Good afternoon. Thank you for joining today's Yelp Fourth Quarter and Full Year 2022 Earnings Conference Call. My name is Megan, and I will be your moderator. I would now like to hand the call over to James Miln, Senior Vice President of Finance and Investor Relations. James, the floor is yours.

Good afternoon everyone, and thanks for joining us on Yelp's fourth quarter and full year 2022 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 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 delivered one of the strongest revenue growth performances among our advertising and marketplace peers in 2022. Our performance ad products and high intent audience generated robust advertiser demand across a broad range of categories, both on and off Yelp. Net revenue increased by 16% year-over-year to a record $1.2 billion in 2022. We delivered this performance with net income of $36 million and adjusted EBITDA of $270 million. These results demonstrate the strength and durability of Yelp's ad platform and the ability of our team to execute under a range of difficult conditions to deliver excellent results. Underlying our record top line our product led strategy drove a number of other record results in 2022. We achieved record paying advertising locations and average revenue per location for the year. In services, we succeeded in differentiating the product experience and increasing monetization and lead quality resulting in greater value to service growth. We believe Yelp gained market share in 2022 as advertising revenue from services businesses grew 14% year-over-year to a record $694 million. The home services category was particularly strong, with year-over-year growth of approximately 20%. Since 2019, revenue from this category has compounded at an annual growth rate of nearly 20%. Advertising revenue for Restaurants, Retail & Other businesses increased by 17% year-over-year to $441 million, driven by growth in paying advertising locations. We continue to deliver value to advertisers in these categories by enhancing our suite of ad products designed to deliver high intent clicks, both up and down in the funnel and on/off Yelp. On the consumer side of our business, traffic remained below pre-pandemic levels as the macro environment contributed to softer consumer demand. App unique devices of $33 million were flat compared to 2021. Despite this backdrop, we made early progress on the consumer-focused initiative we announced at the beginning of 2022. We reduced friction from the rewriting process, which helped our trustworthy content grow by 21 million new reviews in 2022. This resulted in more than 265 million cumulative reviews as of December 31, up 9% from 2021. In addition, our early work with large language models suggest there are a number of near-term applications that we can leverage to enhance the consumer experience on Yelp. We deliver value to our advertisers through our sophisticated ad system. This best-in-class technology is able to respond dynamically to changes in supply and demand to efficiently match consumers with advertisers. While ad clicks for the year declined by 8% from 2021, a year that had benefited from reopening tailwind and elevated consumer spending, advertiser demand remained robust as we executed against our roadmap of ad system improvements and average CPC increased by 27% year-over-year. We also made progress on our initiative to drive sales through the most efficient channels. Self-serve and Multi-location channels each grew approximately 25% year-over-year to record levels in 2022. Together, these channels represented approximately 48% of advertising revenue in 2022, up four percentage points from 2021. Looking back over the last year, the Yelp team has made tremendous progress across all of our strategic initiatives. Our investments in product have not only delivered record revenue, but also strengthened Yelp's position as a leader in local with trusted content sophisticated ad time. As a result, we plan to expand upon each of our initiatives to drive profitable growth in 2023 and over the long-term by continuing to invest in, growing quality leads and monetization and services, driving sales through the most efficient channels, delivering more value to advertisers and enhancing the consumer experience. After a quarter, these initiatives aim to continue to differentiate Yelp from peers in bringing increased value to local consumers and advertisers. We believe that our consistent execution in these areas in 2022 has positioned Yelp better than ever to drive long-term profitable growth.

