Thank you for standing by. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q3 2025 Yelp Inc. Earnings Conference Call. I would now like to turn the call over to Kate Krieger, Director of Investor Relations. Please go ahead.

Good afternoon, everyone, and thanks for joining us on Yelp's Third 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 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 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 adjusted EBITDA, GAAP net income margin to adjusted EBITDA margin, and 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. Yelp's transformation with AI continues to accelerate. We are reconceiving the experience on Yelp for both consumers and businesses, recently rolling out more than 35 new features and updates that leverage the power of AI in combination with our human-generated highly trusted content. This valuable content also underpins the continued expansion of our data-light partnerships. Taken together, we believe our product-led strategy, along with our broad reach will enable us to deliver on our ambitious product roadmap and create long-term value for our shareholders. Turning to the third quarter. Yelp delivered record net revenue and strong profitability. We generated $376 million of net revenue with a net income margin of 10% and adjusted EBITDA margin of 26%. Underlying our top line results, services revenue increased by 7% year-over-year and drove our business performance. At the same time, the operating environment for businesses in our restaurant, retail, and other categories remained challenging, with RR&O revenue declining by 2% year-over-year. We are continuing to deepen our focus on services. Excluding projects acquired through our paid search initiative, Request-A-Quote projects increased by approximately 10% year-over-year in the third quarter, driven by improvements to the request flow in our AI chatbot, Yelp Assistant. In fact, project submissions through Yelp Assistant increased by nearly 400% year-over-year. Our product and engineering teams also recently rolled out an enhanced version of Yelp Assistant that remembers important details and preferences from past projects. In addition to Yelp Assistant, we are using AI to simplify how consumers evaluate and select the right service professionals. We extended our review insights feature to services categories, created a dedicated before and after section in businesses' media galleries, and expanded our response quality badges for service professionals nationwide. Beyond services, our product and engineering teams continue to leverage AI to transform the way consumers connect with great local businesses in RR&O categories. We recently expanded Yelp Assistant to RR&O business pages, leveraging our trusted content and information from businesses' websites to give users instant, reliable answers to questions about specific businesses. This is a significant step toward delivering a comprehensive Yelp Assistant that works uniformly across all categories and entry points. We plan to begin testing our category-wide Yelp Assistant before the end of the year. We also recently launched Menu Vision, an augmented reality feature that enables diners to point their camera phones at menus and view photos as well as reviews of individual dishes. In addition, we are now partnering with DoorDash as our preferred food ordering and delivery provider, expanding our food ordering network by approximately 200,000 new restaurants to a total of more than 500,000. We expect this partnership will generate incremental revenue, which will be recorded as other revenue. Lastly, we rolled out two new voice AI subscription products, Yelp Host for restaurants and Yelp Receptionist for services. These SaaS solutions combine LLMs with Yelp's high-quality data to provide smarter, more human-like answering services tailored with information specific to each individual business. We are excited about the potential of these incremental offerings, which we believe are best-in-class. Early results indicate a strong product-market fit, saving restaurants and service professionals significant time. In summary, our focus on services and AI products has continued to transform 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 third quarter, net revenue increased by 4% year-over-year to $376 million, $6 million above the high end of our outlook range. Net income increased by 2% year-over-year to $39 million or $0.61 per share on a diluted basis, representing a 10% margin. Adjusted EBITDA decreased by 3% year-over-year to $98 million, representing a 26% margin, putting at $13 million above the high end of our outlook range. As Jeremy mentioned, services revenue increased by 7% year-over-year to a quarterly record $244 million. Restaurants and retailers remained pressured in the quarter, resulting in a 2% year-over-year decline in RR&O revenue to $114 million. A decrease in RR&O locations offset growth in services locations in the quarter. This resulted in an overall decline of 2% year-over-year in paying advertising locations to 512,000. Ad clicks declined by 11% year-over-year in the quarter, primarily due to macro pressures. To a lesser extent, competitive pressures in RR&O categories and reduced spend on paid project acquisition in the current year period also negatively impacted clicks. Average CPC increased by 14% year-over-year, reflecting growth in services demand and fewer clicks overall. Turning to expenses. Our third-quarter results demonstrate the margin potential of our business with a net income margin of 10% and an adjusted EBITDA margin of 26%. We achieved these strong results through disciplined expense management. As we continue to focus on allocating resources towards our best opportunities, we continue to expect headcount will be approximately flat year-over-year by the end of 2025. In the third quarter, we reduced stock-based compensation expense as a percentage of revenue by 2 percentage points year-over-year to 9%. We remain focused on reaching our targets of less than 8% by the end of this 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 acquisitions; and third, returning capital to shareholders through share repurchases. In the third quarter, we repurchased $75 million worth of shares at an average purchase price of $32.59 per share. As of September 30, 2025, we have $127 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. With heightened macroeconomic uncertainties, we did not see our typical seasonal increases in revenue in the second and third quarters. We anticipate that these heightened macroeconomic uncertainties will persist in the fourth quarter with net revenue decreasing from the third quarter. As such, we are lowering our outlook range for the full year. We now expect net revenue will be in the range of $1.460 billion to $1.465 billion, reflecting a decrease of $8 million at the midpoint. Turning to margin. We expect fourth-quarter expenses to remain relatively consistent with the third quarter as we remain focused on disciplined expense management. In addition, we expect our efforts to reduce SBC will continue to act as a headwind to adjusted EBITDA but will not impact net income. As such, we are narrowing our range and now expect full-year adjusted EBITDA to be in the range of $360 million to $365 million, reflecting an increase of $8 million at the midpoint. In closing, Yelp's third-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 investment in areas that we believe will transform our business, particularly around AI. With that, operator, please open up the line for questions.

