Hello and welcome to the Yelp First Quarter 2023 Earnings Conference Call. My name is Elliot, and I’ll be coordinating your call today. I’d now like to hand it over to Mr. James Miln, SVP of Finance and Investor Relations. The floor is yours. Please go ahead.

Good afternoon, everyone, and thanks for joining us on Yelp’s first quarter 2023 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 on 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 great start to the year with strong first quarter financial results and considerable product momentum. So far, we’ve already rolled out more than a dozen new product updates in 2023. Our performance-based ad products in high-intent audience continued to generate robust advertiser demand in the first quarter. Net revenue increased by 13% year-over-year to $312 million, representing a record for the sixth quarter in a row. We delivered this performance with a net loss of $1 million and adjusted EBITDA of $54 million. In the first quarter, we leaned into our roadmap to deliver value to advertisers across our key categories. These efforts resulted in the recent launch of Yelp Guaranteed, which provides consumers with even greater confidence when hiring service providers. Advertising revenue growth from services businesses accelerated from the fourth quarter of 2022 to 15% year-over-year. The home services category was particularly strong with 25% year-over-year revenue growth. Advertising revenue from restaurants, retail, and other businesses increased by 10% year-over-year. Our portfolio of down-funnel ad products resonated with SMB and multi-location advertisers in the first quarter, and we continue to make progress against our initiative to drive sales through our most efficient channels. Self-serve revenue increased by approximately 25% year-over-year, and multi-location revenue increased by approximately 15% year-over-year. After increasing our investment in the consumer experience in 2022, our teams hit the ground running in 2023 by introducing several exciting new product and feature updates to make Yelp even more engaging and useful for users. We’ve rolled out new ways for consumers to contribute to and interact with our trusted content, including interactive review topic suggestions, a video review format, and new review reactions. AI presents a great opportunity to enhance our search and discovery experiences for consumers. Leveraging our rich first-party dataset, we improved our search suggestions and applied LLM technology to surface even more relevant review highlights in the first quarter. We also added a Surprise Me feature to assist with restaurant discovery. These updates represent the most significant product momentum we’ve had on the consumer side of our business in recent years, and we continue to have a robust pipeline of projects for the remainder of 2023 and beyond. In summary, Yelp’s standout performance in the first quarter, with faster revenue growth than many of our advertising peers, demonstrates the value of our broad-based local ad platform. I’m incredibly proud of the Yelp team, which has established a track record of consistent execution. With our strong results and significant product innovation in the first quarter, I’m confident in our ability to drive long-term profitable growth. With that, I’d like to turn it over to David.

Thanks, Jeremy. First quarter net revenue increased by 13% year-over-year to $312 million, $2 million above the high end of our outlook range. Adjusted EBITDA increased by 12% year-over-year to $54 million, $4 million above the high end of our outlook range. Top-line growth was predominantly driven by an increase in average revenue per location and to a lesser extent, an increase in paying advertising locations, which reached 554,000. In services, ad revenue increased by 15% year-over-year to a record $184 million driven by balanced growth across paying advertising locations and average revenue per location. In restaurants and retail ad revenue increased by 10% year over year to $114 million, driven by growth in average revenue per location, but partially offset by a decrease in paying advertising locations, as restaurants and retailers continued to face elevated input costs. Recent volatility in our ad clicks and average CPC metrics further moderated in the first quarter. Ad clicks increased by 1% year-over-year, while average CPCs increased by 14% year-over-year. Turning to expenses, first quarter expenses increased from the fourth quarter of 2022, in part due to several seasonal expense drivers, including payroll taxes and marketing spend, as well as relatively low employee attrition. Compared to the first quarter of 2022, total costs and expenses increased by 13%, largely reflecting our hiring efforts in 2022. While employee attrition has been trending lower than anticipated, we expect headcount to be approximately flat year-over-year by the end of 2023. We further reduced our real estate footprint in the first quarter and incurred an impairment charge of approximately $4 million related to the abandonment of the right of use assets and leasehold improvements of a portion of our San Francisco office space. We now expect the office space reductions we have completed to date will contribute an aggregate of approximately $26 million to $28 million of annual GAAP expense savings in 2023 and 2024, of which we realized approximately $6 million in the first quarter. We also remain focused on reducing stock-based compensation as a percentage of revenue to less than 8% by the end of 2025. To achieve this, we are focusing our product development hiring efforts outside of the Bay Area, particularly in the UK and Canada, as well as adjusting our overall mix of compensation. Returning capital to shareholders through share repurchases remains an important element of our overall capital allocation strategy. In the first quarter, we repurchased $50 million worth of shares at an average purchase price of $29.40. As of March 31, 2023, we had $232 million remaining under our existing share repurchase authorization. We plan to continue repurchasing shares throughout the remainder of the year, subject to market and economic conditions. Turning to our outlook, we expect net revenue will be in the range of $320 million to $330 million in the second quarter as our product-led initiatives continue to drive robust advertiser demand. For the full year, we are raising our outlook range and now expect net revenue to be in the range of $1.295 billion to $1.315 billion, reflecting our first-quarter outperformance balanced against continued macro uncertainties. Turning to margin, we expect second-quarter expenses to be relatively consistent with the first quarter as lower payroll tax expenses will be offset by lower than expected employee attrition and higher sales commissions, reflecting strong advertiser acquisition trends. As a result, we anticipate adjusted EBITDA will grow sequentially to be in the range of $60 million to $70 million in the second quarter. In the second half of the year, we expect expenses will decrease from the first half due to seasonality, including lower sales and marketing expenses in the fourth quarter. Together with our expected revenue growth, we anticipate adjusted EBITDA will be in the range of $290 million to $310 million for the full year. In closing, Yelp’s first-quarter results demonstrate the strength and resiliency of our broad-based local advertising platform and product-led strategy. We continue to be pleased with the execution of our teams, which has enabled us to deliver strong financial performance in the face of ongoing macro uncertainties and gives us continued confidence in our ability to drive shareholder value over the long term. With that, operator, please open up the line for questions.

