Good afternoon, everyone and thanks for joining us on Yelp’s second 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 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 a number of record results in the second quarter, a testament to our increased product philosophy and consistent execution across the company. We grew net revenue by 13% year-over-year to a record $337 million, representing the ninth consecutive quarter of double-digit growth. We delivered this performance while also expanding net income margin and adjusted EBITDA margin by two percentage points each from the prior year period. Yelp's elevated pace of product innovation continues to strengthen the company for the long-term. In the second quarter, we leaned into our roadmap to deliver value to advertisers. As a result, businesses spent more on Yelp than ever before across categories. Advertising revenue from services businesses increased 15% year-over-year with approximately 25% year-over-year growth in the home services category. Advertising revenue from restaurants, retail, and other businesses increased by 11% year-over-year. Our portfolio of down funnel ad products continued to resonate with SMB and multi-location advertisers, and we made progress against our initiative to drive sales through our most efficient channels. Self-serve and multi-location maintained their strong year-over-year growth rates of approximately 25% and 15%, respectively. As a result, these channels together accounted for the majority of our advertising revenue at 51% for the first time. Turning to product. AI continues to present new opportunities to enhance the product experience for consumers and advertisers alike. After upgrading our infrastructure over the past year, we've been able to leverage neural networks to determine the most useful content to display to consumers on the home feed, as well as to provide them with better-targeted ads, which improve the overall performance of our ad system. With a robust pipeline of projects for the remainder of 2023 and beyond, I continue to be excited about the opportunities ahead. In summary, Yelp delivered another standout performance in the second quarter with faster revenue growth than many of our advertising peers. I'm incredibly proud of the execution demonstrated by the entire Yelp team, which has enabled us to deliver consistently strong results. As we look ahead, we remain focused on growing revenue through our strong product pipeline and delivering shareholder value over the long term. With that, I'd like to turn it over to David.

Thanks, Jeremy. Second quarter net revenue increased by 13% year-over-year to $337 million, $7 million above the high-end of the outlook range. We were pleased to see the full amount of this outperformance flow through to the bottom line. Net income increased by 84% year-over-year to $15 million. Adjusted EBITDA increased by 25% year-over-year to $84 million, $14 million above the high-end of our outlook range, representing a 25% margin. Top line growth was driven by an increase in average revenue per location, which reached a record level in the second quarter. Paying advertising locations were relatively flat, down 1% year-over-year. In services, ad revenue increased by 15% year-over-year to a record $200 million, primarily driven by growth in average revenue per location. In restaurants, retail, and other, ad revenue increased by 11% year-over-year to a record $122 million, also driven by growth in average revenue per location. In the second quarter, we delivered value to advertisers through high-quality clicks and stability in the year-over-year growth rates of our ad clicks and average CPC metrics compared to the first quarter. Ad clicks were flat year-over-year, while average CPCs increased by 14% year-over-year. Turning to expenses. Other than general and administrative expenses, which include a one-time litigation settlement, second quarter expenses decreased from the first quarter and were lower than expected due to several factors, including lower employee-related expenses and marketing spend. In addition, while employee attrition remains lower than anticipated, total headcount decreased slightly from the first quarter, and we continue to anticipate that it will be approximately flat year-over-year by the end of 2023. We also remain focused on enhancing the quality of adjusted EBITDA by reducing stock-based compensation as a percentage of revenue to less than 8% by the end of 2025. To reach our target, we are focusing our product development and hiring efforts outside of the United States, particularly in the UK and Canada, as well as adjusting our overall mix of compensation throughout the organization. Returning capital to shareholders through share repurchases remains an important element of our overall capital allocation strategy. In the second quarter, we repurchased $50 million worth of shares at an average purchase price of $31.98. As of June 30th, 2023, we had $182 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. Now halfway through the year, we are narrowing our outlook ranges for revenue and adjusted EBITDA. We expect net revenue will increase from the second quarter to be in the range of $337 million to $342 million in the third quarter. For the full year, we are raising our outlook range and now expect net revenue to be in the range of $1.32 billion to $1.33 billion, reflecting a $20 million increase at the midpoint compared to our previous outlook. Turning to margin. We expect third quarter expenses will be approximately flat compared to second quarter expenses, excluding the litigation settlement, and as a result, we anticipate adjusted EBITDA will be in the range of $84 million to $89 million. For the full year, we now expect adjusted EBITDA will be in the range of $310 million to $320 million, an increase of $15 million at the midpoint compared to our previous outlook. In closing, with nine sequential quarters of double-digit revenue growth, Yelp's second quarter results demonstrate our ability to sustain top line growth while delivering healthy profitability. Our product velocity across our strategic initiatives supports the durability of our business amid continued macro uncertainties. As we look to the second half of the year, we remain focused on executing against our strategic priorities and product roadmap.

