Good afternoon and welcome to the Yelp Second Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to James Miln, Senior Vice President of Finance and Investor Relations. Please go ahead.

Good afternoon, everyone. And thanks for joining us on Yelp’s second quarter 2021 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 the 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 Harbor 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 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. Yelp had a strong quarter. Net revenue growth was 52% from the second quarter of 2020, resulting in positive net income of $4 million. Adjusted EBITDA grew to a record $64 million representing a 25% adjusted EBITDA margin. Underlying this performance, Yelp of 2021 looks very different than it did when we began implementing our strategic initiatives in 2019. We've elevated the pace of product innovation and made tremendous progress. Advertising revenue from our services categories and self-serve channel as well as our non-term contract retention rate all reached record highs in the second quarter. These results are a testament to the resilience and creativity of all of our teams and their consistent execution of our multi-year strategy, which has transformed Yelp into a structurally stronger business. Consumers continue to come to Yelp to connect with great local businesses through trusted content and reviews. We were pleased by the rate at which our users returned to Yelp in the second quarter. For example, diners seated via Yelp were up 70% from the first quarter and 45% from the second quarter of 2019, even while public health restrictions remained in place in several of our historically strongest metros. The services category has been an area of strength for us throughout the pandemic and this continued in the second quarter. Consumer requests via Request a Quote grew nearly 30% in the first quarter, and more than 50% year over year. Our advertisers are also seeing greater value from their spend with more high-intent clicks and a lower average cost. We were pleased to see our ongoing advertising platform investments pay off in the second quarter as average CPCs declined by 20% and ad clicks increased by 87% compared to the prior year period. Combined with our increased pace of product innovation over the last few years, we saw strong momentum in our revenue initiatives. Advertising revenue from services businesses in the second quarter was 23% higher than in the second quarter of 2019, while revenue from our self-serve and multi-location channels represented approximately 45% of total advertising revenue. In summary, the progress on our strategic initiatives paved the way for our financial performance to surpass pre-COVID levels. Second quarter net revenue was up 4% from the second quarter of 2019, while adjusted EBITDA margin was up 3 percentage points. We remain focused on continuing to build momentum in our initiatives and we are excited about the long-term opportunity ahead. With that, I'd like to turn it over to David.

Thanks, Jeremy. Second quarter net revenue grew by 11% from the first quarter of 2021 and by 52% from the second quarter of 2020 as we transition from recovery to growth. In particular, much of this strong revenue performance flowed through to the bottom line, driven by the contribution of our product and engineering teams. Net income increased by $10 million from the first quarter to $4 million, despite aggregate non-cash impairment charges of $11 million. We were pleased to see adjusted EBITDA increase by $20 million from the first quarter to reach a record $64 million, representing a 25% adjusted EBITDA margin. As many multi-location advertisers returned to spend, paying advertising locations reached 528,000, an increase of 25,000 from the first quarter of 2021 and 150,000 from the second quarter of 2020. Advertising revenue from services businesses in the second quarter was up 39% year over year, supported by consumer demand and our ongoing improvements in services monetization. Advertising revenue from restaurants, retail and other businesses improved by 14% from the first quarter, and 76% year over year despite ongoing constraints for local businesses from both staffing shortages and COVID. Our margin in the second quarter demonstrates how our business model transformation and growth strategy is driving structural efficiency. Our go-to-market mix shift has made our business more productive and allowed us to maintain a local sales force approximately 50% smaller than prior to the COVID-19 pandemic. Ongoing product improvements have delivered more value to advertisers, driving increased retention rates. In addition, our location and real estate strategies give us additional levers to drive further efficiency over the next several years. That said, in 2021 our focus remains on investing for long-term sustainable revenue growth. We do believe that over the long term, we can drive significant adjusted EBITDA margin expansion. Returning excess capital to shareholders in the form of share repurchases is an important part of our overall capital allocation strategy. Since we resumed share repurchases in the fourth quarter of 2020, we have repurchased $174 million worth of shares, including $75 million worth of share repurchases in the three months following our first quarter earnings call. To support this, in August 2021 our Board of Directors authorized a $250 million increase to our share repurchase program. Turning to our outlook, our consistent execution of our strategic plan enabled us to deliver net revenue that surpassed pre-COVID levels in the second quarter, despite ongoing constraints in several of our key categories. While the pace of recovery in our restaurants, retail and other categories remains subject to the evolution of the COVID-19 pandemic and related public health restrictions, we expect our initiatives will continue to drive momentum in the third quarter. As such, we anticipate net revenue will be in the range of $255 million to $265 million. In addition, our strong second quarter results have raised our growth expectations for the year. We now anticipate full year net revenue will be between $1.01 billion and $1.03 billion. Turning to adjusted EBITDA, we are focused on catching up on sales hiring in this quarter and plan to increase our investments. As a result, we expect adjusted EBITDA to be between $45 million and $55 million for the third quarter. Additionally, we now anticipate adjusted EBITDA for the full year to fall in the range of $200 million to $220 million. In closing, our second quarter results again demonstrated how our strategic initiatives have transformed our business. We continue to see a broad set of investment opportunities for the second half of the year, and expect that the continued execution of our long-term strategy will enable us to drive profitable growth along with shareholder value over the long term. With that, operator, please open up the line for questions.