Our first question today comes from Colin Sebastian with Baird. Your line is open.

Thanks. Good afternoon. I have a couple of questions. I guess first off, looking at the trend lines in CPCs and clicks as they converge a bit, it looks like at least on track to converge over the next couple of quarters. Is that the right way to think about it? And are your initiatives there still continuing to try to drive higher impression volumes and lower prices? And then, on home services, just trying to understand perhaps the disparity between request a quote and overall home services strength and the acceleration there. If you could talk about maybe the dynamic between those two factors. Thank you.

Hey Colin, it’s David. Starting off on CPCs and clicks, we were definitely pleased to see clicks and CPCs moderate and for clicks to return to growth in the first quarter. As you know, advertisers provide us with budget and then we run an auction to find the market-clearing price for a given visitor at a given time in a given category in a given geography. And we are focused on ensuring that we’re delivering value to advertisers and optimizing the deployment of their budgets. So, we have made significant investments, as you can tell from these results, in continuing to refine the mechanism by which we run those auctions and all of the data that we ingest in order to ensure that we’re doing it as efficiently as possible. So, we do believe that we have a significant roadmap of additional initiatives to continue to drive value. But I just want to underscore that we will continue to allow the auction to optimize the price and number of clicks. So, that will play out over the coming quarters. And of course, we believe that delivering value to advertisers is fundamental to ensuring that they not only stay with us, but they increase their budget. I’d just end on one point. We continue to see very strong revenue per paying advertising location, average revenue per paying advertising location in the first quarter. So, we think that continues to reflect the value that we’re delivering.

Hey Colin, this is Jeremy. I’ll take a stab at your second question around home services. I appreciate you calling that out. That was a real bright spot in Q1. We saw revenue up 25% year-over-year and in the services category more broadly, it was 15% year-over-year. So, we’re feeling really great about advertiser demand. Clearly, they’re seeing that our leads are high-quality, our down funnel ensures that the consumers they’re interacting with are motivated. But that said, we’re also working on the product side to continually improve our offering, both on the ad matching side, which is underlying request a quote, but then also on request a quote itself streamlining things. You may have seen our product announcements in there with password-less login, which reduces friction. There is also a really big initiative that we’ve started rolling out called Yelp Guaranteed, where we stand behind service providers, helping them close that business with consumers by offering Yelp Guaranteed. You can imagine this could particularly help newer businesses that haven’t had the chance to build up the reputation in the same way as someone more established. So, we do have many investments in that area to continue to grow the overall number of requests to close. Obviously, macro plays a role here. And I think if you look across the peer group of companies, there are soft trends out there. But even despite the overall consumer demand, I think we’re making really good progress on the product side. And we’re certainly seeing the demand from businesses remain quite strong and gaining share there.

We now turn to Justin Patterson with KeyBanc Capital Markets. Your line is open.

