Q4 2019 Earnings Call
[music].
Good day and welcome to Yelps fourth quarter earnings Conference call, all participants will be in listen only mode.
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I would now like to turn the conference over to Ronald Clark Head of Investor Relations. Please go ahead.
Good afternoon, everyone and thanks for joining us on yields fourth quarter earnings Conference call. Joining me today are Yelp CEO, Jeremy Stoppelman interim CFO, James Mill, and COO, Chad knock with.
Before we begin I'll read our safe Harbor statement.
Well 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 released 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, well discuss adjusted EBITDA and adjusted EBITDA margin, which are non-GAAP financial measures.
These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with generally accepted accounting principles.
And our shareholder letter released this afternoon and their filings with the SEC each of which is posted on our website.
You will find additional disclosures regarding these non-GAAP financial measures as well as historical reconciliations of GAAP net income to both adjusted EBITDA and adjusted EBITDA margin.
And with that I'll turn the call over to Jeremy.
Thanks, Ron and welcome everyone.
At the start of 29 team, we launched just long term strategic plan designed to deliver faster growth improve yelp structural economics in the first year executing our plan, we accelerated revenue growth from 5% in the first half to 10% in the second half. We also expanded adjusted EBITDA margin to 21% in 2019.
From 19% in 2018.
These results reflect an ongoing transformation of our business model, which we believe is laying the foundation for sustainable profitable growth in the years to come.
The initiatives, we pursued and 29 team delivered accelerating year over year revenue growth from the first to the second half of the year, while reducing our reliance on local salesforce, which was 10% smaller by the end of year.
Three facets of our long term strategy were particularly impactful in driving 2019 profitable growth.
We improved retention of non term advertisers budgets by mid teens percentage by delivering that more leads we grew AD revenue from multilocation customers, 22% by driving store visits to national advertisers and delivering compelling new advertising formats.
We also accelerated revenue growth in the self serve channel to 30% in 2019 by introducing new product offerings across a range of prices and optimizing our claiming and checkout processes.
These initiatives generated double digit year over year revenue growth in the first quarter laying the foundation for a strong 2020 in fact at the start of February year over year growth in cost per click advertising budgets, historically, a reliable indicator of future advertising revenue exceeded 10%.
For the year ahead, we plan to tap into a deep well of initiatives designed to drive profitable growth by generating more value for our business customers, capturing the multilocation opportunity expanding yelps product offerings, winning and our restaurants and services categories and enhancing the consumer experience together with disciplined expense management, we bill.
Leave their successful execution will help accelerate revenue growth once again in 2020, while also expanding adjusted EBITDA margins. We believe these same initiatives will also delivered strong growth and profitability in the years ahead today, we monetize just 10% of the leads regenerate and we believe that our most significant opportunity will come from.
Increasing that proportion, which is precisely what our long term plan aims to achieve.
Two important parts of our long term strategic plan are driving shareholder returns and building upon strong leadership and governance, we have several announcements to share on those fronts.
In 2019, we've repurchased 14 million shares for a total of $481 million and we remain committed to managing our capital to drive shareholder returns.
Today, we announced that our board has authorized a $250 million addition to the stock repurchase program since we announced the program in August 2017, Our board has authorized and nearly 1 billion dollar return of capital to our shareholders.
Effective tomorrow, David Schwartzbach will join Yelp is our new Chief Financial Officer, David joins us from optimize where he served as CFO and COO. He is a seasoned finance expert who brings a rare combination of financial and operating experience prior to joining optimize lead David held senior finance positions at ebay.
Most recently, serving as CFO Ebays, North American marketplaces business, where he played a key role and growing gross merchandise volume to more than $30 billion. We're thrilled to welcome David to the team.
In 2019, we added three talented and experienced independent directors to our board to help drive the execution of our long term plan.
In 2020, we are continuing to enhance our world class Board and sharpen our governance focus to that end, we're pleased to announce that Christine Barone I will join Yelps Board of directors effective March one.
