a positive impact on retention. Conversely, growth in average CPC paired with a negative or lower growth rate in ad clicks would indicate we charged more without delivering more ad clicks; we would expect this to have a negative impact on retention unless we are able to increase the value we deliver through higher performing ad clicks.
The following table presents year-over-year changes in our ad clicks and average CPC for the periods presented (each expressed as a percentage):
Three Months Ended
September 30, 		Nine Months Ended
September 30,
2025 2024 2025 2024
Ad Clicks (11)% 2% (7)% 6%
Average CPC 14% 3% 11% -%
In the three and nine months ended September 30, 2025, advertising revenue grew 4% and 5% year over year, respectively, driven in part by year over year increases in revenue from the sale of Yelp advertising products resulting from increases in average CPC, partially offset by decreases in ad clicks. Average CPC increased in the three and nine months ended September 30, 2025 due to growth in advertiser demand in Services categories, as reflected in the increases in Services paying advertising locations and average revenue per Services location,1and fewer clicks overall. The decreases in ad clicks were primarily driven by macroeconomic pressures and, to a lesser extent, competitive pressures from food ordering and delivery providers in RR&O categories as well as reduced spend on paid project acquisitions in the current-year periods.
1Defined as Services advertising revenue divided by Services paying advertising locations.
Advertising Revenue by Category
Our advertising revenue comprises revenue from the sale of our advertising products, including the resale of our advertising products by partners and syndicated ads appearing on third-party platforms, as well as revenue generated from RepairPal.
To reflect our strategic focus on creating two differentiated experiences on Yelp, we provide a breakdown of our advertising revenue attributable to businesses in two high-level category groupings: Services and RR&O. Our Services categories consist of home, local, auto, professional, pets, events, real estate and financial services. Our RR&O categories consist of restaurants, shopping, beauty & fitness, health and other.
The following table presents our advertising revenue by category for the periods presented (in thousands, except percentages):
Three Months Ended
September 30, 		% Change Nine Months Ended
September 30, 		% Change
2025 2024 2025 2024
Services $ 243,805 $ 228,009 7% $ 716,183 $ 654,252 9%
Restaurants, Retail & Other 113,547 116,397 (2)% 336,867 349,130 (4)%
Total Advertising Revenue $ 357,352 $ 344,406 4% $ 1,053,050 $ 1,003,382 5%
Services revenue growth in the three and nine months ended September 30, 2025 was driven by growth in the home services category as well as the auto services category, which includes revenue from RepairPal. RepairPal contributed approximately two percentage points of the year-over-year growth in total advertising revenue in each of the three and nine months ended September 30, 2025.
Paying Advertising Locations
Paying advertising locations comprise all business locations associated with a business account from which we recognized advertising revenue in a given month, excluding business accounts that purchased advertising through partner programs other than Yelp Ads Certified Partners, averaged over a given period. We also provide a breakdown of paying advertising locations between our Services categories and RR&O categories.
For the three and nine months ended September 30, 2025, Services paying advertising locations include business locations from which RepairPal recognized revenue. While the addition of these locations did not have a material impact on the overall number of paying advertising locations, it contributed approximately one half of the year-over-year increase in Services paying advertising locations in each of the three and nine months ended September 30, 2025 shown in the table below.
We provide our paying advertising locations as a measure of the reach and scale of our business; however, this metric may exhibit short-term volatility as a result of factors such as seasonality and macroeconomic conditions. For example, macroeconomic factors, including related to labor and supply chain issues, inflation and recessionary concerns and interest rates, have had a predominant negative impact on RR&O paying advertising locations in recent periods. Short-term fluctuations in paying advertising locations may also reflect the acquisition or loss of single advertising accounts associated with large numbers of locations, or the pausing/restarting of advertising campaigns by such multi-location advertisers.
