Good afternoon. My name is Breanna, and I will be your conference operator today. At this time, I would like to welcome everyone to the Yelp Inc. Q1 2024 Earnings Conference Call. Please note that this call is being recorded. I will now turn today's call over to Josh Willis, Yelp Investor Relations. Please go ahead.

Good afternoon, everyone, and thank you for joining us on Yelp's First Quarter 2024 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 may discuss adjusted EBITDA, adjusted EBITDA margin and free cash flow, 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 Investor Relations website, you will find additional disclosures regarding these non-GAAP financial measures as well as historical reconciliations of GAAP net income loss to both adjusted EBITDA and adjusted EBITDA margin and a historical reconciliation of GAAP cash flow from operating activities to free cash flow. And with that, I will turn the call over to Jeremy.

Thanks, Josh, and welcome, everyone. As we approach 20 years of helping people connect with great local businesses, I am proud of the impact Yelp has had on the many communities we serve. We continue to lean into our strategic focus on Services categories, and we have already seen momentum in our efforts to deliver the best Home Services experience for consumers and pros. In the first quarter, net revenue increased by 7% year-over-year to $333 million. Net income was $14 million, reflecting a 4% margin and adjusted EBITDA increased by 19% year-over-year to $64 million, representing a 19% margin. These results reflect our efforts to improve profitability even as we continue to invest in our strategic growth initiatives. While businesses in our restaurant, retail and other categories continue to face a challenging operating environment in the first quarter, Home Services was again a standout performer, with approximately 15% year-over-year revenue growth. Advertising revenue in our Services categories grew 11% year-over-year. Request-a-Quote projects increased by approximately 20% year-over-year in the first quarter, reflecting early positive results from our acquisition of Services projects through search engine marketing as well as continued strength from organic consumer demand. In key categories like movers, we have seen significant increases in Request-a-Quote projects and ad clicks as well as a meaningful decline in average costs per clicks. These promising results were largely driven by our paid project acquisition efforts, and as a result, we plan to continue investing to capture more of the large market opportunity in Services. As we continue to execute against our robust product roadmap, we introduced more than 15 new features and updates in April. One standout in Services is our new LLM powered Yelp Assistant. This conversational AI can more accurately interpret a consumer's needs, collect relevant project information in a user-friendly way and deliver an even more targeted lead to service pros. We also see a broad set of opportunities to bring our trusted content to consumers in new ways. This includes our Yelp Fusion AI API, a new LLM powered solution, enabling partners to tap into Yelp's trusted content. This tool enhances discovery on third-party platforms through natural language search across our broad range of categories, including both Services and RR&O, expanding Yelp's reach and utility across the web. We believe these new offerings, along with dozens of other AI-powered initiatives on our roadmap will transform how consumers and businesses connect on Yelp. In summary, Yelp's first quarter results marked a solid start to the year, and I continue to be excited about the depth and breadth of our robust product roadmap, particularly in Services. Overall, we remain confident in our strategy to drive long-term profitable growth and shareholder value. With that, I'll turn it over to David.