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

Thanks so much for taking the question. I want to come back to your comments on optimization of both surfacing content for the platform as well as ad targeting overall. Is there a way to either qualitatively or quantitatively talk to us about the momentum you might be able to build around the company looking out through the end of this year and into next year with respect to how under optimized the platform might be in elements like this, could move you in a very different direction in terms of revenue re-acceleration, that would be number one. And then just wanted to make sure I can understand the characterization of the way the implied Q4 revenue tracks. Are there elements of tougher comps or conservatism that might be implied in the implied Q4 revenue against your full year? Just want to make sure we understand a little bit about the trajectory through the end of the year. Thanks so much.

Hi, Eric. Thanks for your question. I'll address the first half and David will cover your second question. Our ad tech stack and ad targeting have been an invaluable focus for us. We have been working in this area for many years and continue to have a broad range of projects aimed at enhancing our efficiency and ad matching. There is definitely no slowdown. We established the infrastructure necessary to upgrade our matching algorithm using neural networks, which proved beneficial this quarter. Additionally, we improved photo selection in our ads by leveraging neural networks. In the realm of advanced technologies, particularly in AI, we also explored Language Optimization Models (LOMs). We discussed our initial efforts with LOMs last quarter, and we see numerous opportunities to utilize them. LOMs excel at summarizing content and expanding queries with synonyms. At Yelp, we are making significant strides to maximize this potential. We expect ongoing impactful optimization opportunities on the ad front, and these impacts also extend to consumers. We experienced success with our home feed on the app, where we implemented better ranking through neural networks, leading to improved user retention. This was encouraging to see. Lastly, as we mentioned last quarter, there are continued opportunities with LOMs to accomplish tasks that were previously challenging and costly, often requiring human effort, such as summarizing page content. For instance, in our business, there are numerous reviews, and we can now easily capture the essence of what the reviews say and what the business offers. With the advancements in technology, we can achieve this effortlessly. Now, I’ll hand it over to David for the second part.

Hi, Eric. So, obviously, we saw strong momentum through the second quarter, 13% growth on top of 13% growth in the first quarter. And obviously, for the guide we were able to raise the full year. While we've all seen very encouraging macroeconomic data over the past couple of weeks, whether it's inflation or the GDP number for the second quarter, consumer sentiment. There are still uncertainties as we go through the rest of the year. And as usual, whenever we're providing guidance, we want to take those risks and uncertainties into account for how we expect to perform through the remainder of the year.

Your next question comes from the line of Justin Patterson with KeyBanc. Your line is open.

Great. Thank you. This is Sergio on for Justin. We had two questions. First on just the views of consumer demand and engagement on Yelp right now. In the letter, you noted that clicks were flat for the quarter and a 10% decrease in Request-a-Quote. So, just wondering how you're seeing demand and engagement on the platform. And then relatedly to that, just how consumers are interacting with some of the new features that you guys rolled out earlier this year. And then the second question around services monetization, it looks like that's been driven by improved matching. So, is there any way to quantify how much matching has improved? Or just maybe some color on how the workflow has improved for service providers due to those matching improvements that you've got to make? Thank you.

Hi, Sergio. I believe I can address both of your questions. On the consumer demand side, it has remained steady, similar to last quarter. We've redirected many resources to the consumer area over the past year and see significant opportunities along with some early signs of success. Contributions are up, which is encouraging. We continue to implement improvements, such as the home feed enhancements, that have positively impacted user retention. The projects are rolling out and making a difference. While we have faced some macroeconomic headwinds, the economy appears to be improving, shifting from a headwind to a potential tailwind. With this in mind and our investments in consumer initiatives, we see ample opportunity for future consumer demand. Regarding your second question about services monetization, we are steadily improving our ad tech stack, which has been successful for us over the years. In fact, we saw an increase in ad clicks and services year-over-year in Q2, which is encouraging. With Request-a-Quote, we are making significant investments, including masking phone numbers to gather lead information from consumers who are willing to share it, thereby enhancing lead quality for our advertisers. Despite some recent softness in project volumes, the leads we generate remain high in quality, and we are taking steps to further enhance this quality. Looking ahead at home services revenue, we saw a 25% year-over-year growth, showcasing the power of these quality leads. Advertisers are recognizing this value, especially in light of macro challenges that might have caused slowdowns elsewhere, and they're choosing to invest their resources with Yelp, which is promising.

Your next question comes from the line of Jason Kreyer with Craig-Hallum. Your line is open.

