Good day and welcome to Yelp's First Quarter 2020 Earnings Conference Call. Please note this event is being recorded. I would now like to turn the conference over to James Miln, Vice President of Financial Planning and Analysis. Please go ahead.

Good afternoon, everyone and thanks for joining us on Yelp's first quarter earnings conference call. Joining me today are Yelp's Chief Executive Officer, Jeremy Stoppelman; Chief Financial Officer, David Schwarzbach; and Chief Operating Officer, Jed Nachman. We published a shareholder letter on our Investor Relations website and with the SEC about an hour ago. I hope everyone had a chance to read it. We will provide some brief opening comments and then turn to your questions. Now, I will read our Safe Harbor statement. We will 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 will discuss adjusted EBITDA and adjusted EBITDA margin, which are non-GAAP financial measures. These measures should not be considered in 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.

Thanks, James and welcome everyone. At the beginning of the year, we like everyone else could not have imagined where we would be today as a community. The global pandemic has disrupted any sense of normalcy for the world, and we've been witnessing the impacts on consumer behavior in real-time. While the physical distancing measures and shelter-in-place orders have inevitably dealt a significant blow to many local businesses, this crisis has reinforced for us the critical role that it all plays and will continue to play connecting people with great local businesses. We moved quickly to take steps to navigate our business through these unprecedented times. To protect the safety of our employees and do our part to help flatten the curve, we took early and swift action to migrate our workforce to work from home. As a company with thousands of employees, I'm proud of the operational agility and speed with which our team has been able to adapt to this new work-from-home environment given the difficult circumstances. We prioritized efforts to help our consumers and local businesses stay connected with Yelp trusted content during this time. Our product team moved fast to create new features for businesses to showcase relevant offerings, such as virtual estimates, or whether they offer delivery or takeout during COVID-19. These new attributes have been rapidly adopted by business owners, with more than 120,000 active locations by the end of April. In addition, as part of our efforts to support local businesses, on March 20, we announced a $25 million relief initiative primarily to support local restaurants and nightlife businesses, which have been particularly devastated by COVID-19. We also took the difficult but necessary steps to reduce our workforce and expenses to help maintain financial stability in the quarters to come. From a balance sheet perspective, we ended the quarter with $491 million in cash, cash equivalents and marketable securities and no debt. We believe we have the financial strength and liquidity to weather the uncertainty of the pandemic under a range of scenarios, allowing us to continue to focus on the health and well-being of the Yelp community, our employees, consumers, and local businesses. In summary, we entered this pandemic on the back of strong performance over the preceding quarters and into the first two months of this year. Despite the negative impact of the COVID-19 pandemic in March, our first quarter revenue was $250 million, up 6% compared to the first quarter of 2019. We've started quickly to address the health crisis and made the decisions we believe were necessary to preserve our financial liquidity and maintain our operational capability. By doing this, we believe Yelp will emerge uniquely positioned to help local economies through the recovery, both partnering with our existing advertisers and helping grow new ones. With that, I'd like to turn it over to David.