Thanks, Jeremy. In the first quarter of 2024, we saw net revenue increased by 7% year-over-year to $333 million. Our net income for the quarter was $14 million or $0.20 per share, improving from a net loss of $1 million in the first quarter of 2023 and reflecting a 4% margin. Adjusted EBITDA increased by 19% year-over-year to $64 million, which was $12 million above the high end of our outlook range, representing a 19% margin. This growth was driven by solid performance in our Services categories. Advertising revenue in Services increased by 11% year-over-year to $203 million, led by strength in Home Services where revenue grew by approximately 15% year-over-year. Investments in Request-a-Quote drove an approximately 20% year-over-year increase in Request-a-Quote projects, underscoring the effectiveness of our product-led strategy and early progress in our efforts to acquire projects through paid search. Advertisers also responded positively to our improved matching in Services in the first quarter as reflected by a 6% year-over-year increase in paying advertising locations in these categories, even as our overall paying advertising locations decreased by 4% year-over-year. Advertising revenue from our restaurants, retail and other categories grew a modest 1% year-over-year to $114 million in the quarter. This reflects the challenging operating environment facing businesses in these categories characterized by elevated input costs, inflationary pressures and an inability to pass along higher costs to consumers. Additionally, we may be seeing impacts from trends associated with off-premise dining and delivery. Multi-location revenue increased by approximately 5% year-over-year in the first quarter, also attributable to softness in RR&O. We are actively working on enhancing the Request-a-Quote experience to enable more multi-location services businesses to benefit from this valuable future. For example, we are in the process of launching an API that aims to streamline the tracking of leads and enhance conversion rates and enterprise customers by connecting directly to their customer relationship software. Our ad system continues to deliver valuable clicks to advertisers in the first quarter. We saw an 8% year-over-year increase in ad clicks across all categories, while average cost per click declined by 1%, with more substantial decreases in Services, reflecting the increased value we delivered to these advertisers in the quarter. We believe our improved ad formats and lower CPCs contributed to year-over-year increases in our retention rate for non-term advertisers budgets in the first quarter. Improvements to the ad purchase flow along with enhancements in our advertiser marketing drove another record quarter for customer acquisition in our Self-serve channel. Self-serve channel revenue has increased at a compound annual growth rate of approximately 25% since the first quarter of 2021. We also continue to identify opportunities to work with other platforms like Facebook and Firefox to tap into searches with local intent that start off of Yelp with the goal of matching our advertisers with an even larger high intent audience. Turning to expenses. In our first quarter, we continued to be disciplined in our allocation of resources while focusing on opportunities that have the potential to drive incremental returns. This resulted in an improvement of our adjusted EBITDA margin by 2 percentage points year-over-year. We also reduced stock-based compensation expense to 13% of revenue, a 2 percentage point decrease from last year and believe we are on track to reduce it below 8% by the end of 2025. We continue to expect the number of shares subject to employee equity awards granted in 2024 to be approximately 65% lower than in 2023. Returning capital to shareholders through share repurchases continues to be a key element of our capital allocation strategy. In the first quarter, we repurchased $62.5 million worth of shares at an average purchase price of $40.95 per share. As of March 31, 2024, we have $519 million remained under our existing repurchase authorization. We plan to continue repurchasing shares in 2024, subject to market and economic conditions. Turning to our outlook. As Jeremy shared, we are confident in our strong portfolio of initiatives to drive long-term growth. We expect net revenue will be in the range of $350 million to $355 million for the second quarter. For the full year, we are reaffirming our guidance and expect net revenue to be in the range of $1.42 billion to $1.44 billion as our Services initiatives gain traction. Turning to margin. We expect second quarter cash expenses to increase from the first quarter, largely driven by incremental marketing investments, particularly in paid project acquisition. The early positive results from our paid search program have given us the confidence to expand our investments in this area, which we believe can drive project growth over the long term. We now expect to spend $40 million or more on Services project acquisition in 2024. As a result, we anticipate second quarter adjusted EBITDA will be in the range of $70 million to $75 million. We are also narrowing our 2024 adjusted EBITDA guidance to $315 million to $325 million to reflect this increased investment. Prices in our cost per click model are set through an auction as compared to the cost per remodel. In the past, we have found that when we deliver more clicks for a given amount of advertising budget average CPCs decline. In turn, as advertisers see more value, they generally increase spend over time. However, there is typically a significant lag between a decline in CPC and an increase in our budget. Given the dynamics of this interaction as well as the fact that we remain at an early stage in our paid project acquisition initiative, we have not reflected any potential related revenue in our guidance for 2024. In closing, Yelp's first quarter results reflect our multi-year focus on product innovation and the application of AI across our business. We are proud of our team's ability to execute against our strategic initiatives particularly the work being done to unlock even greater value for consumers and service pros. We have continuing confidence in our ability to innovate, grow, and drive shareholder value over the long term.