Your first question comes from the line of Eric Sheridan with Goldman Sachs.

This is Alex speaking on behalf of Eric. I wanted to delve a bit deeper into the macro environment you're observing. If we consider the typical sequential seasonality in the Services segment as indicated in your Q4 guidance, it suggests a substantial decline in RR&O. Are you experiencing a broader macro pressure within the Services segment as a whole, or is it primarily confined to the RR&O segment?

Alex, thanks for the question. This is David. So broadly on the macro front, as we mentioned, the pressures that we saw emerging in the spring, particularly in April, persisted through the second quarter into the third quarter, and we did see those persist here into the fourth quarter. In terms of pressure on RR&O versus Services, first, I think it's important to just recognize our seasonality between those two sides of our business. On the RR&O front, there is typically a seasonal rise in the fourth quarter. And on Services, there's typically a seasonal decline as service pros wind down for the year and weather changes. In terms of RR&O more specifically, we have seen that there is more caution among advertisers in their spend as they've come into the fourth quarter. I think you've heard that from a couple of other consumer Internet companies this week. And so that is certainly something that we have seen as well. On the services front, we continue to see consistent demand from advertisers still wanting to reach consumers as they look at doing projects or having repairs done. So net-net, it's more significant on the RR&O side.

The next question comes from the line of Jason Kreyer with Craig-Hallum.

This is Cal on for Jason. So maybe to start, you called out in the shareholder letter the strong demand for data licensing products, particularly in AI search. And I think we saw some of that with the growth acceleration in the other segment. But just curious if there's any additional color there on the expanding opportunities for Yelp, especially as we're seeing these AI search platforms start to stand up more third-party integration.

Cal, this is Jeremy. Yes, I mean we continue to be really excited about this area for Yelp. Obviously, have highly trusted content about SMBs, which we think is a critical ingredient for any of these LLM-based players that are trying to provide a general search experience, especially one that competes with Google. We talked about the momentum last quarter. I would say the quality of conversations we continue to have with the various folks in the space is excellent. I think we'll have more to talk about. We're still kind of early in the development of this area. But we're really excited, both on the data licensing side as well as the APIs we have to offer. We think Yelp is just a critical resource, and I'd say the conversations are showing that so far.

Great. And then just as a follow-up, you integrated the RepairPal booking system into the Yelp platform and now you're launching the DoorDash partnership. So just curious with the greater ability to tie out ad spend to bookings and transactions, what benefits might you expect to see, whether it's a CPC uplift or more resilient ad spend? Any color there would be great.

Yes. With RepairPal, the integration continues to go well. We have started rolling out bookings there to expose RepairPal to Yelp users. I think that's positive. It's certainly helping us on the services revenue side as a contributor there. You mentioned DoorDash. We're really excited about that partnership as well. Obviously, it expands our footprint in terms of restaurant coverage and with a very high-quality partner leader in the space. So we do see some incremental revenue coming from that as we get further out.

Your next question comes from the line of Josh Beck with Raymond James.

Maybe just following on the DoorDash partnership. Certainly, it seems like it's a much bigger footprint of restaurants, I think, over 0.5 million. I'm curious, should we think about it as something like a lead generation type of model? I mean my experience has been you're on Yelp and you find something to order and it kind of deep links to DoorDash. So is that kind of the right trigger for modeling it out? Or any kind of guidance you can give us there?

