Hello and welcome to Yelp's First Quarter 2025 Earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Please note that I would now like to turn the conference over to Kate Krieger, Director of Investor Relations. Please go ahead, ma'am.

Good afternoon, everyone. And thanks for joining us on Yelp's first quarter 2025 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 or loss to both adjusted EBITDA and adjusted EBITDA margin, and a historical reconciliation of GAAP cash flows from operating activities to free cash flow. And with that, I will turn the call over to Jeremy.

Thanks, Kate, and welcome everyone. Led by continued strength in our Services business, Yelp delivered 8% year-over-year revenue growth and strong profitability in the first quarter. We generated $359 million of net revenue while expanding net income margin by three percentage points and adjusted EBITDA margin by four percentage points from the prior year period. Our product-led strategy has continued to strengthen our business, and we recently rolled out 15 new features and updates. We continue to see a divergence in category performance in the first quarter. The operating environment for businesses in our restaurant, retail, and other categories remains challenging, and RR&O revenue declined by 3% year-over-year as a result. At the same time, our services categories where we focused our product efforts drove continued momentum. Services revenue increased by 14% year-over-year, making it the 16th consecutive quarter of double-digit year-over-year growth. Request to Quote projects increased by approximately 10% year-over-year, primarily as a result of improvements to the Request to Quote flow and adoption of Yelp Assistant, even as our spend on acquiring projects through paid search was significantly lower than in the prior year period. Excluding projects acquired through paid search, Request to Quote projects increased by more than 15% year-over-year in the quarter. To help make the hiring experience even smoother, we recently enhanced Yelp Assistant by adding AI-powered photo recognition. We also introduced response quality badges to highlight service pros who consistently provide helpful replies to project requests. In addition, we have increased our focus on multi-location services businesses this year and announced an integration with workflow automation platform Zapier. Leveraging Yelp's Leads API, the integration directly connects Yelp to over 800 CRM platforms and lead management tools. More broadly, our product and engineering teams continue to leverage AI to transform the way consumers connect with great local businesses across categories. During the first quarter, we introduced several improvements to our matching algorithms and experimented with themed ad formats to deliver greater value to our advertisers. At the same time, our consumer teams continued the expansion of AI-powered business summaries and made progress bringing Yelp Assistant into other categories and entry points. We recently announced two upcoming AI-powered call answering services, one for service pros and another for restaurants, to help business owners manage incoming calls for booking reservations and collecting project details. Our research has found that consumer phone calls are a critical lead source, yet many go unanswered. There's a clear opportunity to provide additional value to local businesses, and we see these products as a strong solution. In summary, our focus on services continues to strengthen our business, and we remain excited by the opportunities ahead to drive profitable growth and shareholder value over the long term. With that, I'll turn it over to David.

Thanks, Jeremy. In the first quarter, net revenue increased by 8% to $359 million, $4 million above the high end of our outlook range. Driven by our disciplined approach, net income increased by 72% year-over-year to $24 million or $0.36 per share on a diluted basis, representing a 7% margin. Adjusted EBITDA increased by 32% year-over-year to $85 million representing a 24% margin, putting it $15 million above the high end of our outlook range. Continued strength in our services business drove this growth. Services revenue increased by 14% year-over-year to $232 million. Revenue growth in services accelerated from the fourth quarter, driven by the inclusion of RepairPal in our auto services category. As Jeremy mentioned, restaurants and retailers remained pressured in the quarter, resulting in a 3% year-over-year decline in RR&O revenue to $110 million. A decrease in RR&O locations offset growth in services locations in the quarter. This resulted in an overall decline of 3% year-over-year in paying advertising locations to 517,000. Ad clicks declined by 3% year-over-year in the quarter, primarily due to macro pressures in RR&O categories and, to a lesser extent, reduced spend on paid search in the current year period. At the same time, advertiser demand in services remains strong, contributing to a 9% year-over-year increase in average CPC. Turning to expenses. Our first quarter results demonstrate the margin potential of our business, with a net income margin of 7% and an adjusted EBITDA margin of 24%. We achieved these strong results through disciplined expense management. As we continue to focus on allocating resources toward our best opportunities, we again expect headcount will be approximately flat year-over-year by the end of 2025. In the first quarter, we reduced stock-based compensation expense as a percentage of revenue by two percentage points year-over-year to 10%. We remain focused on reaching our targets of less than 8% by the end of the year and less than 6% by the end of 2027. We expect these efforts to stack over time, improving the quality of our adjusted EBITDA and benefiting GAAP profitability in the years to come. Our capital allocation strategy consists of three main elements: First, maintaining a healthy cash balance to fund our operations. Second, retaining balance sheet capacity for potential acquisitions. And third, returning excess capital to shareholders through share repurchases. In the first quarter, we repurchased $62.5 million worth of shares at an average purchase price of $37.01 per share. As of March 31st, 2025, we have $268 million remaining under our existing repurchase authorization. We plan to continue repurchasing shares through the remainder of 2025, subject to market and economic conditions. Turning to our outlook. When we provided our initial outlook range in February, we noted that there were considerable macroeconomic and policy uncertainties. Since then, we delivered a strong first quarter with results exceeding our own expectations. At the same time, macro uncertainties increased. As a result, we currently expect second quarter net revenue to be in the range of $362 million to $367 million. For the full year, we are modestly widening our range with net revenue now expected to be between $1.465 billion and $1.485 billion. While our performance-based ad platform has proven resilient in previous periods of macroeconomic pressure, our guidance does not reflect the substantial decline in economic conditions. Turning to margin, we expect expenses to increase modestly for the remainder of the year, primarily driven by cost of revenue. In addition, we expect our efforts to reduce SBC will act as a headwind to adjusted EBITDA as we move throughout the year, but will not impact net income. As a result, we expect second quarter adjusted EBITDA will be in the range of $84 million to $89 million. Balancing our first-quarter outperformance with heightened macro uncertainties, we are also widening our range and now expect full-year adjusted EBITDA to be between $345 million and $365 million. In closing, Yelp's first quarter results reflect the underlying profitability of our business. We continue to believe in the opportunities ahead to create shareholder value over the long term, as we focus our investments in areas that we believe will drive business performance.

