Q1 2020 Earnings Call
Okay and welcome to the up first quarter 2020 earnings conference call.
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After today's presentation, there won't be an opportunity to ask questions. Please note. This event is being recorded I would not like during the conference over to Jane known Vice President of financial planning and analysis. Please go ahead.
Good afternoon, everyone. Thanks for joining our front helps first quarter earnings come from school.
Joining me today Yelps, Chief Executive Officer, Jeremy Stoppelman, Chief Financial Officer, David Twoz box, and Chief operating Officer Treadmill.
We publish the shareholder let out all investorrelations website and with the S.C.C. about an hour ago I'd hope everyone had a chance to read it.
Will provide some brief gardening comments and then 10 to your questions.
Now I'll read Oh Safe Harbor statement.
We'll make certain statements today that a forward looking and involve a number of risk and uncertainties that could cause actual results to defend materially.
Please note. These forward looking statements effect car opinions only as of the date of this cool and we undertake no obligation to her advice whole public release the results of any revision to these forward looking statements and lots of new information or future events.
In addition, we are subject to a number of risks that may significantly impact how business and financial results.
Please refer to R.S.C.C. filings as well as I'll share holder lets us for a more detailed description of the risk factors that may affect our results.
During a cold today, what discuss adjusted EBITDA on adjusted EBITDA margin, which I Nongaap financial measures.
These measures should not be considered in isolation from or as a substitute for financial intonation prepared in accordance with generally accepted accounting principles.
And I'll shout allowed to release this afternoon, and our findings with the S.C.C. each of which is posted on our website you will find additional disclosures regarding these known gap financial measures as well as historical reconciliations if gap net income to both adjusted D., but and adjusted EBITDA margin.
And with that I will turn a quota to Germany.
Thanks, James and welcome everyone.
At the beginning of the year, we like everyone else could not have imagined where we'd be today as a community.
The global pandemic has disrupted any sense of normalcy for the world and we've been witnessing the impacts on consumer behavior in real time.
Well, the physical distancing measures and sheltering place orders have inevitably delta significant blow to many local businesses. This crisis has reinforced for us the critical role that yellow plays and will continue to play connecting people with great local businesses.
We moved quickly to take steps to navigate our business through these unprecedented times.
To protect the safety of our employees and do our part to help flatten the curve, we took early and Swift action to migrate our workforce to work from home.
As a company with thousands of employees I'm proud of the operational agility and speed with which our team has been able to adapt to this new work from home environment, given a difficult circumstances.
Reprioritized efforts to help our consumers and local businesses stay connected with yelps trusted content. During this time.
Our product to move fast to create new features for businesses to showcase relevant offerings, such as virtual estimates or whether they offer delivery or take out during cobot 19.
These new attributes have been rapidly adopted by business owners with more than 120000 active locations by the end of April.
In addition, as part of our efforts to support local businesses on March 20th.
<unk> 25 million dollar relief initiative, primarily to support local restaurants, and nightlife businesses, which had been particularly devastated by covert 19.
We also took the difficult but necessary steps to reduce our workforce and expenses to help maintain financial stability in the corridors to calm.
From a balance sheet perspective, we ended the quarter with $491 million, you cash cash equivalent and marketable securities and no debt.
We believe we have the financial strength and liquidity to whether the uncertainty of the pandemic under a range of scenarios, allowing us to continue to focus on the health and wellbeing of the L. community, our employees consumers and local businesses.
In summary.
We entered this pandemic on the back of strong performance over the preceding quarters and into the first two months of this year.
Despite the negative impact of the coping 19 pandemic in March our first quarter, but avenue was $250 million up to 6% compared to the first quarter of 2019.
We responded quickly to the health crisis and made the decisions, we believe where necessary to preserve our financial liquidity and maintain our operational capability.
Doing this we believe yelp will emerge uniquely positioned to help local economies grew the recovery.
Partnering with our existing advertisers and helping grow new ones.
With that I'd like to turn it over to David.
Thanks, Jeremy.
This is my first earnings call with yellow I wanted to share a few of thoughts around wind joined the team and the share a few first impressions Oh, then move on to our view around the second quarter.
And it's hard and advertising business depends on content consumer interest in reach Yep has all three.
Highly valuable content through trusted reviews, we enjoy strong consumers granted built over the past 15 years, one with appeal that way towards more hassle in households, and we deliver value to advertisers across a broad range of categories from restaurants to home services.