The following table presents the number of paying advertising locations for the periods presented (in thousands, except percentages):
Three Months Ended
September 30, 		% Change Nine Months Ended
September 30, 		% Change
2025 2024 2025 2024
Services 258 252 3% 260 253 3%
Restaurants, Retail & Other 254 272 (7)% 255 275 (7)%
Total Paying Advertising Locations 512 524 (2)% 515 528 (3)%
Paying advertising locations decreased in the three and nine months ended September 30, 2025 compared to the prior-year periods as the decreases in paying advertising locations in RR&O categories offset growth in Services paying advertising locations. We believe the decrease in RR&O paying advertising locations reflects the challenging operating environment facing businesses in these categories and, to a lesser extent, competition for ad spend from such businesses, including from food ordering and delivery providers.
Results of Operations
The following table sets forth our results of operations for the periods presented (in thousands, except percentages). The period-to-period comparison of financial results is not necessarily indicative of the results of operations to be anticipated for the full year 2025 or any future period.
Three Months Ended
September 30, 		Nine Months Ended
September 30,
2025 2024 $ Change
% Change(1)
2025 2024 $ Change
% Change(1)
Condensed Consolidated Statements of Operations Data:
Net revenue by product:
Advertising revenue by category:
Services $ 243,805 $ 228,009 $ 15,796 7 % $ 716,183 $ 654,252 $ 61,931 9 %
Restaurants, Retail & Other 113,547 116,397 (2,850) (2) % 336,867 349,130 (12,263) (4) %
Total advertising
357,352 344,406 12,946 4 % 1,053,050 1,003,382 49,668 5 %
Other 18,686 15,938 2,748 17 % 51,916 46,730 5,186 11 %
Total net revenue 376,038 360,344 15,694 4 % 1,104,966 1,050,112 54,854 5 %
Costs and expenses:
Cost of revenue (exclusive of depreciation and amortization shown separately below) 36,288 32,382 3,906 12 % 106,563 90,414 16,149 18 %
Sales and marketing 150,740 144,631 6,109 4 % 441,636 442,715 (1,079) - %
Product development 78,137 77,748 389 1 % 240,404 251,055 (10,651) (4) %
General and administrative 45,462 49,605 (4,143) (8) % 143,487 139,471 4,016 3 %
Depreciation and amortization 12,526 9,326 3,200 34 % 37,241 28,841 8,400 29 %
Total costs and expenses 323,153 313,692 9,461 3 % 969,331 952,496 16,835 2 %
Income from operations 52,885 46,652 6,233 13 % 135,635 97,616 38,019 39 %
Other income, net 5,350 7,231 (1,881) (26) % 16,816 25,277 (8,461) (33) %
Income before income taxes 58,235 53,883 4,352 8 % 152,451 122,893 29,558 24 %
Provision for income taxes 18,911 15,443 3,468 22 % 44,647 32,263 12,384 38 %
Net income attributable to common stockholders $ 39,324 $ 38,440 $ 884 2 % $ 107,804 $ 90,630 $ 17,174 19 %
(1) Percentage changes may not recalculate using the rounded numbers presented in this table.
Three and Nine Months Ended September 30, 2025 and 2024
Net Revenue
Advertising.We generate advertising revenue from the sale of our advertising products - including business page upgrades and performance-based advertising in search results and elsewhere on our platform - to businesses of all sizes, from single-location local businesses to multi-location national businesses ("Yelp Ads"). Advertising revenue also includes revenue generated from the resale of our advertising products by certain partners and monetization of advertising inventory through third-party ad networks, as well as revenue generated from RepairPal. We present advertising revenue on a disaggregated basis for our high-level category groupings, Services and RR&O.
Advertising revenue for the three and nine months ended September 30, 2025 increased 4% and 5% year over year, respectively, as a result of increases in revenue from Services businesses, partially offset by decreases in revenue from RR&O businesses. The increases in Services revenue were driven by growth in revenue from Yelp Ads, due to increases in average CPC, partially offset by decreases in ad clicks, as well as the addition of revenue from RepairPal. Revenue from RepairPal contributed approximately two percentage points of the year-over-year growth in total advertising revenue in each of the three and nine months ended September 30, 2025.