Yes. This is Jed. I can take that. As Jeremy mentioned, first of all, we're really excited about this partnership. The footprint of restaurants has expanded dramatically on Yelp by about 200,000 restaurants. And I think if you're a consumer looking for the best food options in your area, it's a natural progression to then transact on the platform. And I think the way you described it is, in fact, how it is happening on the platform. So you have a direct integration into the DoorDash ordering model. By the way, we have other food partners that we're still partnered with in order to kind of keep that full coverage. But we really just think, ultimately, it's a much better consumer experience to be able to consummate everything on the Yelp platform, and we're really excited about it moving forward.

Okay. And then maybe a follow-up on the AI strategy. It certainly seems like there's a lot of vectors. You have the on-platform push with AI assistant or the Yelp Assistant and the like. We've seen some examples in the last few months of Internet platforms kind of enabling third-party chatbots within their app, not a lot of those examples. And then obviously, the bigger kind of push to agentic commerce and agentic browsers and doing partnerships there. So there's obviously, that's probably just a sample, but there's many ways to kind of form this strategy. Just kind of curious how you're thinking about it broadly and maybe where that could head in the next year.

Yes, it's Jeremy. I'll take that. I believe AI is truly transformative for Yelp, and we've already begun that journey. You mentioned Yelp Assistant, which was our first chatbot product aimed at services. We have recently expanded it, and now there's a version of Yelp Assistant available on business pages. You can ask a wide range of questions about a business, and it will provide answers backed by our trusted content. This is exciting as it serves as a stepping stone toward a comprehensive Yelp Assistant that we plan to test in Q4, with further expansion expected early next year. This is significant for us as it will shape how consumers interact with Yelp content. Many people are becoming accustomed to chat interfaces for accessing insights and information. We boast valuable content, with millions of reviews, and integrating a chat interface will help deliver exactly what consumers seek. We're eager for this development. Additionally, we have introduced and started selling our Yelp Host and Yelp Receptionist products, which are AI-powered answering services. These technologies are fantastic time-savers and also help businesses maximize value from their Yelp leads, while being applicable to all leads. There’s considerable leverage to be gained by integrating these services into websites and Google, reducing the need for extensive staffing while capturing important information. For instance, in the restaurant sector, this can connect to our reservation and waitlist services, facilitating bookings and waitlist management. It’s a powerful offering with a vast total addressable market. Essentially, we’ve launched a mini startup within Yelp, combining our excellent content with our strong distribution capabilities, and we’re excited to see how it unfolds. On the AI front, as you noted, various players are working to create valuable search services, which aligns with our data licensing business, offering APIs to access Yelp content and AI technology. Our goal is to wrap innovations like Yelp Assistant in an API, creating monetization avenues for others using Yelp. There are many opportunities for us to invest in and leverage AI, and although we are still in the early stages, we see it being transformational for our company in the long run.

Okay. And I don't know if I can sneak in one more for David. Just with respect to the restaurant industry, obviously, same-store sales have been challenged pretty broadly. What, I guess, are you monitoring? Is that kind of the key external metric for a potential recovery in spend? Just what should we be watching in terms of macro factors within that vertical?

Thank you for the question. We are keeping an eye on what the larger players in the restaurant industry are saying about their expectations and the overall market. A noticeable increase in dining out would certainly be a positive sign compared to delivery, which is an important factor. However, if we take a step back, the broader macroeconomic conditions are crucial indicators for us. Recent reports indicate that lower and mid-income consumers are experiencing spending pressures, which will influence our expectations regarding restaurants. Additionally, restaurants are facing persistent inflation, both in ingredient and labor costs, making it difficult for them to pass these expenses onto consumers. We believe that once inflation stabilizes and decreases, restaurants may improve their margins, allowing them to invest more in advertising to attract consumers. Therefore, we are observing dynamics on both the consumer and restaurant sides.

The next question comes from the line of Nitin Bansal with Bank of America.

Just a follow-up on the earlier question. You mentioned that Yelp Host and Yelp Receptionist are expected to drive incremental subscription revenue and a large TAM for these products. Can you help us understand the scale of this opportunity and how much of these products could contribute to revenue next year? And what early adoption and feedback you are seeing so far?