Christine brings deep restaurant category experience to our board, having scaled true food kitchen to more than 30 stores in 14 states in a role as Chief Executive Officer, We believe her leadership and restaurants experience will help us serve both our shareholders and customers.
Christine will replace Merriam to 50 on the board and on the nominating and corporate governance Committee.
On behalf of our team I would like to thank Mary him for his years of dedicated board service and wish her all the best.
In summary in 29 team, we made excellent progress on our long term strategic plan I'm proud of the team's hard work and focused execution, which has generated strong momentum into business. Their accomplishments have provided a foundation for the year ahead and brought us closer to realizing our long term financial targets and with that I'll turn it over to James.
Thanks, Jeremy.
As Jeremy noted the drivers of our profitable growth stronger retention and the mix shifts to the multi location and self serve channels have improved our business economic.
And enabled us to reduce local sales head count by 10% in 2019, while accelerating revenue growth from the first to the second half of the year.
We believe the evolution of our business model has been significant and will allow us to continue to improve profitability in the years ahead.
In our Investor presentation now in our Investor Relations website, you will find more detailed around our growth strategy and revenue initiatives.
I'd like to take a moment to outlined the three drivers of our path to greater profitability shown on slide 21 of that presentation.
First our sales channel mix is evolving away from dependence on adding sales head count to drive revenue growth by increasing growth in our most profitable channels multi location in self said, we expect a margin profile to improve.
Second we will lift to our investments in new offerings and delivering great value to appetizers to drive revenue retention improvements. We successfully executed this initiative in 2019 times D. So again in the year ahead.
We believe there is significant opportunity to grow our bottom line over time by improving retention and benefiting from a greater percentage of our revenue coming from existing customers.
Third we are continuing to look closely at our corporate expense base and location footprint and see strategic opportunities to margin leverage over the next few years.
In 2019, we greatly reduced our sales footprint in San Francisco and relocated significant portions of our DNA organizations from San Francisco to our Phoenix office, reducing some recurring operating expenses.
We are not expanding our engineering footprint in Toronto to tap into a strong positive technical talent, while reducing our reliance on the high cost San Francisco Bay area.
We expect sales mix shift retention gains and expense discipline, we achieved in 2019 to help drive profitable growth again in 2020 and bring us closer to reaching our long term target.
Beyond revenue growth and margin expansion, we have focused on providing value to our shareholders through prudent capital allocation.
We've had a robust multiyear capital return program in place since 2017 and in 2019, our share repurchase program helped drive a 12% reduction in outstanding shares.
As Jeremy noted in January our board authorized a $250 million increase in our share repurchase program, bringing the total tries to nearly 1 billion since 2017.
We will continue to allocate capital wisely, but the two objectives to putting on strategy and increasing shareholder value.
Now I will turn into our financial results and business outlook for 2020.
Revenue for the full year surpassed $1 billion growing 8% year over year and exiting the year with double digit growth in the fourth quarter.
In the fourth quarter 2019, net revenue was 269 million up 10% from the fourth quarter 2018.
This was slightly below our outlook owing to greater than expected seasonality in December as our local advertisers took advantage of the flexibility of on long term advertising product opting to reduce spending during the December holiday.
However, this season activity reversed in January which was our strongest month for both non term appetizer acquisition and budget retention since we began selling non Tim appetizing.
These operational signal suggests we are getting off to a strong starting 2020.
Net income was $17 million in the fourth quarter of 2019 compared to 32 million in the fourth quarter of 2018, reflecting higher income taxes in the fourth quarter of 2019 due to the release of our valuation allowance in the fourth quarter 2018.
Adjusted EBITDA grew to 61 million in the fourth quarter of 2019, an increase of 8 million.
All 15% compared to the fourth quarter of 2018.
Adjusted EBITDA margin increased one percentage point to 23% in the fourth quarter of 29 teen driving a strong incremental adjusted EBITDA margin of 43%.
For the full year 2019, adjusted EBITDA margin improved from 19% to 21%.
Turning to our outlook, we expect to accelerate revenue growth and expand margins again in 2020.