This is Cal on for Jason. First question for me. Just wondering, any learnings, anything new in Q1 that you saw as you continue to ramp that paid search budget. And what opportunities do you see for further efficiencies as you continue to ramp that.

Cal, this is Jeremy. I think I can take that. We were really pleased as we expanded our paid budget. This is a moment we've been working towards over several years, focusing on Services, particularly Request-a-Quote, and it seems like it's paying off. In Q4, we had some test budget, and Q1 was really about scaling that up significantly. If you look at our project volume, you'll see that we've made progress. A part of this is due to our paid efforts, as well as product and engineering enhancements and features. The early results look very promising, with a 20% year-over-year increase in project volume, an increase in ad clicks, and a decrease in CPCs, especially in areas where we've added paid budget. From a headroom perspective, we're just getting started. There's still a lot of optimization we can pursue and friction we can reduce. Additionally, we have more budget we can allocate. I'm excited to see how this develops throughout the year and in the future.

Great. And then last one for me. Just wanted to touch on the Yelp Assistant. Could you provide some more color on what you're seeing as far as reducing that consumer friction? I know it's early, but just curious what you're seeing in terms of reducing that friction point and increasing those conversion rates.

Sure. I can take that one, too. LLMs are a really important part of what we're doing. And we've been, of course, incorporating AI capabilities for many, many years. I think Yelp Assistant reflects something that just, frankly, wasn't possible a few years ago. It's a really exciting way for consumers to interact with Yelp. When they have a project in mind, they can talk to a friendly assistant that guides them through the process, collects all the relevant information, and then ultimately asks them if they'd like to submit that project and get multiple quotes on it. We've added it to the project tab as a first step within the app, and we're seeing great results there. It does seem to have resonated with consumers, and we'll be evaluating and testing different entry points all over the mobile web, desktop web, as well as the app to make sure that we're able to leverage it to the maximum.

Maybe 2, if I could, we saw the announcement with perplexity. And just kind of curious if you could give us some sense of how that relationship might evolve and grow and what the scope might be for additional types of partnerships when you think about the rise of AI as consumer-facing to an increasing amount in the years ahead. Second, the secondary comment you made about competition for ad dollars in the local space with some of the delivery providers and the like. Can you go a little bit deeper on what you're seeing there in terms of teasing out either the cyclicality versus maybe some of the competitive dynamics that were putting some pressure on that business.

All right. I can take a stab at the first question there; maybe Jed can jump in on the second one. So excited to see the perplexity partnership happen. They're obviously an early innovator trying to push search forward. And I think the important takeaway is that when a company is trying to deliver a great search experience is indeed of great local content, they turn to Yelp. And so that's an exciting validation for us. Certainly, there's a lot of activity in the AI space in general and the data licensing space in general. And our door remains open. We're having lots of conversations. And we do, as a reminder, have a pretty sizable data licensing business with a whole variety of different partners in a whole wide array of different industries. We do see AI licensing as a potentially new area. And in fact, we just released in our spring product release, the Yelp Fusion AI API, which delivers a conversational search experience essentially. So that's new to the market. Conversations are happening, and we're excited to see what innovators do with that, bringing Yelp content all over the web and into interesting new AI applications.

This is Jed. I can take the second question on competition. Certainly, in the first quarter, we saw some continued pressure in the restaurant, retail and other categories. Businesses in these categories remain really cautious given the macroeconomic factors, including labor, input costs and not being able to pass through some of the inflationary pressures to the consumer, that those days have ended. And then a marginal impact from the broader industry shifts to off-premise certainly, when you look at some of the delivery platforms and kind of the pay-to-play that happens on those platforms. At the margin, we believe there are some of those dollars going over to those platforms. But largely, it's a macro impact. At some point, we do believe that RR&O will come back. We don't really have the conviction as to the specific timing, given the market conditions; timing is hard to tell. We are well positioned, however, to take advantage when some of the underlying economic drivers improve. We're staffing against the opportunity as well as continuing to innovate via the product side. And in the meantime, stepping back broadly, we're laser-focused on the opportunity in services and believe that we're in a really strong position to take share. Specifically around the enterprise, we believe that we're somewhat underpenetrated and have really started to implement initiatives and invest in Services for the enterprise, including better ways to integrate with the CRM and lead management systems on the client side in order to drive more RAQ adoption, and that's certainly going to be impacted by our new Services project acquisition strategy as well.