Other.We generate other revenue through non-advertising contracts, such as our subscription services, which include our Yelp Guest Manager product, and through our Yelp Places API (formerly Yelp Fusion) and Yelp Insights API (formerly Yelp Fusion Insights) programs, which provide Yelp content and data for a fee. Other revenue also includes revenue from various transactions with consumers. We generate revenue from such transactions through our partnership integrations, which are mainly revenue-sharing arrangements that provide consumers with the ability to place food orders for pickup and delivery
through third parties directly on Yelp. We earn a fee for acting as an agent for transactions placed through these integrations, which we record on a net basis and include in revenue upon completion of a transaction.
Other revenue for the three and nine months ended September 30, 2025 increased compared to the prior-year periods primarily due to increases in revenue from our Yelp Places API, Yelp Insights API and Yelp Guest Manager programs.
Trends and Uncertainties of Net Revenue. Net revenue increased in the three months ended September 30, 2025 compared to the three months ended June 30, 2025 primarily due to increased advertiser demand in Services categories. We expect net revenue for the three months ending December 31, 2025 to decrease from the third quarter of 2025, reflecting ongoing macroeconomic uncertainties and typical seasonality in our Services categories.
Costs and Expenses
Cost of Revenue (exclusive of depreciation and amortization). Our cost of revenue consists primarily of website infrastructure expense, which includes website hosting costs and employee-related costs (including stock-based compensation expense) for the infrastructure teams responsible for operating our website and mobile app, and excludes depreciation and amortization expense. Cost of revenue also includes third-party advertising fulfillment costs, credit card processing fees and revenue share payments, which primarily consist of payments to RepairPal referral partners.
Cost of revenue for the three and nine months ended September 30, 2025 increased compared to the prior-year periods, primarily due to:
•increases in revenue share payments of $1.5 million and $4.2 million, respectively, due to our acquisition of RepairPal;
•increases in advertising fulfillment costs of $0.9 million and $4.2 million, respectively, largely attributable to higher costs to syndicate advertising budgets on certain third-party sites;
•increases in merchant credit card processing fees of $0.7 million and $2.3 million, respectively, due to increases in advertising revenue; and
•increases in website infrastructure expenses of $0.4 million and $4.1 million as a result of maintaining and improving our infrastructure.
We expect cost of revenue to increase on an absolute dollar basis in 2025 compared to 2024, primarily due to our acquisition of RepairPal.
Sales and Marketing. Our sales and marketing expenses primarily consist of employee-related costs (including sales commission and stock-based compensation expenses) for our sales and marketing employees. Sales and marketing expenses also include business and consumer acquisition marketing, community management, as well as allocated workplace and other supporting overhead costs.
Sales and marketing expenses for the three months ended September 30, 2025 increased compared to the prior-year period, primarily due to an increase in sales and marketing employee-related costs of $5.7 million, as a result of higher average headcount in sales and marketing roles, including headcount from the acquisition of RepairPal.
Sales and marketing expenses for the nine months ended September 30, 2025 decreased compared to the prior-year period, primarily due to:
•a decrease in marketing and advertising costs of $11.6 million, mainly driven by decreased spending on acquiring Services projects through paid search, partially offset by increases in costs for business owner marketing; and
•a decrease in workplace operating costs of $4.0 million, primarily due to reductions in our leased office space.
These decreases were partially offset by an increase in sales and marketing employee-related costs of $14.5 million, primarily resulting from higher average headcount in sales and marketing roles, including headcount from the acquisition of RepairPal.
We expect sales and marketing expenses to remain relatively consistent on an absolute dollar basis in 2025 compared to 2024 as the expenses associated with the additional headcount from the acquisition of RepairPal are offset by the reduction in spend on acquiring Services projects through paid search. However, we expect sales and marketing expenses to decrease as a percentage of net revenue.
Product Development. Our product development expenses primarily consist of employee-related costs (including bonuses and stock-based compensation expense, net of capitalized employee-related costs associated with capitalized website and
internal-use software development) for our engineers, product management and corporate infrastructure employees. In addition, product development expenses include allocated workplace and other supporting overhead costs.