These strengths remain true even with the current pandemic and together they provide the foundation for us to grow as the economy recovers.
As I've worked with the team over the past two months I've seen impressive operational ingenuity in difficult circumstances, as we transition to work from home and then it has to take significant actions to reduce expenses.
Those actions made with careful consideration reflect the commitment to financial discipline will also helping to ensure that we continue to drive product innovation and reach business owners through our sales organization.
We believe that the steps we have taken a line expenses to reduce revenue across a broad range of scenarios.
Has Jeremy said, we also have a strong balance sheet with $491 million in cash cash equivalents and marketable securities have March 31st.
We currently have no exposure to corporate Securities. We continue to take additional steps to further increase our liquidity. Most recently, having a revolving credit facility in may with wells Fargo for $75 million.
Airline full of devolution, we've indefinitely postponed share buybacks given current conditions.
Taken together I am confident in our ability to whether the current storm from illiquidity perspective, and to enlarge well position for growth.
Now turn to our thoughts around key too.
Well, we are not in a position to provide unusual guidance for this quarter or the four year given the current uncertainties. We continue to closely monitor business performance and make decisions to ensure our financial strength.
As described in our shareholder letter, we've seen a steep decline and traffic.
There are people going out to eat and shop, coupled with blood. They sheltering place orders have resulted in an extraordinary number of local businesses closing or operating it limited capacity.
This in turn has understandably led to many of our advertisers counseling pausing or reducing their spent on yeah.
In California in New York, two of our strongest regions and two of the first stage. The older residents to shelter in place we began to see both traffic and advertiser budgets begin to stabilize in the second half of April.
Well, we are still closing our books for April we expect revenue to decline by approximately 35% compared to April of 2019.
It is important to recognize that are rather new debut lower in May and June due to a number of factors.
Well, we are seeing some using of consumer restrictions.
Names are very challenging environment for small local businesses and we may see more of our advertisers pause reviews or cancel budgets.
The support many of these businesses, we may expand upon our relief initiatives and this could have a direct impact on both our advertising and services revenue.
Which recent changes to our sales force, we may not be able to maintain productivity levels as time passes and we continue to work remotely.
In addition, the rates of recovery in consumer behavior and user engagement will impact revenue.
Fulfillment of bad budgets and the cost per click, we deliver both of which remain uncertain.
On the cost side, we expect a reduction in gap expenses of approximately $70 million compared to Q.. What this excludes a one time restructuring charge between 4 million and $5 million for the year, it's important to recognize that our cost basis is driven predominantly by our headcount.
As revenue recovers, we plan on restoring more employees to full time.
As a result, we anticipate our expenses will rise in the second half of the year.
As we see improvement in business performance, we plan to selectively reinvest in our business, we will be guided in that reinvestments by opportunities to drive profitable growth over a long term across channels categories and geography is while maintaining our financial discipline.
With that operator, please open up the line for questions.
Oh now begin to question and answer session. You ask a question you May pressed Star then line I get in touch tones sound. If you are using a speaker phone. Please pick up your handset before pressing a key.
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At this time, we will talk to them entirely to assemble the roster.
The first question comes from calling Sebastian Bad. Please go ahead.
Oh, great. Thanks, good afternoon, and and and hope everyone is there is a safe and healthy Jeremy and maybe a little bit early but beyond managing to the current environments are you thinking of any longer term changes to the company strategic priorities for is the goal to get back to the progress that you were making earlier in the year.
And then as a follow up on the the Multilocation given some of the relative strength, we're seeing in in national chain restaurants in other businesses can you talk about maybe some of the relative demand trends from that from that group in your business you know sitting here in in early may and and maybe some of the v. it'd be performance marketing.
You plan to leverage with that group. Thank you.
Yeah.
[noise] Hi, calling this a German I'll take the first half of the question and maybe a jug can hop on.
Within National question, but as far as it changes to our priorities certainly we're looking at you know a product development pipeline to see if there's any things that should be done more urgently in light of covert 19, you know we already scrambled the jets and you know got out a bunch of features to help make.
Easier for businesses to communicate with their customers around things like ours changing how are they handle a you know pick up at delivery and so forth. We've actually seen a lot of six s. as measured by engagement with some of those features so we have <unk> 19 banner for instance that all businesses.
Can put up on their business page, we had 225000.
Goes up by the end of April we launch some new business highlights those are for titles that businesses can put up to highlight specific things about they're offering. The we we put out some special ones related to <unk> and we had 120000 of each of them activated by the end of April edition.