Thanks, Jeremy. Since this is my first earnings call with Yelp, I wanted to share a few thoughts around why I joined the team and share a few first impressions. I'll then move on to our view around the second quarter. At its heart, an advertising business depends on content, consumer interest, and reach. Yelp has all three. We have highly valuable content through trusted reviews. We enjoy a strong consumer brand built over the past 15 years, one with appeal that weighs towards more affluent households, and we deliver value to advertisers across a broad range of categories from restaurants to home services; these strengths remain true even with the current pandemic. And together they provide the foundation for us to grow as the economy recovers. As I've worked with the team over the past two months, I've seen impressive operational agility in difficult circumstances as we transition to work from home, and then have to take significant actions to reduce expenses. Those actions made with careful consideration reflect the commitment to financial discipline while also helping to ensure that we continue to drive product innovation and reach business owners through our sales organization. The steps we have taken align expenses to reduce revenue across a broad range of scenarios. As Jeremy said, we also have a strong balance sheet with $491 million in cash, cash equivalents, and marketable securities at March 31. We currently have no exposure to corporate securities. We continue to take additional steps to further increase our liquidity, most recently having a revolving credit facility in May, with Wells Fargo for $75 million. While we are mindful of dilution, we've indefinitely postponed share buybacks given current conditions. Taken together, I am confident in our ability to weather the current storm from a liquidity perspective and to emerge well positioned for growth. Now, I will turn to our thoughts around Q2. While we are not in a position to provide our usual guidance for this quarter or the full year given the current uncertainties, we continue to closely monitor business performance and make decisions to ensure our financial strength. As described in our shareholder letter, we've seen a steep decline in traffic; fewer people going out to eat and shop, coupled with broad-based shelter-in-place orders have resulted in an extraordinary number of local businesses closing or operating at limited capacity. This in turn has understandably led to many of our advertisers cancelling, pausing, or reducing their spend on Yelp. In California and New York, two of our strongest regions, and two of the first states to order residents to shelter in place, we began to see both traffic and advertiser budgets begin to stabilize in the second half of April. While we are still closing our books for April, we expect revenue to decline by approximately 35% compared to April of 2019. It is important to recognize that our revenue may be lower in May and June due to a number of factors. While we are seeing some easing of consumer restrictions, it remains a very challenging environment for small local businesses, and we may see more of our advertisers pause, reduce, or cancel budgets. To support many of these businesses, we may expand upon our relief initiatives, and this could have a direct impact on both our advertising and services revenue. With recent changes to our sales force, we may not be able to maintain productivity levels as time passes and we continue to work remotely. In addition, the rates of recovery, consumer behavior, and user engagement will impact revenue through the fulfillment of ad budgets and the cost per click we deliver, both of which remain uncertain. On the cost side, we expect a reduction in GAAP expenses of approximately $70 million compared to Q1. This excludes a one-time restructuring charge between $4 million and $5 million for the year. It's important to recognize that our cost basis is driven predominantly by our headcount, as revenue recovers we plan on restoring more employees to full-time. As a result, we anticipate our expenses will rise in the second half of the year. As we see improvement in business performance, we plan to selectively reinvest in our business. We will be guided in that reinvestment by opportunities to drive profitable growth over the long-term across channels, categories, and geographies while maintaining our financial discipline. With that, operator, please open up the line for questions.

We will now begin the question-and-answer session. The first question comes from Colin Sebastian of Baird. Please go ahead.

Great, thanks. Good afternoon and hope everyone is safe and healthy. Jeremy maybe a little bit early, but beyond managing through the current environment, are you thinking of any longer-term changes to the company's strategic priorities or is the goal to get back to the progress that you were making earlier in the year? And then as a follow-up on the multi-location, given some of the relative strength we're seeing in national chain restaurants and other businesses, can you talk about maybe some of the relative demand trends from that group and your business, sitting here in early May, and maybe some of the B2B performance marketing that you plan to leverage with that group. Thank you.

Colin, this is Jeremy. I'll take the first half of the question and maybe Jed can hop on with the National question. But as far as changes to our priorities, certainly we're looking at our product development pipeline to see if there are any things that should be done more urgently in light of COVID-19. We already scrambled the jets and got out a bunch of features to help make it easier for businesses to communicate with their customers around things like changing hours, how they are handling pickup and delivery, and so forth. We've actually seen a lot of success as measured by engagement with some of those features. So we have a COVID-19 banner, for instance, that all businesses can put up on their business page; we had 225,000 of those up by the end of April. We launched some new business highlights, those are sort of tiles that businesses can put up to highlight specific things about their offering. We put out some special ones related to COVID. And we had 120,000 of them activated by the end of April. Additionally, Yelp connects is functionality that allows businesses to post both visual and text information to their page, and then it also gets pushed out to both past customers and potential customers interested in their business; that has seen a pretty nice pickup there with 10,000 businesses activated. And so we'll continue to push forward on features like those that are extremely relevant in the short-term. And then there are adjustments to the pipeline over the long-term for things that maybe we hadn't considered before that are now more urgent. But I would say, generally, a lot of the things that we were working on are still quite relevant. We've seen a lot of strength and resiliency in local services — home and local services category has been less impacted overall, and we had an enormous opportunity, which we still have, to monetize more there. So many of the projects that we're already working on continue to drive high value and high-quality needs to our advertisers. With that, maybe Jed, you can hop in on the national chain question.