We will now begin the question-and-answer session. Our first question today comes from Cory Carpenter with JP Morgan.

Great, thanks for the questions. I had two. First, would be helpful if you could talk about what impacts, if any, you see in recent weeks as the pandemic has flared up here again in the U.S. a bit? And then secondly, Jeremy, hoping you could talk a bit more about your product initiatives in multi-location specifically, and Yelp Audiences? Thanks.

Hi, Cory, this is Jeremy. To kick things off, when you're talking about Delta, I would say it's too early to say what the impacts are. I think if you look back historically, as people get more concerned about their safety, they tend to pull back. But how that will play out with a much more vaccinated population in the markets where we're strongest is hard to say at this point. We have taken some of that uncertainty and baked it into our outlook. So, our guide for the quarter and for the year reflects the impact of Delta to the best of our abilities. On the multi-location side, from a product standpoint, we started talking about this new product, Yelp Audience Platform, and that's been a really great addition to our portfolio of products for multi-location. In particular, it represents a TAM expansion, essentially, because there are lots of businesses that are interested in our audience and in the segments we created but weren't able to spend because they don't have a physical location. That is really exciting to us. You can kind of see that the business is at a scale where it's really starting to get interesting. We have also talked about Yelp Connect as an interesting product for multi-location. That's really about awareness and reaching out to both your existing customers, getting in front of them, reminding them that you're there and what your seasonal offering is, et cetera. It can also be repurposed for look-alike audiences. We have a model that can say, okay, users that like your type of business but maybe haven't seen your business recently — we could still reach out to people that look very similar to them. So it's not only just reaching your existing customers but also extending out to similar customers. We're seeing positive impacts in the early days — it's still very early for multi-location, but we're seeing some positive momentum there as well. I don't know, Jed, if there's anything you'd like to highlight.

Yeah, we included a chart in the shareholder letter. Ultimately, we're focused on that consumer funnel and providing products across that entire consumer funnel from awareness to consideration to conversion, and then retention, connecting one of the retention products both on and off Yelp. Yelp Audiences certainly addresses the off-Yelp component and opens up a potentially larger camp for us with non-location-based advertisers. We have also added different attribution products; we use third-party attribution, but we've also been developing our own first-party attribution called Yelp Store Visits. We believe that's really powerful going forward to have that kind of data set within the Yelp walls. Things like spotlight ads and showcase ads, different ad formats, allow these multi-location advertisers to really tell their story the way they want to. We're happy with the progress on the innovation side within multi-location, but certainly there's still room on that roadmap, and we're going to continue to fill out that consumer funnel.