Yep connect some which is functionality that allows you to post.
Ah, but visual text information to your page and it also gets pushed out two people that are you know past customers as well as people that might be interested in your business to see pretty nice pick up there with 10000 businesses are activated.
Until will continue to.
To push forward on a on features like those that are extremely relevant in the short term and then there's you know adjustments I think to the pipeline over the long term things that maybe we hadn't considered before the that now or more urgent.
But I would say you know generally a lot of the things that we were working on her still quite relevant we've seen a lot of strengthened resiliency in the local services home and local services category spent last impacted overall and we had an enormous opportunity, which we still have to monetize more at the leads there and so many of the project.
We're already working on continue to be relevant driving high value I quality leads to our advertisers.
That maybe judge you can hopping on the national chain question.
Sure. So you know in terms of the other national chains, you know they they are obviously still operating in a local economy and they've been hit in varying degrees, depending on the segment and and category. You know obviously restaurants are still trying to find their footing in this new world and when we talk about Multilocation you know, it's it's kind of everything.
From mid market all the way, it's kind of your largest national.
[noise] will change and then you have to break it down further into kind of QSR versus you know dining in the options and so there was a very broad range in terms of how this as as impacted obviously pick up and delivery our dynamics that is within a restaurant segment, specifically, yeah. We are seeing a bunch of ink.
Priest interest on that although I don't think as a rule. Most of these large enterprise accounts have really figured out what strategy, they're going to move forward with and and no. It's a complex problem you know given you know.
Varying.
Rules and regulations in in in different states in different cities. So I you know the most important thing is we're just aligned with them side by side as as they're making their plans to kind of come into a recovery posture.
And making sure that you know when they do turn all the spigots in terms of advertising budgets that we're we're right there with them I would say on the services side. You know this is an opportunity we still see you know folks on the consumer side are still need services and on the business side, you know, they're still buying advertising and so you know making sure that.
We're we're we're fully alongside on the services side too 'cause that's gonna tend to have a faster recovery than than the restaurant pieces of business.
Thank you.
The next question comes from acquiring Carpenter J.P. Morgan. Please go ahead.
Great. Thanks for the questions and appreciating color on on April trends in the shareholder letter I'm, just hoping you could expense on on what you're seeing across yells channels in categories over the last month.
Yeah, I don't know if it's possible to quantify that how far ahead in New York in California, maybe you know they're geography.
And and follow up to send the economy starts to reopen any touched on it so much it'd be it'd be performance marketing, maybe it's more color on your strategy to drive Reengagement <unk>.
I can take the one on on on categories and segments you know overall.
In in terms of of channels in categories. The services segment, obviously as we indicated is not that hit as hard as a as the restaurants I both from a traffic and from a revenue perspective, we were certainly encouraged by April seeing at least a leveling off of the decline.
And the stabilization, which is which has been really important you know our sales force productivity as I've been as good as kids. We could have expected you know we did a huge transition to work from home and really did not see any depth and productivity is <unk> an angry at war on an individual basis and so we're seeing.
Real strong productivity. There obviously you start to look at categories like health and beauty that are impacted as well and and restaurants, obviously taken a big hit but you know overall I would say the strength as bad as the services side of the business both from a retention and our production perspective.
<unk> I guess I can take the <unk> sorry go ahead, there. So Cory this is David.
When we think about driving advertiser, Randy man part of the investment in the sense that we made as we provided belief.
To our businesses that $25 million that we announced a wasn't opportunity to engage with them and bring them back allowing them to pause for the business and so one of the things that we're focused on is ensuring that it's easy for them to come back in for our sales team to engage.
On the need to be marketing side has you know we have not invested heavily in performance marketing and we haven't had to that being said as we see opportunities. There. We're definitely looking to try traffic has the economy recovers.
Great either.
[noise] I'm X. question comes from Dan Salmon I.B.M.L. capital markets. Please go ahead.
Alright, great. Good afternoon, everyone. Thanks for taking some questions first maybe just to return to the restaurant category specifically and.
Maybe for Jeremy <unk> do you know continuing to maintain the high level of investments in national.
You can you just remind us and you know what.
Yeah, I think that if we step back notwithstanding the multiple categories of of multiple location that the general view that they should rebound more than than traditional sort of local restaurants independent restaurants. So just maybe remind us what are some of the.