Thanks for the recap of our strong 2022 performance journey. I will now turn to our fourth quarter results. Fourth quarter net revenue increased by 13% year-over-year to $309 million, near the high end of our outlook range. Net income decreased by 13% year-over-year to $20 million, largely due to a significant increase in our effective GAAP tax rate. Adjusted EBITDA grew by 18% year-over-year to $80 million, which is at the midpoint of our outlook range. Paying advertising locations increased by 3% year-over-year to $545,000 in the fourth quarter, while average revenue per location reached a quarterly record. Advertising revenue from services businesses increased by 13% year-over-year to $178 million in the fourth quarter. Our efforts to drive high-quality leads to service pros have clearly resonated with advertisers in these categories. Average revenue per location and services reached a record and increased for the 10th quarter in a row. Advertising revenue from Restaurants, Retail & Other businesses increased by 11% year-over-year to $116 million. As anticipated in our fourth quarter business outlook, advertiser demand was more muted in the 2022 holiday season than in prior years, particularly among Multi-location advertisers. This contributed to softer year-over-year growth in paying advertising locations in these categories. Turning to expenses. Since significantly decrease in our headcount in 2020, we have made prudent investments in our product-led strategy to drive profitable growth over the long-term. We have increased the size of our product development and Multi-location sales organizations, while holding local sales headcount relatively flat. As a result, we ended the year with a total headcount of approximately 4,800 people, representing an increase of 11% year-over-year, but still 18% below 2019, while full year net revenue increased by 16% and 18% over the same periods. We are pleased with this progress and currently plan to maintain approximately the same total headcount in 2023. We believe our sales channel mix shift, product-led strategy and reduced real estate footprint will be sources of leverage and margin improvement over the long-term. In addition, we are committed to reducing stock-based compensation as a percentage of revenue. In 2022, we decreased this percentage by approximately two percentage points and expect to drive an additional decrease of one percentage point in 2023. Looking ahead, we believe we can lower stock-based compensation to less than 8% of revenue by the end of 2025, driven by revenue growth and continuing to optimize our location and compensation mix, particularly within product development. Returning capital to shareholders through share repurchases remains an important element of our overall capital allocation strategy. In 2022, we repurchased $200 million worth of shares at an average purchase price of $32.28. At the end of the year, we had $282 million remaining on our existing repurchase authorization. We plan to continue repurchasing shares in 2023, subject to market and economic conditions. Turning to our outlook. As we enter 2023, we continue to believe in the significant long-term opportunities ahead and our team's ability to capture them. However, the macro environment remains challenging. We expect net revenue will be in the range of $300 million to $310 million for the first quarter, reflecting typical seasonality. For the full year, we expect net revenue to be in the range of $1.29 billion to $1.31 billion as our initiatives continue to drive growth against the backdrop of ongoing macro uncertainties. Turning to margin. We expect expenses to increase from the fourth quarter to the first quarter, reflecting our hiring efforts in 2022 as well as a seasonal increase in expense, primarily driven by payroll taxes. As a result, we anticipate first quarter adjusted EBITDA to be in the range of $40 million to $50 million. For the full year, we expect expenses to increase modestly year-over-year as we maintain approximately the same total headcount compared to the end of 2022. As such, we anticipate adjusted EBITDA to be in the range of $290 million to $310 million for the full year. We also currently expect our effective GAAP tax rate for 2023 to be in the range of 32% to 38%, largely due to the requirement to amortize certain research and development expenses under the 2017 U.S. Tax Cuts and Jobs Act. In closing, Yelp delivered one of the strongest revenue growth performances among our advertising and marketplace peers in 2022. Our broad-based local ad platform has proven its durability and our team has continued to execute against our initiatives driving excellent results. While the macro environment remains uncertain, we've built a strong foundation for the future and are confident in Yelp's path to deliver profitable growth along with shareholder value over the long-term.

Thank you. Our first question comes from Colin Sebastian with Baird. Your line is now open.

Great. Thanks. Good afternoon. Thanks for taking my questions. I have two questions. First, regarding the expense outlook, I'm interested in the decision to keep product development relatively flat while adding headcount to the sales team. It seems you have sufficient resources for product development, but I would appreciate more details on the sales strategy. Secondly, given the strong performance throughout the year, I would like your thoughts on how we should consider future growth. You mentioned the roadmap, but what are your expectations for continued growth beyond this year? With ad pricing still rising and clicks decreasing, do you anticipate a shift that could lead to increased ad click growth? I’m interested in your perspective on these metrics and how they might evolve. Thank you.

Thank you for the question, Colin. To clarify regarding our expense headcount, we increased our product and engineering teams in 2022, along with our Multi-location sales team. Our local sales headcount, while still significantly lower than in 2020, saw a slight increase compared to 2019, aligning with our previous communications about being around half of what it used to be. Looking ahead to 2023, we plan to maintain our overall headcount at a steady level across all functional areas, including product and engineering, sales and marketing, and general and administrative. Therefore, we do not anticipate any shifts in headcount mix for 2023.