Sure. So, in terms of the national chains, they're obviously still operating in a local economy, and they've been hit in varying degrees, depending on the segment and category. Obviously, restaurants are still trying to find their footing in this new world. When we talk about multi-location, it's everything from mid-market all the way up to the largest national chains. Then you have to break it down further into QSR versus dining-in options. There's a very broad range in terms of how this has impacted each segment. Obviously, pickup and delivery are dynamics that are within restaurant segments specifically. We are seeing increased interest in that, although I don't think as a rule, most of these large enterprise accounts have really figured out what strategy they're going to move forward with. It's a complex problem, given varying rules and regulations in different states and different cities. So, the most important thing is, we're just aligned with them side by side as they're making their plans to come into a recovery posture and making sure that when they do turn on the spigots in terms of advertising budgets that we're right there with them. I would say on the services side, this is an opportunity; we still see that folks on the consumer side need services. And on the business side, they're still buying advertising, so we're fully alongside on the services side too, because that's going to tend to have a faster recovery.

The next question comes from Cory Carpenter of JPMorgan. Please go ahead.

Thanks for the questions and appreciate the color on April trends in the shareholder letter. We're just hoping you could expand some on what you're seeing across sales channels and categories over the last month. Maybe, I don't know if it's possible to quantify but how far ahead in New York and California, maybe in other geographies? And as a follow-up, just as the economy starts to reopen, and you touched on it some what's the B2B performance marketing? Maybe just more color on your strategy to drive reengagement? Thank you.

I could take the one on categories and segments. In terms of channels and categories, the services indicated have not been hit as hard as the restaurant side both from a traffic and from a revenue perspective. We were certainly encouraged by April seeing at least a leveling-off of the decline. Importantly, our sales force productivity could have expected, and we did a huge transition to work from home, but we didn’t see any dips in productivity overall. Obviously, you start to look at categories like health and beauty that are impacted as well, and restaurants obviously taking a big hit. But, overall, I would say the strength is in the services side of the business, both from a retention and a production perspective.

So Cory, this is David. Advertiser reengagement — part of the investment we made is we provided relief to our businesses. The first thing we announced was an opportunity to engage with them and bring them back allowing them to pop. One of the things that we're focused on is engaging them to come back. On the B2B marketing side, we’ve invested heavily in performance marketing. We haven't had to that being said as we see opportunities there to drive traffic as well.

The next question comes from Dan Salmon of BMO Capital Markets. Please go ahead.

Great, good afternoon, everyone. Thanks for taking some questions. To the restaurant category specifically and maybe for Jeremy or Jed, you noted continuing to maintain the high level of investment. Can you just remind us — I think if we step back, in the multiple categories of multiple locations, the general view is that they should rebound more than traditional local restaurants, independent restaurants. So just maybe remind us what are some of the key factors affecting the national business and in particular, your views on whether that may be able to accelerate. And maybe for David, just welcome to your first call but we'll jump right into one about, with buybacks being halted, how we should think about expectations? What are some of the key milestones you're looking for on that as well? Thanks.

I can take the first one on national in terms of the investment. I would start with when we talk about continuing to invest in that segment, we largely put the enterprise sales team in place and the interest in that market continues even where some of those folks have cut down on initial spending. We have to look at delivery and pickup as a huge opportunity. It's not the panacea that would totally drive that segment in terms of a quick rebound; I think most folks are just trying to keep their head above water. Obviously, in-store dining is affected given this environment and folks sheltering in place. So when we talk about the Yelp audience platform, we look at folks who have intent to pick up and deliver and can access them and other places around the internet, that product has seen some uptick recently as a result. But in general, it's just making sure that we're providing the core blocking and tackling so when folks decide they need to start to spend and various states and cities start to recover, we’re right alongside them.

