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spk01: Good day and welcome to the Yelp first quarter 2021 earnings call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to James Milne, Senior Vice President of Finance and Investor Relations. Please go ahead.
spk03: Good afternoon, everyone, and thanks for joining us on Yelp's first caller 2021 earnings conference call. Joining me today are Yelp's Chief Executive Officer, Jeremy Stoppelman, Chief Financial Officer, David Chwasbach, and Chief Operating Officer, Jed Nockman. We published a shareholder letter on our investor relations website and with the SEC and hope everyone had a chance to read it. We'll provide some brief opening comments and then turn to your questions. Now I'll read our safe harvest statement. We'll make certain statements today that are forward-looking and involve a number of risks and uncertainties that could cause actual results to differ materially. Please note that these forward-looking statements reflect our opinions only as of the date of this call, and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. In addition, we are subject to a number of risks that may significantly impact our business and financial results. Please refer to our SEC filings as well as our shareholder letter. for a more detailed description of the risk factors that may affect our results. During our call today, we'll discuss adjusted EBITDA and adjusted EBITDA margin, which are non-GAAP financial measures. These measures should not be considered as an isolation from or as a substitute for financial information prepared in accordance with generally accepted accounting principles. In our shareholder letter released this afternoon and our filings with the SEC, each of which is posted on our website, you will find additional disclosures regarding these non-GAAP financial measures, as well as historical reconciliations of GAAP net income to both adjusted EBITDA and adjusted EBITDA margin. And with that, I will turn the call over to Jeremy.
spk07: Thanks, James, and welcome, everyone. Our first quarter results represent a strong start to the year, driven by the success of our go-to-market shift and an increased focus on product innovation, which together comprise the foundation of our next stage of growth. We saw record performance for North Services categories, self-serve channel, and non-term advertiser budget retention. Revenue growth in the self-serve channel accelerated once again to approximately 30% year over year in the first quarter. Services revenue performance was driven by ongoing strength in home services, which increased by nearly 15% year over year. At the same time, we're seeing consumer traffic return with the recovery in local economies, benefiting businesses in our more COVID-impacted categories. Demand from these businesses increased over the course of the first quarter. More recently, the encouraging traffic recovery trends we saw in the first quarter continued in April, page views and searches for home services businesses continue to exceed pre-pandemic levels while page views and searches for restaurants have rebounded 40 percent from december 2020. building on the strong momentum of our q1 performance we're investing in product development marketing and multi-location sales to support our initiatives and deliver more valued advertisers We believe this will enable us to drive growth and scale our business in a more profitable way over the long term through increased revenue retention and a more efficient go-to-market approach. In the first quarter, lower CPCs contributed to record non-term advertiser budget retention. We were able to achieve these results with local sales headcount remaining at approximately 50% of pre-pandemic levels, which also enabled us to improve net loss by 10 million year over year to 6 million and deliver a 19% adjusted EBITDA margin while heavily investing in our growth initiatives. We are pleased with this start to the year and expect our investments to continue benefiting both revenue and adjusted EBITDA over the long term. Together with the structural changes we've made to our business over the past year, we believe we are well positioned to fully participate in the economic recovery and to deliver long-term sustainable growth in the years to come. With that, I'd like to turn it over to David.
spk06: Thanks, Jeremy. We saw improving trends across the business over the course of the first quarter as COVID-19 cases declined and restrictions eased. As Jeremy noted, our product initiatives continue to drive strength in self-serve and our services categories. As a result of these efforts, advertiser demand increased steadily over the first quarter, which together with a record retention rate for non-term advertisers' budgets enabled us to deliver $232 million of net revenue. In addition to our strong revenue performance, we were very pleased to see another quarter of disciplined expense management while investing in our initiatives. Net loss improved by $10 million year over year to $6 million, while adjusted EBITDA increased by 159% to $44 million. The healthier than expected macro environment and a slower headcount ramp did provide some short-term benefit to expenses versus our expectations for the quarter. However, the lower headcount did not have a significant impact on revenue or our strategic initiatives, and we expect to continue investing behind our initiatives to drive our revenue momentum over the remainder of the year. Returning capital to shareholders through share repurchases remains an important element of our capital allocation strategy. Since we resumed repurchasing shares in the fourth quarter of 2020, we have repurchased approximately $99 million worth of shares as of today at an average price of $34.98 per share. We currently have approximately $170 million remaining under our current share repurchase authorizations. We plan to continue repurchasing shares throughout the year, subject to market and economic conditions. Turning to our outlook, in the second quarter, we expect to move from recovery to year-over-year growth and anticipate net revenue will increase from the first quarter to fall within the range of $240 million to $250 million. In addition, as a result of our strong execution in the first quarter, we are raising our 2021 outlook for net revenue which we now expect to be between $1 billion and $1 billion and $20 million. To drive continued growth, we plan to invest further behind our initiatives as we catch up on hiring in the second quarter. As a result, we anticipate second quarter adjusted EBITDA will fall within the range of $35 million to $45 million. And we are raising our full year 2021 outlook for adjusted EBITDA, which we now expect to be between $175 million and $195 million, with increased leverage expected toward the end of the year. In closing, our first quarter results reflect strong progress towards delivering our plans for the year. As Jeremy mentioned, these results reflect the success of our go-to-market mix shift and our increased focus on product innovation, which together lay the foundation for our next stage of growth. With that, operator, please open up the line for questions.
