Participants

Kate Krieger; Director of Investor Relations; Yelp Inc

Jeremy Stoppelman; Chief Executive Officer, Co-Founder, Director; Yelp Inc

David Schwarzbach; Chief Financial Officer; Yelp Inc

Sergio Segura; Analyst; KeyBanc

Jason Cryer; Analyst; Craig Hallam

Shweta Khajuria; Analyst; Wolf Research

Nitin Bansal; Analyst; Bank of America

Presentation

Operator

Hello and welcome to Yelp's First Quarter 2025 Earnings Call.
 (Operator Instructions)
 I would now like to turn the conference over to Kate Krieger, Director of Investor Relations. You may begin.

Kate Krieger

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 of 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 in 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 the historical reconciliation of GAAP cash flows from operating activities to free cash flow.
 And with that, I will turn the call over to Jeremy.

Story Continues

Jeremy Stoppelman

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 3% points and adjusting the EBITDA margin by 4% 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 remain 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 the Yelp system, 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 continued 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 the AI powered business summaries and made progress bringing Yelp assistant to 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 like 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.

David Schwarzbach

Thanks, Jeremy. In the first quarter, net revenue increased by 8% to $359 million and $4 million dollars 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 to increase by 32% year over year to $85 million representing a 24% margin, putting at $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 a $232 million. Revenue growth in services accelerated from the fourth quarter, driven by the inclusion of repair al in our auto services category.
 As Jeremy mentioned, restaurants and retailers remain 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 and services remain strong, contributing to a 9% year over year increase in average CPC.
 Turning to expenses, our first quarter results demonstrate the margin of potential of our business with a net income margin of 7% and an adjusted EBITDA margin of 24%. We achieved these strong results through discipline expense management.
 As we continue to focus on allocating resources towards 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 expenses as a percentage of revenue by 2% 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 30, 2025, we had $268 million remaining under our existing repurchase authorization. We plan to continue repurchasing shares for 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 will 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 2nd 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. With that operator, please open up the line for questions.

Question and Answer Session

Operator

(Operator Instructions)
 Your first question comes from Sergio Segura with KeyBanc. Your line is open.

Sergio Segura

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 of the day and anything to call out from a vertical perspective.

Jeremy Stoppelman

Yeah. Hi, Sergio. I can take that, I think the question is really around advertiser sentiment and kind of impacts on 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're taking, a quarter-by-quarter approach given some of the 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 and 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 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 have been encouraging and net we've reflected that in our guide.

Sergio Segura

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

David Schwarzbach

Yeah, 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 full throated and kind of their commitment on the year and ability to go spend, on the S&B side, certainly that's, the majority of our revenue is there and 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 core consumer experience, and you know we've announced products coming up like, Yelp assistant for other categories, so continues to be an investment area for us, don't have a crystal ball as to kind of when it turns around we don't believe on-premises dining is going away, but our relationships really remain strong within the multi-location RR&O category. And when it turns, we believe we have the ability to capture that upside.

Sergio Segura

Great, very helpful. Thank you.

Operator

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

Jason Cryer

Great, thank you. This is Cal 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 you know what are some ways that you can kind of maintain the budget growth that you've seen while maybe decelerating or reducing CPC to deliver more value to your advertisers?

David Schwarzbach

Hey Cryer, thanks for the question. Just to touch first on what's happening with quick growth and CPCs.
 We definitely saw robust advertising command in the first quarter that enabled us to deliver the performance that we did.
 That being said, to Jed's comments, it is and 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 page search in the first quarter of 2024, and that did lead to an increase of clicks, so you 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's 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 the clicks. So that's the first dynamic around. Being able to deliver value.
 The second is there are category mix shifts that are occurring as our services business continues to grow and grow significantly, and that can lead to an increase in CPCs while still delivering the exact same value since it's a mixed question.
 And then the third point is we want to ensure that when consumers come to Yelp they're really getting a great experience, and we have been investing heavily in the pro experience on Yelp, including now providing badging that indicates whether or not that pro is providing a great experience, and we do believe there's 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, better responses for them, and that's certainly something that we think makes the experience on Yelp more valuable to consumers and we'll encourage them to come back.
 So, we have a broad set of initiatives that we think really go after the opportunity first and foremost to deliver more valuable leads and then if we are delivering those more valuable leads, we believe that. We can charge higher rates for the clicks, so that meant when you put all that together, we feel like we are making great progress, and we look forward to continuing to execute against the roadmap that we set for ourselves.

Jason Cryer

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

Jeremy Stoppelman

Hey Cryer, this is Jeremy. I'll take that. Yeah, 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's some significant ones that are still untapped, for instance, if you go to a business details page and you know 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.
 And really as you think about it more broadly, I think Yelp Assistant in 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, reinvent the search experience. So we're really excited about the possibilities of that.
 And then you know once we have that fully built out, there's also the opportunity to take it off of Yelp and so you think about chatbots, new age or newfangled search engines that need to tap into local content.
 We think our local content is the best that's out there, the quality, the The data that we have and to be able to turn that into an API and provide Yelp assistant, I think to other platforms is an interesting possibility too.
 So there's a lot of runway for us as we continue to work on Yelp Assistant. We're really excited about it.

Jason Cryer

Great, thank you very much for taking my questions.

Operator

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

Shweta Khajuria

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 really 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% projects missions as well.
 I'm starting to see with some of the experimentation that you mentioned in the letter. As well, with the summary 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 on 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.

Jeremy Stoppelman

Thanks for the question, Brian.
 We see a ton of opportunities ahead leveraging AI. So as I was just talking about, Yelp assistant I think represents a great example, something where 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 LM technology, and there was an additional feature that we added which is you can now upload a photo and again.
 The AI understands what's in the photo. If it's a photo of something, let's say a washer dryer, it perhaps can pick out the model number for you and pick up details that you might not have even thought to include as your messaging trying to get to the right pros, and so we can deliver that valuable lead information to pros, which is really exciting of course there's other applications making search more intelligent, summarizing our incredible content, so we see lots of opportunities to enhance the product.
 And speaking of product, we actually have, as we announced with our release today, new products coming leveraging AI which will be answering services, so both on the restaurant side. A front of house answering service to help restaurant customers and then on the services side we know from talking to pros that they miss a lot of phone calls and that is often business that's just dropped on the floor. Some of those leads they've actually paid good money for and so that's just a real shame.
 So we want to solve that problem leveraging LLMs, leveraging voice technology that's now available. Pick up the phone for that pro when they can't answer, gather the necessary information, qualify that lead, and deliver it in a convenient way to the pro.
 And we think that's going to unlock a ton of value, not just from Yelp leads, but anywhere that they're getting leads. Those calls are being dropped and we can provide a solution. So we've been working on that for a while now and we expect to have that out soon.

Operator

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

Nitin Bansal

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 one que? And secondly, can you share some details on monetization trends for the PayPal and how that is tracking against your internal expectations?

Jeremy Stoppelman

Thanks for the question, Nitin.
 On the consumer engagement traffic side, we did see some macro pressure show up in restaurant retail and other, but on the services side, 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 is that 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.
 Onto RepairPal, obviously the integration is happening, going smoothly. We're pleased with the acquisition. We see a lot of low hanging fruit, things like bringing RepairPal just to the Yelp site so that you can schedule an auto repair right from a business's page, very obvious things like that. Those will be coming in the coming months and we think that will have a nice positive upside that we will realize as well.

Nitin Bansal

Thank you.

Operator

Once again, if you have a question, it is a star one on your telephone keypad.
 With no further questions, this concludes the question and answer session, and we'll conclude today's conference call.
 Thank you for joining. You may now disconnect.

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