Product development expenses for the three months ended September 30, 2025 remained relatively consistent with the prior-year period.
Product development expenses for the nine months ended September 30, 2025 decreased compared to the prior-year period, primarily due to a decrease in employee-related costs of $10.0 million, resulting from lower average headcount in product development roles and more employee-related costs being capitalized.
We expect product development expenses to decrease on an absolute dollar basis and as a percentage of revenue in 2025 compared to 2024.
General and Administrative. Our general and administrative expenses primarily consist of employee-related costs (including bonuses and stock-based compensation expense) for our executive, finance, user operations, legal, people operations and other administrative employees. Our general and administrative expenses also include our provision for credit losses, certain consulting and professional services costs, including litigation settlements, as well as allocated workplace and other supporting overhead costs.
General and administrative expenses for the three months ended September 30, 2025 decreased compared to the prior-year period primarily due to a $5.9 million impairment charge related to the sublease of certain office space in Toronto and San Francisco recorded in the prior-year period. See Note 9, "Leases,"of the Notes to Condensed Consolidated Financial Statements included under Part I, Item 1 in this Quarterly Report for further detail. The decrease was partially offset by a $0.9 million increase in general and administrative employee-related costs. This was primarily due to higher cost of labor, which was partially offset by lower average headcount in general and administrative roles.
General and administrative expenses for the nine months ended September 30, 2025 increased compared to the prior-year period due to:
•expenses in connection with an indemnification obligation assumed in the RepairPal acquisition of $5.0 million;
•an increase in general and administrative employee-related costs of $4.2 million, primarily driven by higher cost of labor, partially offset by lower average headcount in general and administrative roles; and
•an increase of $1.6 million in consulting costs.
The increase during the nine-month period was partially offset by the $5.9 million impairment charge related to the sublease of certain office space in the prior-year period, as described above.
We expect general and administrative expenses to increase on an absolute dollar basis in 2025 compared to 2024 to support our business, but remain relatively consistent as a percentage of net revenue.
Depreciation and Amortization. Depreciation and amortization expense primarily consists of depreciation and amortization on capitalized website and internal-use software development costs, computer equipment, leasehold improvements, and intangible assets.
Depreciation and amortization expense for the three and nine months ended September 30, 2025 increased compared to the prior-year periods primarily due to:
•increases of $2.1 million and $6.3 million, respectively, as a result of intangible assets acquired in the RepairPal acquisition. See Note 7, "Acquisition,"of the Notes to Condensed Consolidated Financial Statements included under Part I, Item 1 in this Quarterly Report for further details; and
•increases of $1.7 million and $3.4 million, respectively, as a result of higher capitalized website and internal-use software development costs.
Other Income, Net
Other income, net consists primarily of the interest income earned on our cash, cash equivalents and marketable securities, research and development tax credits, the portion of our sublease income in excess of our lease cost, accretion of discounts and amortization of premiums on investments, credit facility fees, foreign exchange gains and losses and, in the nine months ended September 30, 2024, the release of a reserve related to a one-time payroll tax credit.
Other income, net for the three and nine months ended September 30, 2025 decreased compared to the prior-year periods primarily due to decreases in interest income of $1.5 million and $5.0 million, respectively, as a result of lower cash, cash equivalents, and marketable securities balances and lower federal interest rates. For the nine-month period, the decrease was also driven by the release of a $3.1 million reserve related to a one-time payroll tax credit in the prior-year period.
Provision for Income Taxes
Provision for income taxes consists of: federal and state income taxes in the United States and income taxes in certain foreign jurisdictions; deferred income taxes reflecting the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Provision for income taxes for the three and nine months ended September 30, 2025 increased from the prior-year periods primarily due to increases in profit before tax in the current-year periods as well as increases in the discrete tax expense primarily related to stock-based compensation and uncertain tax positions.