spk01: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Our first question today comes from Colin Sebastian with Baird.
spk06: Great. Thanks. Good afternoon, guys. Nice to see the progress here. I guess first off, I'm interested in Yelp Connect and the penetration you're seeing across services and multi-location accounts. And if there's a way to quantify how this is benefiting engagement with ads, with advertisers, retention, or any other relevant metrics.
spk07: Hi Colin, this is Jeremy. I'll hop in and take that one. So we're very pleased with our progress with Yelp Connect. And in fact, we talked about in the letter that we've released a new audience model, which boosted the performance, particularly for services. And, you know, largely it's being bundled in as part of an upgrade package. That's essentially our new model that we've been working with. As we sell advertisers, we give them a whole host of different profile upgrades and include things like Connect. On the multi-look side, we also saw some encouraging early results with some clients that we piloted with. and uh you know they're essentially seeing better economics on their investment with yelp uh based on on those studies so overall we're feeling really good about our progress with connect it seems to be adding value lifting performance uh for business advertisers that take advantage of it and so we'll keep you posted on our progress there okay great and then um secondly
spk06: Just on CPCs, maybe you could just walk through the moving parts, why that shifted to a decline from growth.
spk07: TPC is a decline we see as a good thing because ultimately that's more value flowing to our advertisers. So we like to see that. And what's driving that? Partially it's as more traffic comes into the system. Obviously that's going to lower prices, which again is a good thing. But then also we're continually refining the ad system and improving the efficiency of that system. So when somebody is taking a look for a business, we want to show them the best possible ad that we can to invest a lot of our engineering product bandwidth and making sure that those connections happen as efficiently as possible. And we're using our inventory as efficiently as possible. So as we make progress with that, you know, it should drive more value to businesses and ultimately lower prices, all things equal.
spk05: Very great. Thanks, Jeremy. Thank you.
spk01: Our next question comes from Shweta Kajuria with Evercore ISI.
spk00: Great, thank you. This is Jan Lee for Shweta. Maybe just a quick follow-up on that, the trends you're seeing in Aclix progress and the CPC decline. If you can put any color on the linearity of that, you know, the traffic gets Aclix recovery into quarter and maybe into Q2. And also the second question is just on the restaurant part, the restaurant cadence, recovery cadence. What are you hearing from the sales team regarding like the multi-location business recovery, especially as we're getting into
spk06: um you know better progress with the vaccine penetration thank you hi it's david so um i'll start off and talk about clicks and then jed will pick up around restaurants and and multi-location recovery we are seeing uh good progress in the recovery of clicks and that has continued over the course of the quarter It's also important to appreciate that when we look at Qliks, we're looking obviously across both our services business as well as our restaurant business. And we were very pleased to see that we are restaurant on the restaurant side, this traffic is increased. We're also seeing a commensurate increase in clicks there. So overall, making good progress as we move through the quarter. I do think it's important to underscore that. Well, We know that the vaccine rollout has gone well today. As we entered the quarter, that was less clear with cases being very high and the rollout just at its initial stages. And so what we are seeing is that progress as people feel more confident to go out.