Specifically, we expect net revenues grew 10% to 12% over 2019 with adjusted EBITDA, increasing by one to two percentage points save a 29 team.
For the first quarter of 2020, we expect net revenue growth of 8% to 10% compared to the first quarter of 2019, and adjusted EBITDA margin to be approximately two percentage points lower than the year ago quota.
The Q1 outlet reflects a slight deceleration in top line over the fourth quarter, continuing the seasonal pattern of recent years past as well as funding product development to appropriately investing of top revenue initiatives.
We anticipate expense leverage to come in the second half the year as planned retention improvements growth in our multi location in self serve channels and productivity improvements on flat sales force head count begin to leverage the product investments, we are making at the start of the year.
In summary, we are looking forward to another year of progress towards our long term target with foster growth driven by more profitable model.
With that operator, we will now open up the coal for questions.
Thank you.
And we will now begin the question and answer session.
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Sam Moore our roster.
Our first question today will come from Dan Salmon of BMO capital markets. Please go ahead.
Hey, great. Good afternoon, everyone. Thanks for taking the questions maybe.
Jeremy just in light of having the.
The 2020 outlook, now and and seeing that growth still towards the bottom end of of double digit topline comparing to your mid teens target that you.
Focused on over the long term could just review us on what you see as being the top two or three elements to help us see that acceleration up there I mean.
And on a high level, we know the multilocation business growing versus.
The local but side, but just maybe within that.
What are the two or three things you're focused on this year most to get you. There and then just maybe just a little bit more expansion on on the new CFO hiring.
You mentioned.
Unique combination of both financial and operational background. This maybe you could talk a little bit more about whether that means that some different responsibilities.
That you see David coming in and taking thanks.
Sure. Thanks for the question Dan.
Yes, so looking back at 29 teen there was a real fundamental shift in our business model. We went from contract model with local advertisers driven by local sales head count.
To one that is really led by product and engineering better retention as well as the multi low opportunity multi location and enterprise opportunity and so with that growth you get.
Hi, Great you get high revenue growth higher revenue growth and you also get higher profitability and in 2019, the first half we saw 5% growth.
Accelerating to 10% growth in the second half.
So that we think that we're well on our way to an acceleration continued acceleration in 2020, I guess I'd also.
I'd like to point out that about 10% of our leads on Yelp right now are being monetized. So we feel like we have to credible runway to continue accelerating revenue and profitability just by capturing more of the leads and directing them to our successful clients and so thats a big part of what gives us confidence in 2020.
Onto your second question about David Schwartzbach, our new CFO really we we were attracted to his experience at ebay outgrowing the North American marketplace business. We also like what he was up two and optimize Lee with an operational role there we still see it as.
The CFO role here.
So I don't think Theres, a change and job description, but we like his financial acumen and operational experience. Both I think are going to be helpful. In 2020 and beyond.
Great. Thank you.
Sure.
And our next question will come from sweater criteria of RBC capital markets. Please go ahead.
Great. Thank you could you. Please talk about your new product pipeline verified licenses and business highlight these are great. Just as you think about 2020.
What's your conviction around things that you're working on any context. There second is on FCO challenges I know this is asked just about every quarter, but when we looked at app.
Download growth that is decelerating I'd just thoughts on.
If you're seeing INAP engagement grow and if youre measurement of not only just app devices, but internally do you measure other metric that Steve do growing engagement within App does that offer your upside I would that offer you cross selling opportunities and then the third is on just overall retention.
It's the balance of clicks and Cpcs.
Where do you see this go long term 2020 2021. Thanks.
Sure. So I guess I'll take your first two questions here.
As to products that are coming in 2020, I think its along the same lines of doing more of what we did in 2019 as a big part of it.
One of the most impactful things that we did was really improve our AD system targeting and matching serving the right add to the right consumer at the right time, ultimately thats going to drive a connection to the business.
It is successful and delivers value, which results in better retention and so we havent deep well projects designed to continue improve that matching system. There is also more that we will do on the AD user experience. We've got a modern look coming in the App insight that we'll continue to roll out to improve the consumer experience.