As of December 31, 2024, we had approximately $139.6 million in net deferred tax assets ("DTAs"). As of September 30, 2025, we consider it more likely than not that we will have sufficient taxable income in the future that will allow us to realize these DTAs. However, it is possible that some or all of these DTAs will not be realized. Therefore, unless we are able to generate sufficient taxable income from our operations, a substantial valuation allowance may be required to reduce our DTAs, which would materially increase our expenses in the period in which we recognize the allowance and have a materially adverse impact on our condensed consolidated financial statements. The exact timing and amount of the valuation allowance recognition are subject to change on the basis of the net income that we are able to actually achieve. We will continue to evaluate the possible recognition of a valuation allowance on a quarterly basis.
In July 2025, the congressional bill known as the One Big Beautiful Bill Act ("OBBBA") was signed into law, which, among other things, restored certain favorable corporate tax provisions, including permitting full expensing of domestic research and development expenses. As of the nine months ended September 30, 2025, the OBBBA did not have a material impact on our 2025 estimated annual effective tax rate calculated in accordance with accounting principles generally accepted in the United States ("GAAP").
Non-GAAP Financial Measures
Our condensed consolidated financial statements are prepared in accordance with GAAP. However, we have also disclosed below adjusted EBITDA, adjusted EBITDA margin and free cash flow, each of which is a non-GAAP financial measure.
Adjusted EBITDA and free cash flow have limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP. In particular, adjusted EBITDA and free cash flow should not be viewed as substitutes for, or superior to, net income (loss) or net cash provided by (used in) operating activities prepared in accordance with GAAP as measures of profitability or liquidity. 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 adjusted EBITDA does not reflect all cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
•adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
•adjusted EBITDA does not reflect the impact of the recording or release of valuation allowances or tax payments that may represent a reduction in cash available to us;
•adjusted EBITDA does not consider the potentially dilutive impact of equity-based compensation;
•adjusted EBITDA does not take into account certain income and expense items, such as impairment charges, expenses related to acquired indemnification obligations, acquisition and integration costs, and fees related to shareholder activism, or other costs that management determines are not indicative of ongoing operating performance;
•free cash flow does not represent the total residual cash flow available for discretionary purposes because it does not reflect our contractual commitments or obligations; and
•other companies, including those in our industry, may calculate adjusted EBITDA and free cash flow differently, which reduces their usefulness as comparative measures.
Because of these limitations, you should consider adjusted EBITDA, adjusted EBITDA margin and free cash flow alongside other financial performance measures, including net income (loss), net cash provided by (used in) operating activities and our other GAAP results.
Adjusted EBITDA. Adjusted EBITDA is a non-GAAP financial measure that we calculate as net income (loss), adjusted to exclude: provision for (benefit from) income taxes; other income, net; depreciation and amortization; stock-based compensation expense; and, in certain periods, certain other income and expense items, such as impairment charges, expenses related to acquired indemnification obligations, acquisition and integration costs, and fees related to shareholder activism, and other items that we deem not to be indicative of our ongoing operating performance.
Adjusted EBITDA margin. Adjusted EBITDA margin is a non-GAAP financial measure that we calculate as adjusted EBITDA divided by net revenue.
The following is a reconciliation of net income to adjusted EBITDA, as well as the calculation of net income margin and adjusted EBITDA margin, for the periods presented (in thousands, except percentages):
Three Months Ended
September 30, 		Nine Months Ended
September 30,
2025 2024 2025 2024
Reconciliation of Net Income to Adjusted EBITDA:
Net income $ 39,324 $ 38,440 $ 107,804 $ 90,630
Provision for income taxes 18,911 15,443 44,647 32,263
Other income, net(1)
(5,350) (7,231) (16,816) (25,277)
Depreciation and amortization 12,526 9,326 37,241 28,841
Stock-based compensation 32,881 39,472 105,125 123,396
Asset impairment(2)
- 5,914 - 5,914
Expenses related to acquired indemnification obligation(2)(3)
(226) - 4,955 -
Acquisition and integration costs(2)
- - 539 -
Fees related to shareholder activism(2)
- - - 1,168
Adjusted EBITDA $ 98,066 $ 101,364 $ 283,495 $ 256,935
Net revenue $ 376,038 $ 360,344 $ 1,104,966 $ 1,050,112
Net income margin 10 % 11 % 10 % 9 %
Adjusted EBITDA margin 26 % 28 % 26 % 24 %
(1) Includes the release of a $3.1 million reserve related to a one-time payroll tax credit in the nine months ended September 30, 2024.