Great. I had 2. So the high end of the EBITDA guide was lowered after EBITDA this quarter was above expectation and then the revenue outlook for the year was also unchanged. I guess, can you just walk us through what gives you confidence in stepping up the investment for this year without seeing those revenue returns that are contemplated in your outlook for 2024? That's the first question. And then second, on RR&O, you talked about some weakness you saw last quarter. I guess, how did the softness play out versus your expectations? And then a month into this quarter, how are trends in that segment relative to what you saw in the first quarter?

Sergio, it's David. Thanks for the question. So first, obviously, we have the increased spend in Q1. We went from $2 million at the end of Q4 to $7 million. And what we saw in the categories where we are buying projects, with movers as an example, is that we saw significant increases in projects. We saw significant increases in clicks, and we saw meaningful declines in cost per click. Now, in the past, when we have been able to deliver more value in the way that we think about value, that is, more clicks at better pricing, which is what we are seeing in movers in the first quarter. In time, we see that ad budget increases, but it takes time because the mechanism for us is very much through the auction system where we're adding consumers, and then those advertisers see higher quality leads, more valuable leads for the price that they're paying, and then they adjust their budget over time. Now, obviously, we want to drive good economic returns. But the timeframe between when you actually spend and when that shows up in budget has been elongated in the past. But I just want to underscore broadly, when we've done this in the past, we have seen it show up in ad budget. So we'll look forward to sharing with you updates obviously, when we get to the Q2 call and the Q3 call.

This is Jed. I can take the second question. Yes, in terms of RR&O weakness in the first quarter, it was a continuation from what we started to see in the fourth quarter and as we mentioned in the fourth quarter call. And in terms of moving into the second quarter, our expectations are reflected in the guide. I think it's important to mention, too, that we're seeing the RR&O impact in both local as well as on the multi-location channel. And obviously, multi-location we take the run of that into the revenue mix.

I wanted to zoom in a little bit on the SEM efforts. I think return profiles in general across SEM sort of often depend on repeat behavior since that initial paid click isn't profitable. For Yelp, specifically, would you characterize the initial return profile and payback of SEM? Or how would you characterize the initial return profile and payback of SEM and how those KPIs translate into revenue and profitability in the near and long term?

Yes, as we ramp up our paid projects, we believe we have a unique perspective and approach in this area. Yelp has a strong brand and serves a wide variety of categories, which sets us apart from others who may have heavily invested in the space. This versatility allows us to engage with consumers in a range of scenarios, giving us a significant advantage in maintaining that dialogue. To achieve exceptional economics, we need to encourage repeat behavior. It's still early, as we just finished a test quarter in Q4 and are ramping up in Q1. We're examining early data, and the initial metrics look promising, with projects up 20%, an increase in ad clicks, and a decrease in cost per click. This is what we were hoping to see right from the start. Additionally, Yelp has historically focused heavily on product and engineering, investing significantly in research and development. This commitment enables us to deliver an unmatched consumer experience across our app and web platforms. The Yelp Assistant is a prime example of our innovation, as there is nothing else like it available. You can expect to see more advancements like this in the future.

This is Kishan Patel on for Josh Beck. Any color you can share around consumer engagement and impact around monetization of Services? And what metrics are you tracking or managing towards in terms of improving the Gen results.