And Colin, this is Jeremy. I'll address the second question regarding the roadmap for this year and beyond. We feel very positive. Despite the overall economic uncertainty, the team's performance in product and engineering has been outstanding. We're maintaining a robust portfolio of projects that are enhancing our ads. Our ad technology is effectively matching requests, boosting both project numbers and lead quality, which is clearly impactful. As we shift more focus to the consumer side, we've begun to notice positive outcomes since our pivot in 2022. For instance, reviews have increased by 3% year-over-year, indicating that our efforts are starting to pay off. From a market strategy standpoint, we've been emphasizing self-service and multi-location services, and we're seeing significant advancements in these areas. Looking further ahead, we are sharing more insights into why we are confident in our long-term growth potential. One example is the significant pool of quality leads available in the service traffic market, which we currently do not fully engage. By enhancing our offerings such as request-a-quote and matching technology, we have been gradually positioning ourselves to compete effectively in this space. The strength of Yelp's brand and its value to consumers reinforces our belief that we can capture substantial market share over time. While we haven’t incorporated anything specific into this year’s plans, this year will focus on product development and experimentation in this area. Looking ahead, that space is promising. Additionally, I want to highlight off-Yelp as another investment opportunity for us. Not long ago, Yelp's syndication and audience features were nonexistent. Now, thanks to our in-house innovations, this segment has become a rapidly growing business for us, capitalizing on the strong consumer intent we see on our platform and engaging those consumers across the web, thereby delivering more value to our advertisers. Overall, when we assess our entire portfolio, we maintain high confidence in our future growth opportunities.

Great. Thanks guys. Appreciate that.

Thank you. Our next question comes from the line of Shweta Khajuria with Evercore ISI. Your line is now open.

Thank you for taking my questions. I have a couple, please. So, you talked about services revenue and you gained share in the industry versus peers. It sounds like you want to maintain the 25% model, at least based on the shareholder letter. Would you specifically double-click on what your plans are for the year in terms of driving quality of leads and improving the experience to drive services revenue growth? That's question one. And the second question is, David, if you could please talk about the cadence of EBITDA. So sequentially, you had some comments in the prepared remarks as well as in the letter. But how should we think about cadence of EBITDA for the rest of the year to get to your full year guide? Thank you.

Hi, Shweta. This is Jeremy. I can discuss the first question regarding services and monetizing leads. I'm really pleased to see growth, especially in home services, which was 20% year-over-year. It's great to see all this activity on Yelp. We have numerous ongoing improvements in request-a-quote. One upcoming project will significantly utilize Yelp's brand to help consumers feel confident engaging with request-a-quote. We view our product development in this area as very robust. Regarding the monetized leads, the figure of 25% has come up frequently over the years. We believe there is ample room for improvement. However, there are trade-offs; we could definitely push that number higher, but if the lead quality isn't strong, it won't provide value to advertisers. Given the high demand from advertisers currently, we want to ensure they receive leads that are actionable and provide them with opportunities for ROI. Therefore, we're not in a rush to increase that number immediately. We're prioritizing quality, as we did last year, and we believe it will continue to rise over time.

Shweta, in response to your question about the progression of EBITDA throughout the year, we anticipate notably increased expenses in the first quarter due to payroll taxes. Additionally, there are some extra costs associated with the new hires made in the first half of 2022. We expect EBITDA to rise over the year, with expenses tapering off from the first quarter as the year progresses. This is the trend we foresee in order to achieve the targeted $290 million to $310 million for 2023.

Okay. Thanks David. Thanks Jeremy. Just a quick follow-up though. So, David, any help with just for modeling for wanting purposes, but in terms of seasonality, should we follow a particular year? Is it more representative of 2019 versus perhaps 2022? Any thoughts there.