Great. Thank you, guys.

Our next question comes from Jason Bazinet with Citi.

I just had a basic question on the guidance. It seems like the guidance was raised by about $10 million in the top line, but $25 million on EBITDA for the full year. And then you had a big EBITDA beat in the current quarter. It almost implies something happened on the expense side that was beneficial, but you're sort of viewing it as a one-timer or transitory. Is that a fair interpretation? And if so, what cost came in lower in the second quarter that may not unfold in the third and fourth? Thanks.

Jason, thanks for the question. In the second quarter, we were pleased with our performance on adjusted EBITDA. Fundamentally, we do see this as a strong marker for the margin potential for the business, especially coming on top of the 26% adjusted EBITDA margin that we saw in the fourth quarter. That being said, 2021 continues to be a year of investment for us. As we move through the year we're going to continue to focus on investing on the product and engineering side to drive long-term sustainable growth at attractive margins. In terms of the second quarter itself, one thing that's really important to underscore is that the leverage we see from our investment in product and engineering flows through to the bottom line. We saw a very strong contribution from the additional revenue that we produced, and we think that is a strong indicator of how we can drive leverage in the future. It's another reason why we are increasing our investment in product and engineering. In the second quarter, we also saw strong performance across a number of areas that were very encouraging, including improvements in collections and lower bad debt from our advertisers. We were also somewhat behind on hiring for our local sales team, and so that contributed as well. We're working to make up for that as we move through the third quarter. Overall, we feel like we delivered a very strong quarter for Q2, and that put us in a position to raise the guidance for the full year.

Great, comprehensive, thank you.

Our next question will come from Trevor Young with Barclays.

Great, thanks. Two if I may. First, the average CPC being down 20% year on year — that's probably a bit noisy given the 2Q ’20 comp dynamic. Could you help us understand how CPC has trended quarter-on-quarter directionally and just how that's impacting the non-term budgets and retention as a benefit last quarter? And then second, bigger picture, you gave helpful commentary a few questions ago about the improving product innovation cadence, which seems to be showing up in features like showcase ads and Yelp Connect. What does the pipeline of new ad formats or products look like from here? Where should we expect investments to show up in terms of the consumer funnel versus products versus attribution? Do you have a lot of work left to do on the attribution front, or is it more on the product front? Thank you.

Trevor, this is David. I'll address the first and I'll turn it over to Jeremy to address the second question. Stepping back for a moment, one of the fundamentals to the strategy we set for ourselves is to deliver additional value to advertisers. That's something we started focusing on about two years ago. We think about driving that by delivering more clicks at lower CPCs. There are a number of ways that we do that, particularly through the ad tech platform we've built and the match between consumers and businesses. That's the overall dynamic we focus on and innovate against. In terms of where CPCs are, you're right: in the second quarter of last year CPCs did increase because of COVID, so the year-over-year comparison is noisy. That being said, CPCs have continued to trend down, and we believe we are continuing to increase the value we're delivering on the CPC side combined with the increase in clicks. When we put those together, what we have found through analytics is that we do see higher retention rates. That showed up in the retention rate we saw in the second quarter, which was exceptionally strong. Net-net, we're pleased with the overall performance and it is in line with our expectations for quarters after the second quarter of last year in terms of trends. We're looking forward to continuing to drive CPC down even as we increase clicks for advertisers to deliver value. With that, I'll turn it over to Jeremy.