Great. Thank you, guys. Just wanted to dissect ad revenue in terms of clicks and CPCs. Clicks have been relatively flat recently, but CPCs have grown a lot. Curious if you think there's any upward limits there, or if you can continue to grow CPCs going forward.

Hey, Jason. It's David. So, maybe just on clicks and CPCs, if I can step back for one moment. Importantly, when advertisers come to Yelp, they provide us with a budget and then it's up to us to optimize that budget on their behalf. The way we do that is by running an auction, and we're really looking to find the market-clearing price at that time for that visitor in that category, in that geography. And so, we are not trying to determine the CPC or the clicks. We're actually really using all of the machine learning tools that have been built into the ad tech stack and that Jeremy has talked about to optimize the deployment of that budget. That being said, one of the things that is very important is that we are delivering valuable leads to advertisers, and we believe that we have been able to continue to increase the value of those leads that are being provided to advertisers. One of the ways that we assess that is whether revenue per paying advertising location has been increasing. We did reach a record overall in the second quarter, and particularly revenue per paying advertising location and services reached a record in the second quarter. Our belief is that as we can continue to deliver valuable leads, it does provide meaningful headroom on CPCs. But again, I just want to underscore, we don't per se try to set the CPC. We are trying to optimize the best way to deliver value to the advertiser given their budget.

Thanks for the clarification. In the letter, you also mentioned positive early results from the nationwide rollout of Yelp Guaranteed. Could you share more details about those early returns or what you observed during testing?

Hi there. I'm pleased to share updates on Yelp Guaranteed. As of today, we have launched it nationwide, which is exciting news. We're proud of this rollout, and initial results indicate an increase in project submissions and ad clicks. This initiative builds on Request-a-Quote, reflecting our ongoing investment in enhancing consumer experiences. It connects consumers with multiple professionals, allowing them to provide necessary project details and their contact information. Additionally, we introduced phone number masking this quarter, which we mentioned in our letter. This feature protects consumer privacy while also giving professionals access to phone numbers, which is critical for them to engage directly, showcasing their sales skills. We are committed to significantly investing in Request-a-Quote, and Yelp Guaranteed stands as a strong example of that dedication.

Your next question comes from the line of Colin Sebastian with Baird. Your line is open.

Thanks guys. Good afternoon. Congrats on a really good quarter. Maybe just following up on that on Request-a-Quote, just kind of looking at the trends sequentially and perhaps wondering what you guys may be focused on in terms of driving more velocity there. And then, on the audience network, just curious if that has a larger influence on the business. What are your thoughts there on the go-to-market strategy? Is this something that you want to invest in more, maybe dedicate sales to that or what's the approach? Thank you.

Hey, Colin. This is Jeremy. I think I can tackle the first one here on Request-a-Quote and services trends generally. I think, stepping back and looking at the performance in the quarter, pretty fantastic, 15% year-over-year revenue growth on services, 25% year-over-year revenue growth in home services. Really it appears like Yelp is taking share. So, we're very excited to see that. Ad clicks and services were up year-over-year in Q2, so from that perspective, the pie is growing. I think if you look at macro, you can see there's been headwinds. The consumer hasn't been as bold as they were in 2021, early half of 2022. But still, I think the overall performance for Yelp is incredibly strong in the face of that. And as we look out in the second half, I think the consensus view is that the economy is improving, and the consumer is in decent shape. And so that could take a headwind and turn it into the tailwind.

Hey, Colin. This is David. Maybe just to clarify on audience network, did you mean Yelp Audience or perhaps you were referring to SEM marketing? Just want to make sure we understood what you were asking.

Yeah. The Yelp Audience Network.

Great. Hi, Colin. This is Jed. I can take that one. Overall, we were really pleased with the progress we've made with Yelp audiences. This is largely an incremental product that a couple of years ago was at a $15 million run rate, and we've moved to a $30 million run rate last year and approximately a $45 million run rate this year. For location-based businesses, it's blended into what they're already buying and allows us to expand wallet share within our existing book of business. To that extent, we have the go-to-market team in place, which we've built up over the past year, and we continue to see further penetration there. We also talked about our multi-location channel and the growth of our agency development team. Their job is to engage with traditional advertising agencies to educate them on our broader product strategy within multi-location and to reduce some of the friction involved in purchases, like master service agreements, while understanding how those agencies operate. This really helps not only location-based businesses but also the brand side. It's still early, but we're pleased with the growth we've seen, particularly in the current macro environment and especially compared to some peers in the brand space. We're encouraged by the signals from Yelp Audiences and will continue to invest going forward.

Your next question comes from the line of Stan Velikov with Wells Fargo. Your line is open.