spk02: Hi, Jan. This is Jed. I can take the restaurant's question. Obviously, you know, compared to services, our restaurant retail and other category is down more year over year, although we are seeing nice signs of recovery there. You know, we're down about 15% year over year from a PAL perspective and doing about $81 million. You know, those categories were hit hard, but we did look to preserve those relationships throughout COVID and often gave relief and free services and just worked to support kind of retention in that segment. You know, we are seeing page views and searches in restaurants rebound. They're up about 40% from December of 2020 and are at about 90% of those pre-COVID levels as of April 2021. You know, multi-location, we typically see a dip early in Q1, and that was exacerbated this year with some of the COVID case counts moving up. But we did see progress across that segment throughout Q1 with paying advertising locations kind of in the range of where we were during Q4. And so, you know, good momentum during the quarter, you know, coming out into March. And we do see an opportunity to help these national brands with their reopening campaigns. And certainly when you look at national and the restaurant segment, there has been some structural movement towards pickup and delivery, but there is certainly demand building both on the consumer side as well as on the business side for kind of in-store dining opportunities. And we're seeing those trends and the strength in the pipeline kind of going throughout the coming out of March. So, you know, attribution continues to be a very big part of that story, making sure we can kind of tie both the store visits online as well as any offline conversions. And, you know, we're just working hard to get back to our original run rate within that restaurant retail and other segment.
spk00: Thank you, Gus.
spk01: Our next question comes from Dan Salmon with BMO Capital Markets.
spk07: Hey, good afternoon, everyone. Jeremy, in the letter you have a line teasing some new self-service investment opportunities you foresee as businesses reopen. Any colour you care to add to that about what's on the self-service roadmap ahead in 2021? And then maybe just a quick one for David. The letter also highlights lower healthcare costs than anticipated I assume that's more than just on an absolute basis due to lower headcount. Is that on a per-employee basis? And if so, just if you could add some color on that as well, it would be great. Thank you. All right. Yeah, happy to talk more about self-service. You know, going back to our long-term strategy, you know, a big part of that is our shift in go-to-market, leaning into really profitable channels like self-serve. We made, you know, really healthy progress in that channel. Self-serve revenue, again, was up 30% year over year, and that's driven by retention as well as acquisition And some of our investment, of course, is happening on the pure product side, just enhancing the flows, making advertisers have an easier time to get started, streamlining that. But then also some of the engineering and then marketing heft is happening on the performance marketing side. And so we're rapidly building muscle in that area as well. So those are some of the things that are driving the performance there.
spk06: And, Dan, this is David. Thanks for the question. On the healthcare expense, it is adjusted for headcount. Obviously, we're modestly behind on headcount in the quarter, and so that has an effect. But we did see on a per-employee basis that we had a lower expense per employee. And again, I think overall, as we've gone through the pandemic, we have been we have seen that employees have availed themselves less of health care than is probably the historical norm. And so that has seemingly continued, at least in the first quarter.
spk07: Okay, great. Maybe just to follow up.
spk06: I mean, is that just people needing to get back out and go into the doctor again? Yeah, I mean, yeah, it's fundamental. People are pretty apprehensive about heading out, and I think in particular to doctors' offices and maybe doing everything they should be doing. And so I would expect as people have gotten vaccinated and are more comfortable that we'd see things similar to what they have been on a historical basis. Okay, thanks. Thank you.
spk01: Our next question comes from Egal Arunian with Wedbush Securities.
spk05: Egal Arunian with Wedbush Securities. Egal Arunian with Wedbush Securities. Egal Arunian with Wedbush Securities. Egal Arunian with Wedbush Securities. Egal Arunian with Wedbush Securities. Egal Arunian with Wedbush Securities. Egal Arunian with Wedbush Securities. Egal Arunian with Wedbush Securities. Egal Arunian with Wedbush Securities. Can you maybe spend a little bit of time on where you think you are there, you can continue to improve that retention rate, you know, and exactly what kind of what you're trying to imply there with the lower CPCs?
spk07: Yeah, I mean, ultimately, we want to hang on to every customer that we possibly can deliver performance for. So that's been a big area of focus for us and actually ties back to our long-term strategy and creating more value for our advertisers. We talked about in previous quarters just the percentage of monetized leads. I think in Q4 we were talking about something like 20% who've made progress on that. But there's just an enormous amount of leads flowing through our system, many of which aren't flowing to our advertisers. So we poured a lot of product and engineering bandwidth towards bringing that number up and making sure that our ads work for our advertisers and are increasingly performant. And if you are one of our advertisers, you should feel that impact. You should be getting more customers and therefore stick with us longer. And it does seem like we are seeing that, the impact of all of that work. Some of that shows up in lower pricing, but it also shows up in retention. you know there's another piece too which is as we've shifted our go-to-market uh more towards self-serve if you sell yourself the product uh you tend to stick longer and so that's playing out as well uh you know we see better retention rates in our self-serve channel and that's been growing uh rapidly and represents about 40 percent of our smb uh starts at this point thanks on on that point um just to follow up on self-serve versus sales um
spk05: Obviously, self-serve is contributing and growing faster. Are you where you want to be with the balance between self-serve? I know there's been a lot of focus on the local side, but maybe you could just touch on both local and multi-location. Thanks.