Thank you. Your first question comes from Sergio Segura with KeyBanc. Your line is open.

Great. Thanks for taking the questions. I guess first, you mentioned in the business outlook seeing some steady spend in April that was below typical seasonality, but some encouraging signs in early May. So maybe you could just dive into the trends you're seeing quarter-to-date and anything to call out from a vertical perspective?

Yes. Hi, Sergio. I can take that. I think the question is really around advertiser sentiment and the impacts from the macro environment. In Q1 specifically, I would say it was really resilient. We characterize it as hanging in there. On the local side of the business, services continued to perform well with 14% year-over-year growth. Many of these projects are non-discretionary, which provides at least a degree of insulation from some of the broader macro pressures. Multi-location advertisers, particularly in RR&O, are a little bit more cautious. While spend held steady in Q1, they are taking a quarter-by-quarter approach given some of that macro uncertainty. We are encouraged by the early traction in our multi-location services initiative. Adoption of the leads API continued throughout the quarter. In Q1, we announced the Zapier integration, which has really strong early signs as well. And we did see acceleration in revenue growth in multi-location services from Q4 to Q1, which are all positive signals. Ultimately, our down funnel ad product continues to deliver really measurable ROI, which is especially valuable in uncertain environments. We continue to keep an eye on inflation and potential tariff-related supply chain disruptions, but we believe that the product positioning and attribution capabilities help advertisers really justify that spend. When you talk about April specifically, certainly some of the macro uncertainties have increased. We believe this caused some of our advertisers to maintain steady spend in April, when we typically see an increase in budgets. Despite the signals in early May having been encouraging, we've reflected that in our guidance.

Great. And maybe a follow-up on those comments. Just on, I know RR&O typically is more enterprise or larger advertisers versus SMB, but anything to call out what you're seeing within the RR&O and services category on enterprise versus SMB strength?

Yes, thanks. Ultimately, RR&O continues to face headwinds and that is a lot of our multi-location revenue. And so, they've not been as vocal in their commitment on the year and ability to spend. On the SMB side, certainly that’s where the majority of our revenue is. In fact, if you look at our paying advertiser locations, this is the first quarter, where we have more services paying advertiser locations than we do RR&O. We do continue to invest in the RR&O. The core consumer experience, and we've announced products coming up like Yelp Assistant for other categories. It continues to be an investment area for us. We don't have a crystal ball as to when it turns around. We don’t believe on-premise dining is going away, and our relationships really remain strong within the multi-location RR&O category. When it turns, we believe we have the ability to capture that upside.

The next question comes from Jason Cryer with Craig-Hallum. Your line is open.

Great, thank you. This is Kyle on for Jason. So maybe first, can you just kind of walk through the drivers of the CPC growth that you saw? How much of this was just from services demand becoming a bigger piece of the mix? And what are some ways that you can maintain the budget growth that you've seen, while maybe decelerating or reducing CPC to deliver more value to your advertisers?

Hi, Kyle. It's David. Thanks for the question. Just to touch first on what's happening with click growth and CPCs. We definitely saw robust advertiser demand in the first quarter that enabled us to deliver the performance that we did. That being said, as Jed mentioned, it has been softer in restaurant, retail and other, and those trends have led to fewer clicks. So it's predominantly driven by the dynamics at play in restaurant, retail, and other as compared to services. Now on the services side, there is an element of that where we were investing in paid search in the first quarter of 2024, and that did lead to an increase in clicks. So you would have a year-on-year comparison there. But underneath, the overall performance continued to be strong. In terms of delivering value to advertisers on the CPC side, there are a couple of thoughts. One, we are very focused on delivering valuable clicks to advertisers. And where it makes sense for us to actually deliver fewer clicks but of higher quality, we're very focused on that and willing to do that. So that's one dynamic at play, because at the end of the day, the advertiser wants a great lead, not just a click. So that's the first dynamic around being able to deliver value. The second is, there are category mix shifts occurring as our services business continues to grow significantly, and that can lead to an increase in CPCs, while still delivering the exact same value since it's a mix question. The third point is, we want to ensure that when consumers come to Yelp, they really have a great experience, and we have been investing heavily in the pro experience on Yelp, including now providing budgeting that indicates whether or not a pro is providing a great experience. We believe there is a lot of opportunity for us to continue to guide pros to create great experiences for consumers who are visiting them, and we think that leads to higher quality leads and better responses for them. We have a broad set of initiatives that we believe really go after the opportunity to deliver more valuable leads. If we are delivering those more valuable leads, we believe that we can charge higher rates for the clicks. So net, net, when you put all that together, we feel like we're making great progress and look forward to continuing to execute against the roadmap that we set for ourselves.