In terms of share repurchase, one thing, of course, that's over the course of last year, we brought in nearly $0.5 billion of stock. It's much too early to reinstate share repurchases today. We've been extremely focused on liquidity. As we mentioned, we believe with $491 million at the end of the first quarter, we're extremely well positioned. We just added the credit facility with Wells, and we're taking other steps. We are mindful of dilution, but it's much too early for us to consider moving back to a position where we're engaged in share repurchases.

The next question comes from Michael Ng of Goldman Sachs.

I was wondering if you could just expand a little bit about the trends you were seeing leading up to the pandemic. You mentioned earlier that it was encouraging to see the acceleration in revenue growth in February to 15%. What drove that acceleration in February? And does that give you confidence that you'll be able to execute against those same initiatives once the pandemic is over? Thank you.

I can jump in on that one. Yes, we were really happy with and looked at that acceleration from January into February, at that 15% range. I think it was a lot of the work that we had started in 2019. We saw a 25% year-over-year improvement in retention that was the largest driver there, continuing to deliver more value to our advertisers per dollar spent was really important. As we saw, that became evident with the retention improvements. Sales productivity continued to be in a very healthy place over those first few months and even into the first half of March. I think looking forward, we structurally kind of changed the model, relying not on growing the sales force as much, but driving growth while we had a shrinking local sales force and really leaning into the national opportunity and the self-serve opportunity. All those things came together over the first couple of months of the year, and I suspect that as we come out of this, we’ll continue to lean in on those channels and continue to make improvements on the retention side, as that is a big driver of productivity and revenue.

The next question comes from Shwetha Khajuria of RBC Capital Markets. Please go ahead.

A quick one and I'm sorry if this was covered. But, Jeremy, could you talk about how you think Yelp will be positioned post-COVID, and how differently it will be positioned post-COVID as you think about self-serve, as well as larger advertisers that you may be working with—multi-location advertisers and your positioning there? In terms of your conversations with advertisers that are not operating right now, are you in conversations just so that it is a smoother onboarding process post-COVID? Thank you.

Yes, I would say one of the things that we're really focused on is making sure we are top of mind with consumers. Important ways to do that is ensuring that our information is as up to date as possible. So we're spending a lot of time and resources on making sure that things like our hours are correct, how is the business handling operations during this time, what can you buy from particular businesses? Can we automate some of that, especially for larger businesses? You mentioned national advertisers; obviously, it's harder for a business with thousands of locations to keep everything up to date. So making sure we have the resources to help them stay top of mind with consumers is crucial. I think all of that work will help maintain that connection to consumers, and ultimately, that's what businesses want valuable leads connected to consumers who are ready to buy. Regarding the second question on self-serve and multi-location and how we will change that, we're open to all the different channels. We acquire customers through a variety of different means, and I think we want to be very thoughtful about how we bring on all that recovering revenue. We're always going to have a local sales force, and we'll be really mindful of how we grow that coming out of this while ensuring that we continue down the path of trying to get more efficient with self-serve.

Thank you very much. I have two questions. First, I’d like to ask about the value of the 210 million cumulative reviews, which have traditionally been very important to Yelp's business. However, they may age more quickly in the current COVID environment. How do you see that review base as a key asset for the company moving forward? The second question concerns the increase in the provision for doubtful accounts. Can you provide some insight into how far along you are in understanding how many of your claimed locations and current advertisers will survive this period, and whether that impacts the scope or nature of the business regarding how many potential advertisers can endure this situation? Thank you.