Shweta, I don't, off the top of my head, have a thought in terms of that seasonality for a year to compare to. So, we'll go back and take a look at that. What I can say, again, is Q1 is meaningfully higher because of this payroll tax and that we do actually expect for expenses to moderate down as we move through the year in order to deliver the overall adjusted EBITDA for the year. But let us take a look and see what we think is accountable year in terms of profile. As you know, things have changed considerably through 2019, 2020 and 2021. It makes it a little harder to do comparisons. And the other thing I would just point out is we are not seeing large movements in headcount in 2023 or we don't anticipate large movements in headcount in 2023. So that's also just a very different profile compared to prior years.

Okay. Appreciate it. Thanks David.

Thank you. Our next question comes from the line of Eric Sheridan with Goldman Sachs. Your line is now open.

Thanks so much for taking the questions. Maybe two, if I can. Coming back to the comments on the macro, I would love to get as much detail as you're willing to give them out. What sort of headwind that might have created to Q4, the beginning of Q1, just so we could better size out. Ex the macro, how are you thinking about the underlying business of things within your control versus outside of your control? And then coming back to the mix shift towards Self-serve and Multi-location, are there any elements you can give us in terms of targets or frameworks or thinking about mix shift towards those elements of the ad business as we move through 2023 and think about an exit velocity into 2024. Thanks so much.

Hi, Eric. This is Jed. I can address both questions. Regarding Q4 revenue and macro visibility, we are very pleased with the business's overall resilience so far. In the past, we have faced uncertainty, but the business has stayed strong. We have a diverse and high-quality revenue base across various channels and category performance for ads. Our most efficient channels, Self-serve and Multi-loc, both grew at a 25% rate year-over-year in 2022. However, we noticed some increased caution from Multi-location advertisers in Q4, leading to a more subdued holiday spend than in previous years. These businesses have been navigating several macro challenges, such as labor supply and rising input costs. Nevertheless, our relationship with the Multi-loc business is very strong, and we believe there is still potential for growth in that channel. On the SMB front, our advertiser base consists of high-quality local SMBs that have shown resilience in the past. We are concentrating on what we can control right now and are executing our initiatives accordingly. In terms of the mix between Self-serve and Multi-location, we have seen an increase of four points year-over-year from these two channels, now accounting for 48% of our revenue. About 50% of our revenue is growing at a 25% rate, and we are quite pleased with those two channels. We have continued to enhance our Multi-location product offerings, such as spotlight ads, Yelp audiences, and sponsored collections, which are resonating well in the market. On the Self-serve side, we are making improvements in customer insights and the message center, effectively matching essential leads with our advertisers. Moving forward, we plan to continue focusing on both channels, believing they both have significant potential for growth.

Thanks so much.

Thank you. Our next question comes from the line of Cory Carpenter with JP Morgan. Your line is now open.

Hey, thank you. I have two. A question, I want to more on macro. Just maybe more specifically, have you seen improvement in the Multi-location advertiser base coming out of the holiday season? Or would you characterize it as kind of staying steady perhaps at those lower levels? And then secondly, on the consumer demand, I think, Jeremy, you mentioned that it remains a little below pre-pandemic levels. Curious what you attribute that to? And then you called out unique devices are lower, but what about engagement per user and how that's trending? Thank you.

I can discuss the macro situation regarding Multi-location trends. We experienced subdued spending in the fourth quarter; however, we were pleased with our continued discussions with Multi-location advertisers and believe we are well-positioned heading into 2023. In this type of environment, we have strong down-funnel leads, and during times of macro uncertainty, businesses prefer to invest where they see a return on investment. We offer attribution solutions that effectively demonstrate this, including our first-party data from Yelp and third-party sources that showcase our attribution effectiveness. Overall, our position is solid, even with the macro uncertainties beyond our control. We feel competitive as we enter 2023, particularly concerning the Multi-location aspect.