This is Jeremy. On the services side, we've obviously been investing significantly in our product. I think a great example of that, as I just talked about, is Yelp Assistant, where we're trying to be really innovative there. And the response we're seeing from consumers is positive. It's within the project tab in the app. We continue to invest in streamlining our Request-a-Quote functionality, making that easier for folks to use. I also think it's important to reflect on the business owner side of the equation. I think there's a lot of opportunity there as well, thinking about making it even easier for businesses to reply and provide good correspondence back to consumers, whether it's quotes or improving the responses. I think, is going to be a really great opportunity for us and one that also lends itself to AI improvements as well. So we'll keep you posted as we continue to make improvements, but we've come a long way, and I think that's reflected in the excellent project performance Request-a-Quote project being up 20% shows we're doing some things right. And again, part of that is the paid projects that we're driving, and part of that is the continued innovation and streamlining of our services, features and functionality.

And I can add this is David. On the monetized connections front, we are making progress in two key areas. We are continuing to enhance and drive increased monetization of connections, and we've seen advancements in the first quarter. As we generate leads through paid search or from traffic outside of Yelp, you'll notice that metric will increase. When we acquire new users, we need to see clicks to ensure the economics are favorable. Thus, both the total connections and the monetized connections will rise, which will consequently improve the percentage. We are experiencing strength in both areas. Furthermore, if we improve our ability to monetize connections, it becomes more valuable to take on additional projects at Yelp, creating a positive feedback loop. We will provide further updates as we progress through the year, and we report the monetized connection figures annually. Therefore, during the Q4 call in 2025, we will share those numbers, but we have seen strong performance in the first quarter driven by product enhancements and the projects we've been investing in.

Great. First, I want to just double click on your comment on the CPC. You're leaning into investment. You're seeing conversion, but the CPC is pretty muted. Is it just the nature of kind of the current ad market condition? Or is there anything you're doing on your ad tech side that's really improving targeting? And maybe you can kind of talk about what you're seeing in the competitive intensity of this ad bidding in the Services sector, specifically outside of the day-to-day volatility?

Yes. Thanks for the question. This is David. One dynamic at play here is that we report the blended change in cost per click (CPC). This consists broadly of services, restaurant, retail, and other categories, with subcategories under each. Starting with project acquisition, we’ve noticed significant reductions in the subcategories where we are purchasing projects, which is encouraging. However, we also saw declines in CPCs greater than 1% in services overall, which is driven by ongoing improvements in ad-matching technology. This includes better consumer information, advancements in the algorithm, and having service professionals available. We made progress in this area and are pleased. Overall, CPCs went from a 4% increase in the fourth quarter to a 1% decline in the first quarter, indicating a meaningful shift, especially on the services side where we have fewer clicks. We are very satisfied with this. Regarding bidding intensity for these projects, we are targeting a return on investment and are pleased with the acquisition prices we’ve achieved. This has led us to consider increasing spending in 2024 to $40 million or more. We are happy overall. As a final point, improvements we are making, like with Yelp Assistant, help us engage consumers better and create a great experience for them. We want them to return while gaining more information about their specific jobs, which aids in matching. This increased information directly translates to improved CPCs, resulting in better cost per lead economics for service professionals. We are content with the progress we are making and want to emphasize that many projects are underway, and there’s significant potential for further improvements.

Great. That's super helpful. And maybe just a follow-up. You shared your general like share buyback expectations. That's really helpful. But given you're leaning into investment, and it sounds like there's still a lot of like green shoots product innovation that's in the pipeline. Is there anything that we should consider in the near-term cadence of share buybacks? Any, I guess, near-term changes to our capital allocation?

Thanks for your question. In the first quarter, we repurchased $62.5 million in stock, which is an increase from our previous consistent buybacks of $50 million in prior quarters. We saw an opportunity to return more capital during this time. Additionally, we generated $66 million in free cash flow and ended the quarter with $421 million in cash. We remain dedicated to returning capital beyond our target cash balance, and our stance on this has not changed. I would like to reiterate a previous point: we believe we have continued to enhance efficiency at Yelp over the past several years, as evidenced by our overall expenses only increasing by 1% in the first quarter of 2024 compared to 2023. This indicates that we are simultaneously creating the capacity to invest while maintaining strong business economics.

There are no further questions in the queue. This will conclude today's conference call. Thank you all for your participation, and you may now disconnect.