We've got a new business owner look and feel to the business owner experience and then also making sure that pricing is right for the type of business based on category as well as to whether there are new business or an established business. It's been around for a while so we've got a whole host of exciting to use coming in 2020 that will then I think.
Well continue to accelerate revenue and drive retention.
Improvements.
And then your second question was around.
Ooh news App Emeas, what's going on there no big change that we made last year was backing off on some of our consumer marketing, which was paid installs.
And so we draw that down which increased profitability and we are leaning more on our restaurant investment in yelp reservations, and weightless, which drives millions of downloads and is going to continue to grow at a rapid clip.
We also see puts and takes from Google You mentioned SCR, that's still a factor. Although we believe were less dependent on Google that certainly we have been in the past and early last year, we actually saw benefits from some Google Algo changes and then into Q4, we saw on some some headwinds in that regard.
Yeah, So there's ups and downs, but we havent number of different levers and I guess backing up to the fact that we have 10% of our leads monetize we feel like we have plenty of inventory and opportunity with the traffic. That's on the site today and Comscore has us at about a 100 million monthly users right now.
And then on two Retentions cpcs.
What was the question there.
Thanks.
Well, what's your what's the trend that you've seen and where do you see that go I mean, it is the difference between pricing and the quakes here.
You are offering greater value to advertisers that and thats driving retention, where do you see that go long term I mean do you think that the difference.
Narrow overtime.
Hi, there what we've seen is as we drive more value to our advertisers, we do tend to see better retention and so we have a laser focused on continuing to improve matching and in fact in home and local services over the last year, we doubled the number of leads going to those advertisers and that business grew.
At a healthy.
Teens clip.
So we've got a whole list of projects to continue.
Pushing value to advertisers and we think thats going to show up in retention.
20 as well.
Thanks, Jeremy.
Sure.
Our next question will come from Justin Patterson of Raymond James. Please go ahead.
Great. Thank you very much Jeremy I wanted to go back that Scott Youve mentioned, a few times fewer than 10% of leads are generating revenue how much of that is just intrinsic to the category simply challenging approved the ROI and on how much of that as solvable with these new products and better sales motion. How many of these leads do you think you can monetize overtime.
And how quickly can you call that thanks, so much.
Sure.
I mean, I I was just mentioning how in the home and local category. We doubled lead last year leads last year.
And we think we have a long runway of additional projects to continue driving up the number of leads I think if you look at Yelp from an ARPU standpoint.
Relative to other peers in the space, we're a little bit low and we think we can do better by driving more value to our advertisers and moving that that number up so I don't out of a specific worry, but I can tell you know, we're obviously guiding to.
Continued acceleration on revenue profitability thats going to be driven by better monetization.
Got it thanks.
Sure.
Our next question will come from Korea Carpenter of JP Morgan. Please go ahead.
Great. Thanks for the questions two if I could ask first on product could you talk about the adoption of some of your newer AD units, maybe which are having the biggest impact and then on salesforce with with head count expected to be flat in 2020 could you talk about where you expect to see the productivity gains come from and how you're thinking about the opportunity.
Bundle some of that you add products together thanks.
Sure I can take this one on in terms of the additional products you know we since the inception of some of the additional profile products. We have about 70000 customers who have adopted them.
Those are largely getting bundled with our CPC AD product right now.
We're thrilled with the progress on we do see these products as a launching chlorine and it really important first step and being able to sell the right products to the right customers at the right price.
Traditionally we've been kind of a one size fits all product yet local businesses are really different.
Some are starting out on their journey as local business only been around for a while some are in different Geo cats.
And so we believe that over the course at 2020, we have the opportunity to really become targeted in terms of how we merchandise those products across that that potential customer base.
And so there's also a deep well additional things that we have in the pipeline, we're not going on kind of specifics about does but ultimately we believe that.
The Tam is there to be all that kind of hit different points within the lifecycle. These local businesses.
On the on the second question around.
Head count and how can we kind of maintain that productivity with flat head count going into 2020.
Obviously in 2019, we got a good start on that process, we're able to that too.
Overall.