Hi. Thanks for taking my question. I guess, first of all, just on your latest product initiative, which do you think are the lowest hanging fruits there? And which do you expect among those to provide the most growth opportunities?

Hi, there. This is Jeremy. Looking at growth, we see significant opportunities ahead, both in the short-term and long-term. We have achieved nine consecutive quarters of double-digit revenue growth. Our product-led strategy has been effective, as evidenced by the fact that self-serve and multi-location now account for 51% of our revenues. This focus on self-serve and multi-location has been a key aspect of our strategy. In terms of low-hanging fruit and leverage, we see opportunities in areas like our ad tech innovation. Our ad tech stack has been enhanced with LLM and neural net capabilities, which we mentioned in our letter. This quarter, we have made improvements in the efficiency of our algorithms, which are generating inventory for advertisers more effectively by reducing waste and better understanding consumer needs. This results in improved consumer experiences and higher quality leads, creating a positive feedback loop. Our ad tech portfolio remains strong, with plenty of ideas and potential for further development. We are also excited about new opportunities outside of Yelp, such as Yelp Audiences, and we identified SCM as a significant opportunity that we have not yet fully explored. We know that there are public companies in the services sector relying on SCM leads, and we are looking to tap into that with initiatives like Request-a-Quote and Yelp Guaranteed. These efforts are building towards capturing SCM paid leads, presenting an additional growth avenue. On the Request-a-Quote front, we continue to make progress, as evidenced by the improvements in Yelp Guaranteed and phone number masking. We are also working on reducing friction in the consumer login process and improving the experience for business owners. On the consumer side, we are enhancing contributions and have seen a doubling of video contributions since incorporating video into our review process. Additionally, our recent home feed improvements have boosted user engagement. Overall, we are investing in multiple areas, and there are various paths to growth, which gives us confidence for the long-term.

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

Thank you for your response, Jeremy. My follow-up question is about multi-location. What do you see as the easiest opportunities in that area? Specifically, how do the product offerings Yelp has today for multi-location compare to the market and to where you were two years ago? You have improved significantly in terms of offerings, but where do you identify the largest opportunity?

Hi, Shweta. This is Jed. I can start out by saying we're very pleased with the performance of the multi-location channel during Q2. It increased by 15% year-over-year despite a challenging comparison from last year. It also rose 15% sequentially from the previous quarter. The team is really excelling in their efforts, and we have made substantial investments in the team, which has become world-class. We are effectively engaging with clients across various segments, including the mid-market, partner, and enterprise channels, and our relationships are growing stronger over time. We consider Yelp Audiences to be a key growth driver for both location-based customers and brand advertisers we haven't reached before. We've also made significant improvements to the user interface of our ads. Multi-location advertisers often have different needs compared to local advertisers, and we are committed to innovating our products to meet those demands for our larger clients. Another area we are paying close attention to is attribution, which is particularly critical in the multi-location channel. Given the current economic climate, advertisers want to ensure they are receiving a return on their investment, and we can demonstrate this in various ways. While off-Yelp attribution is important, we also use Yelp Store Visits (YSV), which has become a valuable asset for us over the years. Having our own first-party data means we are not entirely dependent on third parties to demonstrate the effectiveness of our ads. Overall, there is significant spending within this channel, and we feel we are well-positioned as we move forward.

Your next question comes from the line of John Colantuoni of Jefferies. Your line is open.

Hi, there. This is Chris on for John. Thanks for taking a question. You've called out macro uncertainty a few times in the shareholder letter. Could you just unpack that in a little more detail for us and maybe talk about what you're specifically seeing and kind of how you measure the impact on each of your segments, maybe staffing services versus RRO, and is it kind of fair to say those macro headwinds might be subsiding with it? Thank you.

Thank you for your question, Chris. The macroeconomic landscape has been quite complex, making it challenging for many to predict our potential outcomes. However, the US economy has been performing well. Specifically, in the second quarter, we noticed a robust demand for advertising on the SMB side. We're proud of our capacity to generate this demand and believe we are well-positioned to support local advertisers and small businesses in reaching consumers, who have consistently shown resilience in their operations and demand for advertising. This is indeed a notable strength for us. Regarding the overall economy and its future trajectory, I must admit that we have no more insights than others closely monitoring this situation. Nonetheless, I want to emphasize that our commitment to delivering value to advertisers has allowed us to excel compared to our peers. In the second quarter, we achieved a 13% growth and a 25% adjusted EBITDA margin, reflecting a two percentage point improvement. We are very satisfied with our ability to concentrate on factors within our control, and we intend to maintain this focus for the remainder of the year.

Great. Thanks so much.

This concludes the question-and-answer session as well as today's conference call. Thank you for joining. You may now disconnect your lines.