Great. And then just on the Yelp Assistant, adoption was very strong again despite, as you noted, a lower paid search budget. You're still spending in Q1 of 2024. So is there something that you're doing internally to continue driving strength and adoption?

Hi, Kyle. This is Jeremy. I'll take that. Yes, we're pleased with the performance of Yelp Assistant. There continues to be a lot of room for growth there and development of the product. We have new entry points that we continue to roll out, and there are some significant ones that are still untapped. For instance, if you go to a business details page and tap on request a quote, you're not going to see Yelp Assistant yet. So there's plenty of room to run there. We also see a big opportunity in bringing Yelp Assistant to many more categories, in fact, all categories. As you think about it more broadly, I think Yelp Assistant and that conversational format can be really the future of how you're interacting with Yelp and tapping into information. So it gives us an opportunity to really reinvent the consumer experience and reinvent the search experience. We're really excited about the possibilities of that. Once we have that fully built out, there's also the opportunity to take it off of Yelp. Think about chatbots, or new age search engines that need to tap into local content. We think our local content is the best that’s out there—the quality, the data that we have—and to be able to turn that into an API and provide Yelp Assistant to other platforms is an interesting possibility too. There’s a lot of runway for us as we continue to work on Yelp Assistant. We're really excited about it.

The next question comes from Shweta Khajuria with Wolfe Research. Your line is open.

Hi. This is Brian on for Shweta. Thank you for taking my question. Could you just please expand on your broader AI strategy and what early incrementality you're unlocking here with some of the new product announcements like the photo recognition and response quality announced last week and then the 135% project submissions as well, you're starting to see. With some of the experimentation that you mentioned in the letter as well with the summaries and visual experiences, what are some really green shoots that you could point to from any of these initiatives and any visibility onto the roadmap to capitalize within this momentum would be great? And just as a follow-up, would any of these be supporting the jump in CPCs that you saw this quarter? Thank you.

Thanks for the question, Brian. We see a ton of opportunities ahead leveraging AI. As I was just talking about, Yelp Assistant represents a great example of something we’re leading the industry within local services where you can have a conversation. The consumer can tell you all about their project. We use that to do intelligent matching. We know which questions to ask based on LOM technology. An additional feature we added is that you can now upload a photo. The AI understands what's in the photo. If it's a photo of something like a washer dryer, it might be able to pick out the model number for you and capture details that you might not have even thought to include in your messaging, trying to get to the right pros. We can deliver that valuable lead information to pros, which is really exciting. Of course, there are other applications, making search more intelligent, summarizing our incredible content. We see lots of opportunities to enhance the product. Additionally, we have new products coming that leverage AI, which will provide answering services—both on the restaurant side, a front-of-house answering service to assist restaurant customers, and on the services side, we know from talking to pros that they miss many phone calls, which are often business that just drops. Some of those leads they’ve paid good money for, and so that's a real shame. We want to solve that problem by leveraging LOMs and voice technology that's now available to pick up the phone for those pros when they can’t answer, gather the necessary information, qualify that lead, and deliver it in a convenient way to them. We believe this will unlock a ton of value, not just from Yelp leads, but anywhere those leads come from. Those calls tend to go unanswered, and we can provide a solution. We've been working on that for a while now, and we expect to have that out soon.

The next question comes from Nitin Bansal with Bank of America. Your line is open.

Hi. Thank you for taking my question. So first of all, can you update us on the engagement trends across mobile and web? And were there any notable changes on platform usage in Q1? Secondly, can you share some details on monetization trends for RepairPal and how that is tracking against your internal expectations?

Thanks for the question, Nitin. On the consumer engagement traffic side, we did see some macro pressure show up in restaurant retail and others. But on the services side, we're really pleased with 14% revenue growth there, as well as Request a Quote. Project volume was 15% year-over-year, if you take out the paid activity that we had last year. And of course, with Yelp Assistant, there’s a lot of runway there. We're excited to continue to roll that out, as well as expand it to other categories and reinvent really the search experience. So there's a lot coming on the consumer engagement side. As for RepairPal, the integration is going smoothly. We’re pleased with the acquisition and see a lot of low-hanging fruit, things like bringing RepairPal to the Yelp site, so that you can schedule auto repairs right from a business’ page—very obvious things like that. Those will be coming in the following months, and we think that will have a nice positive upside that we will realize as well.

With no further questions, this concludes the question-and-answer session and will conclude today's conference call. Thank you for joining. You may now disconnect.