Sales force headcount was down about 6%, 10% in the local salesforce and yet we were able to accelerate revenue throughout the back half of the year and do so while still add driving margins and so that's encouraging first step in this process and when you think about the you know the shift in the mix shift from.
From that local sales kind of add water by local sales again, it's dead moving towards multi Logan self serve both of which grew healthily in housing multi look at 22% year over year and the self serve at 30% year over year those are going to have.
Ill embedded productivity improvements along with the retention improvements and so part of that productivity equation is not only what can we do on the acquisition side, but what's happening on the back half weighted in terms of LTV and we're really encouraged with the signals that we're seeing.
And then I guess finally going back to kind of the first part of your question, which was additional products. You know we did have success last year in releasing additional products to the salesforce.
Gives tends to give a shot of energy and gives us something to talk about with with clients and we believe we'll continue to kind of have that opportunities throughout 2000.
Throughout 2020, and I guess I would just end on the drivers on the mix shift.
Moving to self serve and not in multi locales going to kind of drive the profitability profile as well.
Okay. Thank you.
Our next question will come from Brian Fitzgerald of Wells Fargo Securities. Please go ahead.
Yes, Hi, this is Omar do so before Brian.
Do you see any interesting dynamics and your various verticals and we think a lot of vendors are engaging with the CPC model.
Does it alter the search ordered anyway, if they're not a CPC user.
This is Jeremy.
Yeah, I guess it depends that context that you're talking about request a quote for instance, when you request a quote.
As largely going to paying advertisers so that we.
Would be routed to paying advertisers whenever possible. If you go through the search experience. There is clearly marked ads and at a constant organic concept much like Google.
And so if you are talking about the organic listings as they're not impacted by add status.
Yes.
Well that's our next question our next question.
Well come from Brent sale.
Jefferies. Please.
Please go ahead.
Thanks, This is John calling Tony on for Brian.
It sounds like you had a strong customer acquisition budget retention, so far in the first quarter.
Given this dynamic can you comment on why guidance for first quarter revenue growth is below the full year rate. Despite an easy year ago comparison. Thanks.
Yes, Thanks, Jon This is James.
So something we pointed out in Atlanta is that.
We're seeing more pronounced seasonality in our business we saw.
Actually following the move to long term contracts, you and a half the guide and so this is a first full year is that in place has become a large part of our business also multi location is becoming a larger part of our business and that has very strong seasonality into Q4.
And then then into Q1, so what you're seeing some Q4 to Q on.
Is driven by some about mix and seasonality.
And.
We still got into our guide and then as we look at how they gave us starting off.
On bouncing back on the local side on that those trends in retention and acquisition looking really good. They compound I have a time say dynasys proxy that revenue immediately but we feel really good about how those built into our outlook for the yet so thats all being built into those numbers I.
I think we've seen January and we see where we are on February and we think that the range is very solid it in terms of eight to 10.
Great and I believe most of the early uptake of your recent products like verified licenses in business highlights were primarily coming from an existing advertisers can you discuss whether you're starting to see these products, bringing a greater share of a new customers and how you see these types of offerings.
Helping to drive more AD revenue over time thanks.
Yes, I can take that one.
I guess I wouldn't say that necessarily they're all those those products are attaching to existing customers I think a lot of that comes through new acquisition and increases the value of.
Kind of the AD packages that folks are buying predominantly through the local salesforce and and the self serve channel. So.
We believe that is opening doors and allows us to kind of Jews that productivity as result of having those additional products certainly we look to kind of expand.
And there is an effort obviously to go in and upsell into our existing client base.
Do you see some nice returns from that ultimately we believe these products have the ability to kind of opened doors to other segments that may or may not be ready to go by April sledge advertising program.
And there is a deep wells things that we can kind of continue to release out to the sales channels in order to get that Doug.
Okay. Thanks, so much.
Once again, if you would like to ask a question.
Please press Star then one to answer the question Q.
Our next question today will come from Matthew Thornton of Suntrust. Please go ahead.