Hi, Cory. Jeremy, again. Talking about consumer engagement and looking at the app, it got flat year-over-year, I think a contributing factor, obviously macro and how much consumers are getting out there and transacting. But we're not just kind of sitting around. We have pivoted a lot of resources towards consumer. We did see contributions rise 3% year-over-year. So, I think that's early signs of success from the efforts there. We have a deep roadmap that we'll be executing on in 2023 that's focused on some of these things you mentioned, improving the Android experience, like improving engagement. We've got a new home fee that we're going to keep iterating on. You may have also noticed there's new technology out there. Large language models in regards to book their first win within search from leveraging LOM. So, I think, there's a lot of opportunity. We're just gearing up. Last year was kind of our first effort starting to stack wins. And so, I think we'll see that continue. Also worth noting, mobile web was up as well. And so, with the product and engineering investment that is now quite significant, I think we feel confident. And then also return to marketing spend, one of the things we pulled back on, especially during the early pandemic timeframe, was installs and driving installs from a pay perspective. And so that's something that we've returned to and so that provides some audience upside as well.

And maybe one more, if I can just for Jed. If I was interesting you call out local sales projects, new customer acquisition is the best you've seen in two years. Curious what you attribute that to if there's something maybe specifically that you've changed or that you're doing that you would call out working well. Thank you.

Thank you for the question. We are very pleased with our local channel, which includes both self-serve and rep-sold business. From a salesforce perspective, we see benefits from our remote setup this past year, allowing us to retain our top-performing reps now spread across the country. This has greatly helped us ensure that we have the right talent in place. As our salesforce matures, we expect increased productivity from them. Additionally, we are providing them with a product to sell, which is crucial as we have seen our product portfolio evolve over the past few years. The confidence they have when discussing our offerings with local businesses has improved, and we know we are delivering more value than ever before. This has been a significant factor in the success of our local sales team.

Thank you.

Thank you. Our next question comes from the line of John Colantuoni with Jefferies. Your line is now open.

Hi. This is Chris Suchecki on for John. Thanks for taking the question. So, we think we picked up on an uptick in ad loads across the Yelp app, particularly in the services category. Was this just some testing we picked up on? Or are you able to talk about if you've made a permanent adjustment to the services ad load? And then maybe just some comments on how you're thinking about greater ad load could impact consumer experience and then lead monetization. Thank you.

Hi, Chris. This is Jeremy. We're constantly running experiments that are very good the search experience. And so, nothing to report there as far as something massively different than historical. I do think a lot of the activity within services, it's important to note within request-a-quote. And so a lot of what's happening within the request-a-quote is fully or near fully monetized. And it's a great consumer experience. Because you're telling us more about your project and you're hearing from people that can actually fulfill that and ideally within a reasonable timeframe. So, we see it as kind of a win all around in that the progress, valuable leads and opportunity to engage with the consumer. The consumer gets responsive businesses and Yelp facilitates that and gets paid. So that's where a lot of the focus is and a lot of the value is within services.

Thank you. Our next question comes from the line of Brian Fitzgerald with Wells Fargo. Your line is now open.

Hi, guys. Thanks for taking the question. Last quarter, you guys called out some interesting, almost counter-cyclical trends in services. I think it was room first maybe increasing ad spend even if they saw demand cool. So, you noted home services was up 20% year-over-year this quarter. So, maybe it looks like that trend continued. Curious if there's anything else you can call out there or any other services categories, especially weak or strong.

Hi, Brian. This is Jeremy. I don't recall the specifics on recruits. However, we have observed that demand for services from advertisers remains strong, particularly in home services. It’s challenging to fully understand this given the unusual macro environment. One factor may be that as business activity has slowed compared to the strong year in 2021, companies still need to invest in maintaining their operations. They are seeking reliable channels for return on investment regarding leads. This is why many are turning to Yelp; we provide high-quality leads, and businesses find our service convenient as they can turn it on and off as needed and assess our effectiveness themselves. We have been diligently working on enhancing our request-a-quote feature to meet business needs, emphasizing quality over quantity last year. We are committed to increasing our monetizable leads and ensuring lead quality, which is paying off. Additionally, regarding Yelp’s opportunities, we can engage consumers making less frequent service requests through our syndication, reaching them when they visit sites like the New York Times. This is also a valuable tool. Overall, everything is aligning to provide valuable leads to local businesses, and they continue to invest in our services, which is encouraging.

Thank you. There are no additional questions waiting at this time. So, I will now conclude the Yelp fourth quarter and full year 2022 earnings conference call. Thank you for your participation. You have a wonderful day.