Sure, I’m happy to discuss Yelp Host and Receptionist further. It's still early, as we’re just one month into Yelp Host and a few weeks into Receptionist in some categories. The feedback has been very positive. Yelp Host has already handled thousands of calls and hundreds of reservations, so it's actively serving real customers. We believe there is a significant market opportunity here, with over 500,000 advertisers on Yelp to start with, and many other businesses that may not currently have a relationship with us could benefit from an answering service. This could save them time and money while capturing valuable leads. We see substantial value to unlock for business owners, including those in small to medium-sized businesses, mid-market, and multi-location setups. The multi-location aspect will influence our product development in the future. We are excited about the potential here, as we see this as an impactful area that will generate additional revenue and may open doors for broader lead management opportunities. We believe this is just the beginning of something significant for us.

If I can follow up one more. Average pricing on the platform has been growing at an accelerating pace. Can you help us understand like the key factors behind this trend? Additionally, like how it is impacting the advertiser ROI influencing incremental ad spend and retention on the platform?

It's David. I'll cover that. So just stepping back for one moment. On the Yelp, we receive ad budget from advertisers and then we optimize the deployment of that ad budget on their behalf through auctions. So we don't, per se, set the number of clicks or the cost per click. We let the algorithm determine that optimal mix. And with that auction, we're really trying to determine what's the price for that visitor in that category that time of day in that part of the country. So it's a very dynamic system, and we like that because it enables us to balance between actually hundreds of parameters that go into that matching algorithm. So that's the backdrop. In terms of clicks lower and CPCs higher, that's going to be a natural outcome because we have the budget to deploy. And then in terms of the current dynamics and trends, the year-on-year does tend to have a shape to it where it will increase for a period of time historically and then decrease for a period of time. So what we're really looking at often is the absolute dollar run rate for the click and advertisers are most focused on not what was the cost per click but actually what was the cost per lead. So we're always very focused on continuing to drive improved value per lead. And to the extent that we can drive improved value, then advertisers are certainly willing to pay more per click. And over the course of 2025 here, because of macro pressure, we have seen that there are fewer clicks on the platform, and that's resulted in the higher prices. It has not translated in the third quarter to a change from a year ago period in terms of churn. So advertisers, I believe, recognize a couple of things are happening. One, of course, is those leads are valuable to them in an environment where there may not be as much interest in visits or using their services. And so they want to generate those leads, and they're willing to pay for those leads. That's one dynamic. We think that we are continuing to increase the value that we are delivering to those advertisers. And the cost for those leads fits within their model as they've seen inflation, certainly, they've also passed on a portion of their costs to the consumer, although I called out the challenges, particularly in the restaurant for that. But setting that aside, inflation has certainly been something that's impacted their pricing as well. So you combine all those factors, and we certainly are very attentive to the cost per click. And ultimately, our mission is to deliver valuable leads and visits to those advertisers as efficiently as possible, competitive with other platforms.

Our last question comes from the line of Sergio Segura with KeyBanc.

I have two. So maybe first on Yelp Assistant. I know it's early for the logged-out users, but just curious what you're seeing there, if it's pretty consistent with what impact you've seen from logged-in users. And then on the EBITDA side, the cost side of the business, raising that outlook. Just can you provide us a little bit more color on the efficiencies that you're seeing there that are driving that improved outlook?

Sergio, this is Jeremy. Yes, Yelp Assistant, the logged-out release is just starting to roll. So it's a bit early to see the exact effects. But overall, Yelp Assistant on the services side is doing great. We're up in terms of projects, 400% year-over-year. And so we'll keep you posted as we get more data on the rollout, but there is a lot of opportunity there, as we highlighted last quarter, to expose Yelp Assistant in a variety of different places, especially with logged-out users.

And this is David, Sergio. Turning to your question on EBITDA. We operate, we believe, in a very efficient way in deploying capital and investing across the business. We're constantly monitoring that and making adjustments. As you recall, we committed to flat headcount here in 2025. We expect to be flat as we come to the end of the year. That's a commitment we made in 2024 and 2023 as well. And we believe that we continue to increase the efficiency and leverage across Yelp from the contributions of everybody working at Yelp. So we are overall pleased with the progression there. There's also an element of being able to capitalize more software because we're doing more new greenfield projects. So for instance, Yelp Assistant, Yelp Host, Yelp Receptionist, and portions of the work that are associated with Yelp Assistant. So the overall profile of our investment even in product and engineering reflects the fact that we are increasing our velocity and particularly our innovation. So we're very excited about our ability to leverage AI to build these new products, deliver more value to both consumers and advertisers. And obviously, we'll continue to be very disciplined in the way that we allocate capital going forward.

There are no further questions at this time. Ladies and gentlemen, this concludes today's call. Thank you all for joining, and you may now disconnect.