Taking the question. This is Anthony duplicity on for Matt I'm, hoping you could discuss a little bit about the impact of some of the board additions in 2019, and whether there's been any changed how you're thinking about partnerships and or M&A.
Okay.
Sure This is Jeremy.
So first question was.
Board impact.
Yes, we onboarded three new board members.
In 2019, it's been great to have their energy and interest and experience.
It's been a positive and that also leads us to 2020.
Where we've now announced that we're adding Christine Renee to the board and longtime board member myriad literacy.
Retired from the Board's, yes, and I think it's a positive to continue to bring in fresh eyes, and fresh energy and new expertise and so thats why were continuing on that path to continue to improve and refine our board governance and leadership.
I am on and partnerships in M&A, we continue to be very open to the idea partnerships.
We continue to have a good relationship with Apple good relationship with Grubhub.
Conversations are ongoing.
And ultimately what we're focused on is providing profitable growth to shareholders as well as delivering a fantastic consumer experience. So when those two things aligned then we're always happy to do deals and on the M&A side. You know, we don't really comment or speculate on M&A. So we'll pass on that one.
Understood. Thanks.
And our next question today will come from me Gallerani of Wedbush.
Please go ahead.
Hey, guys. Thanks for taking the question that I may have missed some of this commentary at the Brown few calls.
Just want to dig into the seasonality I'm a little bit more.
On unexpected in December maybe just trying to parse out and understand a little bit better.
What what drove the weaker than expected seasonality in December what were the factors that.
You kind of led to the bounce back.
In January just kind of the ins and outs. So what were the moving pieces there and then on a PPA out they just celebrated.
So what meaningfully from Threeq, you first time decelerated all year.
If you could talk about PPA, Elton expectations, there going forward.
I'll be helpful. Thanks.
Hey, guys, James So I'll cover seasonality and I think that will be at.
Talk about the payout so.
Yeah, we talk about this in Atlanta, I mean think it's important to how.
Understand that we are seeing more profound.
Seasonality as on long term contract structure has now had a full year and that becomes a bigger portion of overall business.
So, yes, and we saw some of its a year ago, but it's a larger piece of our business now.
And we've also been driving a lot of initiatives over the year to improve seasonality.
And and so the ongoing improvements we saw retentions throughout the year.
Narrowed a little bit in the and the final month in December and that was the thing that.
No, we didnt know sort of see and our outlook and made us come into the on the right where our expectations while.
Having said that as we entered into January we saw that retention improvement year on year assay grow back and expanded level debt as well and so as we said seeing sort of record level of retention and that great performance from a sales team in terms of acquiring new business in January so we think that.
December January thing is here to stay in poverty as that business becomes.
Big accidents have become more more pronounced yes, I can take the PPA sales.
Obviously, its combination of both our our local and our multi low to contribute to bear pales, but I would say specifically within within multi locally.
Dynamic is not that multi look advertisers come on and add necessarily a bunch of new locations to start spending money on in the fourth quarter, which by the way, it's very seasonally high quarter for them. They both retail and restaurants. It really typically comes out from a revenue perspective in adding more budget into the existing locations that they had in so I think you see alone.
But in that dynamic happening in terms of scales.
We don't manage to that number specifically on Pcls were really concerned about how do we drive the most revenue in most profitable way.
And so.
That's that's kind of what was happening.
Okay. Thanks, that's very helpful.
Our next question will come from Sean Henderson of D.A. Davidson. Please go ahead.
Hi, guys. Thank you for taking my question.
One question for me kind of a broader industry question.
Could you guys provide a little color maybe on any of the affects how it's or any impact from.
Rollout of CPR.
Now that's kind of affecting your advertising business.
Yes, John Thanks for the question.
Yes first off we don't sell any data that's covered by SCPA to third parties.
And Additionally, we've already made the necessary adjustments.
Comply with Cpis.
So we don't see any major impacts our business is done.
Got it thank you very much.
Sure.
Ladies and gentlemen, this will conclude our question and answer session.
And also concluded yelps fourth quarter 2019 earnings conference call. We thank you for attending today's presentation.
And you May now disconnect your lines.