Thank you. This is Sergio Segura on for Justin. We had two questions. Thanks for the color in the letter about the product initiatives. I’m wondering if you could talk about which products you’re most excited about in 2023, maybe from a revenue perspective, which ones are expected to provide the most growth there? And then secondly, just on the self-serve channel, you noted strength and record customer acquisition in that channel. I was hoping you could talk about your expectations later in the year. Do you expect continued strength there, just amid the weakening macro? Thank you.

All right. Maybe I can take a stab at your first question here. This is Jeremy, again. Product initiatives that I’m most excited about in 2023, well, we obviously listed out a whole bunch of things that launched in Q1, and that’s just Q1. So, we’re really just getting started here. Product velocity, I would say, is outstanding; I’m really proud of the product and engineering team coming out of the gate this year strong. And I think that’s reflected in some of the projects that you see there, with Yelp Guaranteed topping the list; very exciting, reducing friction with password-less login, and adding video to that review flow. I mean, the list goes on. So, I won’t rattle them off, but certainly, if you haven’t delved in there, take a look at that. Beyond that, there continue to be themes and areas that we have considerable investment in, as far as what can have an impact. We’ve always seen really great returns from investing in our ad tech staff, making ads more efficient, and better matching, which creates inventory out of thin air. So, there’s a lot of leverage in that area, and we keep finding more and more opportunity. Things also worth noting, the way that we’re investing is not just quarter to quarter or even year to year; we do have a pipeline that extends over multiple years. So, we’re thinking about things on what can we deliver next quarter, but we’re also thinking about what are we going to deliver in ‘24. And we have projects even that go beyond that. So, it’s really an overall portfolio approach. And now we have several quarters' track record of delivering revenue growth led by product and engineering. So, we feel really great about where we’re at. And I think also, if you look at the employee retention side, we’re keeping a lot of our senior folks. The market for engineering labor has really changed dramatically, meaning we have well-trained people that have been around Yelp that know how to operate and execute. I think that’s part of what’s behind all the innovation you’re seeing today.

This is Jed, Sergio. I can take that question on self-serve. Obviously, overall, we’re really pleased with the results in the self-serve channel during the first quarter. 25% year-over-year growth was a standout there. As part of our product and engineering growth strategy, we’ve continued to improve on that self-serve offering, improving the conversion flows, demonstrating the value without the need to engage with a salesperson, experimenting with various push strategies and email strategies over the quarter, which showed some positive retention results and spend results. We’ve focused on delivering value to advertisers through high-quality ad clicks. We’ve talked about that quality a lot; it’s one thing to get an ad click, but we want to ensure those customers actually feel the impact of that ad click. And as Jeremy mentioned, we do have a strong pipeline not only for the near-term but for a pretty broad toolbox to go after in the coming quarter. So, we feel really strong about where we stand with the self-service channel.

We have a follow-up question from Justin Patterson. Please go ahead.

Great. Thank you very much. Would love to talk a little bit more about just the new Yelp Guaranteed products. It seems like something that could be pretty meaningful in terms of both the user experience and the advertiser. So, I’d love to hear any initial learnings you have from that one. Thank you.

Hello, Justin. This is Jeremy. Yes, Yelp Guaranteed, we’re really excited about it. It’s been in development for a while. We’re now in a number of different markets with it rolling out nationwide this summer. I think what you’re pointing to is exactly right. Yelp getting involved in the sense of standing behind businesses and saying, hey, if you go through request a quote, you’re going to have a great experience, and we’re guaranteeing that up to $2,500. I think it really adds value to both sides of the marketplace. Early results that we’ve seen from it in very early testing indicate that it resonates with consumers and should resonate with business owners as well. So, it’s early days, obviously, and really, the way I would think about it is it’s an enhancement to our request a quote offering. Fundamentally, it’s not some totally new direction; it’s simply part of our efforts to make request a quote a better experience for consumers and business owners.

Got it. And then just a quick follow-up for David. Looking at gross margin, there’s some nice sequential progression within there. Anything unique driving that for this quarter?

Thanks for the question. Justin, I wouldn’t say anything unique. Obviously, we have continued to be very disciplined about expenses and we are continuing to balance between investment and delivering adjusted EBITDA. One of the things we’ve said many times is we believe that our product-led strategy will enable us to drive margin expansion over the long term. What you saw in the first quarter was as revenue performed better, we were able to flow that through to adjusted EBITDA. We’ve seen that in a number of quarters in ‘22 and even in ‘21. So overall, very consistent with the approach we’ve taken and definitely pleased with the results from the first quarter.

We have no further questions. So, this concludes our Q&A and today’s conference call. We’d like to thank you for your participation. You may now disconnect your lines.