(2) Recorded within general and administrative expenses on our condensed consolidated statements of operations.
(3) Represents expenses recorded in connection with an indemnification obligation assumed in the RepairPal acquisition, which we do not consider to be part of our ongoing operations. Amounts reflect the reversal of certain expenses recorded in prior periods as a result of the negotiated reduction of such expenses during the three months ended September 30, 2025. We expect to be indemnified for such expenses and will also exclude any such amounts from adjusted EBITDA.
Free Cash Flow. Free cash flow is a non-GAAP financial measure that we calculate as net cash provided by (used in) operating activities, less cash used for purchases of property, equipment and software.
The following is a reconciliation of net cash provided by operating activities to free cash flow for the periods presented (in thousands):
Nine Months Ended
September 30,
2025 2024
Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow:
Net cash provided by operating activities $ 287,547 $ 214,842
Purchases of property, equipment and software (36,136) (26,337)
Free cash flow $ 251,411 $ 188,505
Net cash used in investing activities $ (37,977) $ (34,440)
Net cash used in financing activities $ (237,779) $ (233,007)
Liquidity and Capital Resources
Sources of Liquidity
Our principal sources of liquidity are our cash and cash equivalents, marketable securities and cash generated from operations. As of September 30, 2025, we had cash and cash equivalents of $231.1 million and marketable securities of $102.5 million. Cash and cash equivalents consist of cash, money market funds and investments with original maturities of three months or less. Our cash held internationally as of September 30, 2025 was $30.8 million. As of September 30, 2025, we also had $10.0 million of investments in certificates of deposit with minority depository financial institutions.
Our investment portfolio primarily comprises highly rated marketable securities that are classified as available-for-sale on our condensed consolidated balance sheets, and our investment policy limits the amount of credit exposure to any one issuer. The policy generally requires 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.
On April 28, 2023, we entered into a Revolving Credit and Guaranty Agreement with the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent, which provides for a five-year $125.0 million senior secured revolving credit facility (the "credit facility"). The credit facility includes a $25.0 million letter of credit sub-limit, a $25.0 million bilateral letter of credit facility and an accordion option, which, if exercised, would allow us to increase the aggregate commitments by up to $250.0 million, plus additional amounts if we are able to satisfy a leverage test, subject to certain conditions. The credit facility provides us with the ability to access backup liquidity to fund working capital and for other capital requirements, as needed.
As of September 30, 2025, we were in compliance with all covenants and there were no loans outstanding under the credit facility. We had $4.2 million of letters of credit under the sub-limit primarily related to lease agreements for certain office locations, which are required to be maintained and issued to the landlords of each facility, and $120.8 million remained available under the credit facility as of September 30, 2025.
For additional details regarding the credit facility, see Note 13, "Commitments and Contingencies,"of the Notes to Condensed Consolidated Financial Statements included under Part I, Item 1 in this Quarterly Report.
Material Cash Requirements
Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth under "Risk Factors" included under Part I, Item 1A in our Annual Report. We believe that our existing cash, cash equivalents and marketable securities, together with any cash generated from operations, will be sufficient to meet our material cash requirements in the next 12 months and beyond, including: working capital requirements; our anticipated repurchases of common stock pursuant to our stock repurchase program; payment of taxes related to the net share settlement of equity awards; payment of lease costs related to our operating leases; income tax payments; purchases of property, equipment and software and website hosting services. However, this estimate is based on a number of assumptions that may prove to be materially different and we could fully utilize our available cash, cash equivalents and marketable securities earlier than presently anticipated. For example, we are still assessing the OBBBA's impact on our income tax payments for 2025 and beyond. We are not able to reasonably estimate the timing of future cash flows related to$47.5 million of uncertain tax positions. We may be required to draw down funds from our revolving credit facility or seek additional funds through equity or debt financings to respond to business challenges associated with the uncertain macroeconomic environment or other challenges, including the need to develop new features and products or enhance existing services, improve our operating infrastructure or acquire complementary businesses and technologies.