spk02: Sure. This is Jed. I think from a channel strategy perspective, our long-term strategy, and we've talked about this for 18 months or so now, is to shift a lot of that focus from local sales onto the self-serve and multi-location strategy. And, you know, that was certainly accelerated by COVID. Right now, I think we have about 50% of the local sales force that we did, you know, kind of prior to the pandemic. But we're seeing, number one, really nice production out of the existing salespeople. A lot of veteran kind of experienced reps contributing from a production perspective. But, you know, you certainly see some of that acquisition come into self-serve, and, you know, we feel really comfortable with kind of the mix at this stage. You know, we're going to continue to kind of improve that business owner platform on the self-serve side, but it also benefits everybody we bring in on the sales side as well. And on the multi-location side, we've been, you know, really focused on building out that team and specifically the attribution capabilities and products. You know, we have to be able to prove that the dollars that are spent on the Yelp platform are actually yielding either online conversions and or in-store or in-restaurant consumers. And so, you know, that has been moving along nicely and, you know, we've seen a solid recovery in terms of those paying advertising locations in that particular segment.
spk05: Great. Thank you.
spk01: Our next question comes from Chris Kuntarich with Deutsche Bank.
spk07: Hi. Thanks for taking the question. Maybe a first one for David. I think, yeah, when you started, it was effectively around the time of COVID and So I guess it's been kind of noisy for you guiding, but it's been two quarters now in a row where you've been above the eye end of your guide, and I don't think we've had a chance to ask you kind of how your philosophy is around guiding and whether or not kind of the guide is a guide or you're looking to do more of a beat and raise sort of strategy or approach to it. And then just – Could you help us think about taking up the full-year revenue guidance by $15 million at the high end and then similarly taking EBITDA guidance up by $25? Thanks.
spk06: Thanks for the question, Chris. So a couple of pretty important components. The first, of course, is that as we think about our business performance, what we want to ensure is that we're continuing to execute on our strategy. And what we saw in the first quarter is that our strategy is working. When you think about record services revenue, we can see that we are continuing to improve monetization, as Jeremy mentioned, and we're also in the process of enabling our self-serve customers to really do more and so retain better. When we look at self-serve starts, that's also doing incredibly well and retention. So as we think about the way that we want to approach forecasting, we want to continue to reflect in our forecast the momentum that we have in the business. And I guess I would remind you that as much as we are all looking forward to continued performance across the economy, there continue to be uncertainties. And so the way that I think about the guidance that we provide is that it's a balance between the visibility that we have, the uncertainties of our business, and ensuring that we are making strong progress against the goals that we've set for ourselves from the capital allocation perspective. So all three of those elements come together in the way that we present guidance. In terms of the full year numbers, clearly we were somewhat behind on hiring in the first quarter, and so we wanted to share or we actually have added into the guide for the year um those numbers but we expect to be back on track one thing i would say about hiring in the first quarter just to differentiate because product and engineering has become such an important part of our strategy we're very pleased with our hiring there and that is very much on track where the hiring was a bit behind was in our local sales force. And for that local sales force, we are beginning to make up ground here in the second quarter and continue to focus on it. The other thing is clearly we want to be able to invest in marketing given the improvement in conversion that we've been driving when people land to the site and go through those self-service flows so looking at the full year guide we definitely see that we are doing well against the plan that we've set for ourselves we're able and pleased to be able to raise the guide for the year but there was a bit more from a cost perspective in the first quarter that had to do with performance against some of the hiring that we wanted to do. And that's why you'll see that adjusted EBITDA comes up a bit more than revenue.
spk07: Got it. Very helpful. And maybe if I could just have one follow-up for either Jeremy or Jed. There's been a lot of news lately around the $29 billion restaurant revitalization fund and It seems like the spending should be pretty open-ended as far as how the restaurants could be able to spend these dollars that they'll be receiving. So I was just curious if you guys, yeah, is there anything specific that you have lined up at this point to go and try to capture the advertising dollars that are going to be spinning off from this revitalization fund as these restaurants get back up and running? Yeah. This is Jeremy. I mean, our perspective is businesses are, you know, getting back to it and we want to participate in that. So we have definitely put together reopening plans and making sure that our marketing team is reaching out and getting the message out and driving as much self-service possible as well as activating our local sales team as well as our multi-location team. So, you know, from a general account of like, hey, are we tackling the reopening and are we excited about it and are we getting our teams oriented? around it. Absolutely. Do we have specific initiatives against the revitalization fund? No, but obviously if businesses have more money in hand, that should be a good thing. So we're happy to see any additional funds that flow into restaurant retail and retail. Got it. Thanks.