Key areas investment to support the national business and and in particular, you know your views on whether that may be able to accelerate coming out of it and then you don't maybe for David just welcome to the first your first call, but and we'll jump right into one about you know with with buybacks being halted.
You know, how we should think about expectations for restarting that what are some of the key milestones you're looking for would love to hear a little bit more on that as well. Thanks.
I can take the first one on a on national in terms of the investment you know I would start with you know weights when we talk about not you know continuing to invest in in that segment. You know, we largely pipe enterprise sales team in place any infrastructure in there to make sure that we could services.
And that way possible and so you know those relationships continue today, even where some of those folks have have cut down on initial advertising spend obviously, we've got to take a look at delivering and pick up as a huge opportunity for these folks. Although you know it it's not the the the panacea that would.
Toll we drive Ah that segment in terms of of of a quick rebound I think most folks are just trying to kind of keep their head above water. You. You know obviously in store attribute <unk> going to be a little bit harder m-, given this environment and and and folks sheltering in place. So you know an example of one of the things that were.
Thing is that yelp audience platform, where we kind of look an ad.
<unk> at folks you haven't had to pick up and deliver and Ken and can access them in other other places around the Internet and you know that.
That's been a product that has seen some uptick recently as a result, but in general it's just making sure that we're providing that kind of the core blocking and tackling so when folks decide they need to start to spend and and and various states.
Let's say do you start to recover that that we're right alongside them.
Okay.
And then I'll pick up from.
Said there in terms of.
Share repurchase.
One thing of course, that's a important to appreciate is bad over the course of last year, we bought in nearly half a billion dollars of stock and so.
It's much too early to consider rare Shelley purchases today.
We've been extremely focused on liquidity and as we mentioned, we believe with 491 million at the end of the of the first quarter were extremely well position. We've just added the credit facility with wells were taking other steps.
We are mindful of dilution, but it's much much too early for us to consider moving back to a position where we're engaged in sherry purchases.
Thank you.
The next question comes from Michael <unk> Goldman Sachs. Please go ahead.
Great. Thank you for the question I was wondering if you could just expand a little bit about the pacing of revenue through the first quarter I thought it was encouraging to see the acceleration and revenue growth in February 215%, you know what what drove that acceleration.
In February and does that give you confidence that you will be able to execute against those same initiatives. Once the pandemic is over thank you.
I can I can jumping on that one yeah, we were really happy with the way that the your started and and looked at that acceleration from January and February you know at that 15% range and I think it was a lot of the work that that we had started into.
I was 19, obviously, we had I think at 25 per cent you're over your improvement in Red pension that was the largest driver there.
You know continuing to look to deliver more value to our advertisers you know per dollar spent was really really important and as we saw you know kind of you know the neat to account or turn over that way that became very evident at that we saw those retention improvements yeah sales productivity continued to be you know in a very very healthy place over those first.
And even end of the first half of March and I think looking forward you know, we structurally kind of changes the model over 2019 that was much more heavily reliant on you know not growing the sales forces much and and and driving kind of growth <unk> well, we had a shrinking local sales fortunate.
Leaning into the national opportunity as a self serve opportunity and so all those things kind of came together or the first couple of months of the year and you know I suspect that we I would imagine it as we come out of this will continue to leaning on those channels and continue to make improvements on their attention side as well you know and that is a big drive.
Wherever that productivity and a big driver of the remedy.
Great. Thank you very much.
The next question comes from Swat at criteria Army see capital markets.
Great. Thank click on it I'm sorry.
But Jeremy could you talk about.
Oh, you think yep, we'll be positioned boast schools, it how differently well the position coast Costco. They don't you think about seltzer.
As well as larger advertisers that you may <unk> location advertisers amnio conditioning back and also in terms of your conversations with small businesses. They may not be operating right now, but the school that.
Yeah, you in conversations Ya.
So that it is a smooth there onboarding post cool thank you.
[noise] Hi, short up this is Jeremy.
Yeah, I would say <unk> one of the things we're really focused on is making sure. We are top of mind with consumers and we think well the most important ways to do that is ensuring that our information is as up to date as possible. So we're spending a lot of time and resources on making sure that.
Things like ours are correct, how is a business handling itself. During this time, what can you buy from a particular businesses.
Can we automated some of that especially for larger businesses you mentioned national obviously, it's harder for a business with thousands of locations to keep everything up to date and time, making sure that we have the resources to help them stay top of mind with consumers I think all of that work is going to help keep that connection to consumers and ultimately.