We lease office facilities under operating lease agreements that expire from 2026 to 2031. Our cash requirements related to these lease agreements are $29.8 million, of which $9.5 million is expected to be paid within the next 12 months. The total lease obligations are partially offset by our future minimum rental receipts to be received under non-cancelable subleases of $16.4 million. SeeNote 9, "Leases,"of the Notes to Condensed Consolidated Financial Statements included under Part I, Item 1 in this Quarterly Report for further detail on our operating lease obligations.
Our cash requirements related to purchase obligations consisting of non-cancelable agreements to purchase goods and services required in the ordinary course of business - primarily website hosting services - are approximately $144.2 million, of which approximately $54.7 million is expected to be paid within the next 12 months.
The cost of capital associated with any additional funds sought in the future might be adversely impacted by the effects of macroeconomic conditions on our business. Additionally, amounts deposited with third-party financial institutions exceed the Federal Deposit Insurance Corporation and Securities Investor Protection Corporation insurance limits, as applicable. These cash and cash equivalents could be impacted if the underlying financial institutions fail or are subjected to other adverse conditions in the financial markets. To date, we have experienced no loss or lack of access to our cash and cash equivalents; however, we can provide no assurances that access to our invested cash, cash equivalents and marketable securities will not be impacted by adverse conditions in the financial markets.
Cash Flows
The following table summarizes our cash flows for the periods presented (in thousands):
Nine Months Ended
September 30,
2025 2024
Net cash provided by operating activities $ 287,547 $ 214,842
Net cash used in investing activities $ (37,977) $ (34,440)
Net cash used in financing activities $ (237,779) $ (233,007)
Operating Activities.Net cash provided by operating activities during the nine months ended September 30, 2025 increased by $72.7 million compared to the prior-year period, primarily as a result of an increase of $65.0 million in cash collected from customers mainly due to the increase in revenue, a decrease of $15.8 million in payments to vendors and the payment of $15.0 million to settle the CIPA Action in the prior-year period, which did not recur in the current-year period. These movements were partially offset by an increase of $13.6 million in employee-related payments for salaries, commissions, bonuses and benefits. This increase was primarily driven by higher cost of labor as well as higher average headcount, including headcount from the acquisition of RepairPal.
Investing Activities. Net cash used in investing activities during the nine months ended September 30, 2025 increased compared to the prior-year period primarily due to an increase in capitalized website and internal-use software development costs, partially offset by decreases in net purchases of marketable securities and purchases of other investments.
Financing Activities. Net cash used in financing activities during the nine months ended September 30, 2025 increased compared to the prior-year period primarily due to an increase in repurchases of our common stock and a decrease in proceeds from the issuance of common stock under employee stock-based plans, partially offset by a decrease in taxes paid related to the net share settlement of equity awards.
Stock Repurchase Program
Since its initial authorization in July 2017, our board of directors (the "Board") has authorized us to repurchase up to an aggregate of $1.95 billion of our outstanding common stock, $102.3 million of which remained available as of October 31, 2025.
We may repurchase shares at our discretion in the open market, 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 amount and timing of repurchases are subject to a variety of factors, including liquidity, cash flow and market conditions.
During the nine months ended September 30, 2025, we repurchased on the open market 5,843,952 shares for an aggregate purchase price of $203.4 million.
We have funded all repurchases to date and currently expect to fund any future repurchases with cash and cash equivalents available on our condensed consolidated balance sheet.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates and assumptions are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from those estimates. Due to macroeconomic conditions and other factors, certain estimates and assumptions have required and may continue to require increased judgment and carry a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, these estimates may materially change in future periods.
We believe that the assumptions and estimates associated with revenue recognition, website and internal-use software development costs, business combinations and income taxes have the greatest potential impact on our condensed consolidated financial statements. There have been no material changes to our critical accounting policies and estimates from those disclosed in our Annual Report.
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