spk01: Our next question comes from Trevor Young with Barclays.
spk04: Hi. Thanks for taking the questions. Just two from me, dovetailing on one of the earlier questions. Can you provide an update on the results you're seeing with bundling? It seems like you're leaning in there. And I'd just be curious, you know, some early learning from the upgrade package as well as the combination on reservations and wait lists. And then separately, what contributed to the acceleration and request a growth this quarter? Thanks.
spk02: Sure, Trevor. I can take the first one. It's Jed on the bundling. You know, we've been really pleased with the results thus far on the bundling. I think it goes back to what Jeremy was talking about prior, which is just providing more value for our customers. You know, we have different forms of bundles depending on what vertical you're in. You know, on the restaurant side, you know, we can do things like bundle waitlist plus ads plus connect bundling. And it turns out that those three things, as an example, work in tandem to create a lot of value for our customers and create some stickiness there, and we're seeing that. You know, on the services side, you know, you look at the introduction of things like logo and portfolio, and if I'm in the services business, this gives me just another reason to kind of distinguish myself from the crowd. And, you know, in circumstances, as an example, or verified license, as an example, you know, And in situations where someone may not have as much of a reputation on Yelp, it gives a palette for those service customers to actually go out and tell their story and tell why they're trustworthy. And so we feel like the bundling strategy, you know, it's in its early days, and, you know, we're going to have a variety of those kind of going forward as we add product into the mix. But we're happy with the bundling thus far, and you should, you know, are looking towards kind of continuing on that path.
spk07: And for the second part of the question, request to quote growth, we're very pleased to see requests grow 30% year over year, as you mentioned. You know, what's happening in the macro is obviously You know, COVID has ended up with a lot of people moving house. And when you're doing that, there's all sorts of home services that can go along with that, whether you're getting ready to sell or whether you're moving into a new place or whether you're spurting the student out for work from home. All of that has created, you know, robust consumer demand. And I think that's also reflected pulling back a second to our, if you look at our home services revenue performance up 15% year over year, you know, that's really great to see as well. You know, what are we specifically doing to drive some of that performance? Well, you know, we have tons of leads flowing through our system. We talked about how, you know, approximately 20% in Q4 were monetized. leads into our advertisers raising performance we're also trying to improve our matching uh so every time that we're pulling up different potential advertisers to match with a consumer's request we want to get those as accurate as possible so we're not wasting any of our inventory we're also making flow improvements just making it easier for consumers to make that request making it more accurate collecting the right information based on the category things like that So I think all of those elements are combining to deliver the performance that you saw. And we're pleased with it. It's been a real area of focus. And, you know, home and local services is a core part of our long-term strategy.
spk04: That's really helpful. Just a follow-up on that. Can you provide an update on the percentage of monetized leads there versus before QSTEP?
spk07: It has improved since Q4. I don't know, David, if we have any more color than that.
spk06: We're not providing additional detail on the progress that we're making and that we made here in the first quarter. We remain focused on it, and as Jeremy said, it has improved.
spk07: Great. Thanks.
spk01: If you have further questions, please press star and then 1 at this time. Seeing no further questions. Oh, we actually have a follow-up from Chris Kunterich with Deutsche Bank.
spk07: Yeah, just quick follow-up on thinking through PAL versus revenue for PAL. Could you help us think about it on a sequential basis? And from one cue, and I saw you had made the comment in the letter that PALs in aggregate were back to 4Q or roughly around 4Q levels in March. So I was just curious if this implies that service PALs grew throughout the quarter if this was just restaurants. Thanks.
spk02: Sure. This is Jed, Chris. I can take that. You know, our PALs, you know, from a services perspective, you know, we were down 4% year over year, whereas restaurant, retail, and other down 15%. And so, you know, there certainly makes a lot of sense if you think about kind of how the recovery has happened thus far, although we did see acceleration in PALs throughout the quarter last particularly in multi-local, we're back to kind of Q4 levels in terms of where we are. You know, we expect that, you know, services will continue to be kind of resilient for us and, you know, restaurant, retail and other, you know, to make some progress as the recovery continues. You know, ultimately we're focused on both kind of the revenue per PAL as well as the number of PALs. and have, you know, a bunch of initiatives on both fronts, you should, you know, expect that some of those metrics can fluctuate, especially within the retail restaurant and other segment over time, depending on, you know, seasonality and other factors like that.
spk07: Got it. Thanks.
spk01: This will conclude our question and answer session as well as today's conference call. Thank you for attending today's presentation. You may now disconnect.
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