Richard, I'll take that first half of the question; maybe David can take the second one there. We do have, as you pointed out, an incredibly rich corpus of reviews that has proven to be extremely valuable and durable. We continue to engage with our community of reviewers, especially our elites, worth calling out; we have maintained a large community management team that works from home currently and engages with those key community members. Generally, contributions tend to move along with traffic. As traffic goes down, you would expect to see contributions as people are frequenting businesses decrease too. I don't expect all of those 210 million reviews to become worthless anytime soon; I think, obviously, we all hope that many local businesses will survive even if they're on pause for a period of time, and their past performance is a pretty good indicator of how they will perform in the future. That's why we still continue to get quite a bit of content from our community of reviewers—we're still engaging them with our community managers, and we continue to develop new features and functionality geared towards contributors to ensure they stay engaged through the pandemic and beyond. So we are very conscious of trying to maintain that connection with consumers, which is top of mind for us since it's such a key part of our business over the long term.

This is David. So there's really two parts to the question. You asked about the provision for doubtful accounts, and then what are we seeing in terms of advertisers and businesses surviving. Just to answer the second question first, it's still very, very early, and many of these folks are still working through their survival strategies and are applying for loans. We ourselves are not going to know for some time yet where that will land, so unfortunately, that will be something we will all see. As Jeremy said, we hope, of course, that many survive. In terms of the provision for doubtful accounts, it was significantly higher at the end of the first quarter, as you’d expect, as a variety of these businesses took steps to trim advertising or are already in a position where they can no longer pay bills; so that was definitely elevated. What I expect is for us to see a somewhat elevated level for a period of time, but that provision for doubtful accounts really is a monthly item, and we’ll see how that evolves as the overall recovery takes place. The duration of that will certainly influence the ability of people to continue to pay or not.

The next question comes from Ygal Arounian of Wedbush. Please go ahead.

Hey everyone. Thanks for taking my question. I wanted to ask about self-serve. You mentioned it was performing well in February, and we know this channel can pick up pace quickly. However, I also assume it can decline just as swiftly. So, what has been the effect on self-serve specifically? Can you provide some insights on that? Is it at a level where you feel confident? Perhaps it's lower than before, but is it at a point where it can regain momentum rapidly? Additionally, how do you manage this alongside the evolving dynamics of the sales force, which you discussed earlier regarding your future strategy? What is the optimal combination to come out of this even stronger?

Sure. I can start off, and if David wants to jump in after, feel free. In terms of self-serve versus our sales reps, we've actually seen them in line in terms of our percentage, and there's no significant difference on either one in terms of a break from trends. People are still buying; customers are still buying in both channels. Obviously, there's a mixed shift as a result of COVID, but we're really encouraged with the progress we've made on the self-serve channel. I think if you look at claimed businesses, they're up; we've had significant progress year-over-year on claimed businesses, which shows that businesses are interacting with, what's the self-serve platform, and then you look at all of those features that have been adopted as part of the COVID effort. We're seeing more than 10,000 businesses choosing to use those features. It really bodes well for self-serve over the long term. In these periods, engagement is crucial; there might be a subset of businesses that cannot afford to advertise today because they are worried about survival. However, they are still engaging and understanding that Yelp is an important platform for communication. We've been making improvements both in our platform and the new business owner site that is much better in terms of features and functionality. We’re really pleased with the engagement we’re seeing thus far. So I think it bodes well for the coming out of this with a continued shift toward self-serve, and we'll be mindful of how we grow our local sales force.

We didn't quite catch the second part of your question there.

I was just asking how in terms of going forward, coming out on the other side of this, how do you balance leaning into self-serve and kind of like the more rapid response versus the changing dynamics of the sales force, especially given the increased relevance to the sales force in the current environment? Are you leaning in to self-serve a bit more heavily?

I can take a crack at that one too. It's really looking at making sure that we're serving the customer in whichever way they want to get served. Some folks are always going to want to have a self-provisioning interface and not want to talk to a salesperson, while others want to get somebody on the phone and have them walk through an advertising program. We can see that in real-time, although I believe that self-serve is very well positioned coming out of this. We're still very early in the opportunity for Yelp.

This concludes our question-and-answer session. The conference has now also concluded. Thank you for attending today's presentation. You may now disconnect.