Sure. I'm going to talk about our product and engineering investment in ads. There has been a robust pipeline of innovation and work going into our ad delivery system, improving our matching — it's a deep well. We think there's a multi-year pipeline of great ideas that will make us more efficient. By becoming more efficient, we can essentially create inventory out of thin air. That can show up in terms of lower prices and more value to our advertisers. So we love that it's a very high-ROI area for us to invest, and to the extent we have great ideas to support it, we'll keep pouring resources in that direction. You mentioned attribution. A lot of focus in attribution comes from our multi-location customers. Some of the most sophisticated advertisers really want to know the cost of driving someone in-store, for instance. We have great first-party data there, and we just improved our modeling to cover more locations than previously. There has been successful product and engineering progress in that area and it's something our multi-location advertisers say is very important. Other areas that tie into the ad system include Request a Quote, where we've seen 50% year-over-year growth in terms of requests. We're building out that functionality and making it as efficient as possible — things like allowing businesses to specify what dates are available to improve the success rate of those advertisers as they negotiate with potential customers. There's a lot of different areas within Request a Quote we can continue to invest in. So, we've got a big and long roadmap of things coming in the years ahead from an ads and performance perspective. It all results ultimately in improving retention because advertisers are happy.

That's really helpful. Thank you both.

Our next question comes from Justin Patterson with KeyBanc.

Great, thank you very much. Two if I can. First for David, you've made a lot of progress on margins over the past few months. As we get back to just kind of a normal world at some points here — let's see what Delta brings — I would love to hear about how you think about the balance between revenue growth and margin expansion going forward. And then question two, Yelp Audiences looks like a really interesting product; would love to hear a little bit more about the opportunities around monetizing that data over time. Thanks so much.

Justin, thanks for the question. I'll speak to adjusted margins and how we think about revenue versus margin performance. It starts for us with ROI when we look at investment opportunities across product and engineering, sales and marketing. We do this in a disciplined manner to ensure we're going to see a return from those investments. As Jeremy mentioned, we see a broad set of opportunities to invest in, so we're going to do that. We continue to see 2021 as an investment year for us and we view the shift to focusing on product and engineering as providing longer-term leverage. If Yelp in the past was very dependent on growing by adding local sales headcount, we are in a new era in which product and engineering are driving growth. We see that showing up in self-serve, across retention, and in metrics like CPC and clicks. We also want to drive margins over time in a way that doesn't undermine long-term sustainable growth. As we move through this year and then when we get to the fourth quarter and start talking about 2022, we'll elaborate on the balance we're striking between those objectives. Overall, we're very pleased with our ability to deliver a strong quarter in the second quarter.

And I can handle the audience question. As we stated earlier, this represents an opportunity for non-location-based advertisers to participate in the Yelp ecosystem, albeit not on Yelp. Tactically, if we know someone has gone to a bar, for example, that's probably a pretty attractive audience for Budweiser to advertise to. You see the same across multiple categories — CPG, insurance, and others — businesses that traditionally haven't been able to buy on Yelp because we're a location-based ad platform within the Yelp walls. We're in our early days here; the product has just come out of testing and we're happy with the initial results. I would bring it back to our core business, which has also been strong: the opportunity to purchase CPC advertising on Yelp is large for multi-location businesses. When you look at the overall landscape, there are some very large ad platforms out there, but we represent a great opportunity for many businesses to diversify spend and get a high ROI. We've been focusing on attribution for that reason — we tend to do very well — and we will continue to invest in the core product as well. We're excited about Yelp Audiences' potential over time, albeit it's early days.

Great, thank you.

Our next question comes from Brian Fitzgerald with Wells Fargo.

Hi, this is Will on for Brian. How do you see the correlations between self-serve and home and local segments recovering? And is the tight housing market creating any unique dynamics for home services business?

I can tackle that question. From a macro view, the housing market has coincided with robust activity in the home and local services segment. In Q2, home and local for Yelp was up 35% year over year, and up 45% versus Q2 2019, which helps take COVID out of the picture. With a lot of people moving around and dealing with the pandemic, there has been increased home and local activity — people bought new homes and spent more time at home during stay-at-home orders. If you're spending time at home, you might be thinking about starting new projects and turn to Request a Quote. We've seen robust demand there. I also think the move to remote and distributed work is here to stay for many companies, including discussions we've had with other CEOs. Many people will continue working from home, and I think that bodes well for the long-term trajectory of the home and local category.

Great, thank you.

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.