That's what businesses are coming for is invaluable leads Ah you know <unk> getting connected to that consumer that's ready to bike.
And so that's where our focus remains is is connecting with the those consumers to two businesses.
And then you had a a second question which was.
I didn't touch it let's see it is.
I was convinced self serve <unk>.
<unk> self serve Multilocation, how are we going to change change that I think hmm.
We we're basically open to all all the different channels you know, we we acquire customers through a variety of different means obviously local sales team self serve multilocation is more of an enterprise relationship and they think we want to be very thoughtful about how we bring on you know all that do you know all about recovering revenue.
And so we're going to be looking for the most efficient channels. We've gotten you know better and better at top serve for instance, if that's a great place to require customers because we can reach out to them. You know maybe people that have turned and with one quick they can be activated again on your and spending with us to grow their business coming out of coded. So we are taking steps.
Right now to make ourselves more efficient as we are ultimately come out of this pandemic. So we can require any business that we lost him and also just ideally grow grow more efficiently and quickly.
Thank journey.
Sure.
The next question comes from Richard Kramer, Alright, It Cat research they've got.
Yeah. Thank you very much just for an aerosol research I two questions. Please first of all I'd like to ask about how you see the value of the 210 million a cumulative reviews you know that's it traditionally and a number of categories been very important to yelps business, but obviously they will age rather more quickly.
In this coven environment. So how do you see that review base going forward as a key asset for the company and then I guess the second question you cited in the increase in provision for doubtful accounts.
Could you give us a bit of a sense of how far through that process. You are an understanding you know how many of your your both claimed locations and current advertisers will make it through to the other side and whether that changes the sort of scope of the business or the nature of the business in terms of of how many of your potential advertisers.
<unk>.
Weather the storm thanks very much.
[noise] Hi, Richard I'll take the first half of the question maybe David can take the the second one there, but yeah. We do have as you pointed out a an incredibly rich corpus reviews that it's been proven be extremely valuable and durable and.
Continue to have engaged community.
A a reviewers, especially our elites are worth calling out which are our model users and we have maintained a large community management a team the that works from home currently.
And engages with those key community members, what we generally see is contributions to move along with traffic and so as traffic goes down you would expect to see contributions if people are experiencing cure businesses will go down I don't expect all those 210 million reviews to be worthless anytime soon.
I think yeah, obviously, and we all hope that many many local businesses will survive even if they're on pause for a period of time in their past performance is a pretty good indicator to to consumers of how they'll perform it in the future that said, we still continue to to get quite a bit of content from our community of reviewers.
Still writing right and we're still engaging them <unk> with our community with our community managers and yeah. We continued to develop new features and functionality geared towards contributors to make sure that they stay engaged for the the pandemic into the other side when things can can come we hope roaring back. So we are.
Conscious of I'm trying to maintain that connection with consumers you know that's top of mind for us sheets that such a a key part of our business over the long term.
Yeah.
This is David so there's there's really two parts to the question U.S. provision for deaf pull accounts and then what are we seeing in terms of.
Advertisers, but really businesses surviving and just answer the second first it's it's still very very early and.
Many of these folks are still working through their survival strategy.
And they're obviously also applying for loans. So we ourselves are not going to know for some time yet.
Where that's going to land. So unfortunately that will be something that we're all going to see has Jeremy said, we hope of course that many survive in terms of the provision for doubtful accounts.
It was significantly higher at the end of the first quarter is that you as you'd expect as a variety of these businesses took steps to trim advertising or are already in a position where they could no longer pay bills and so that was definitely elevated what I'd.
Expect is for us to see a somewhat elevated level for a period of time, but that provision of for doubtful accounts really is a monthly item and so we'll see how that evolves as the overall <unk>.
Recovery takes place think the duration of that will certainly influence the ability of people to continue to pay or not.
Okay. Thank you.
<unk>.
The next question comes from you got Ireland.
<unk>.
Yeah, Hey, guys. This is rod on the line or <unk>. They just taking the question I wanted to ask on self serve you know you talked about it a little bit already and you you caught up in the letter that we see that strictly February and it's obvious that the channel could we accelerate quickly but by the same token I imagine. It's also maybe a channel where the pulled.
<unk> faster, it's a kind of what's been impact on the environment <unk> on seltzer, specifically, if it gets a color there and kind is.
At a level that gives you confidence they'd be depressed, but at a level that you can be accelerated quickly and how you bounce up with with the changes that English sales force you were talking about this little bitty totally terms of to go forward and kind of you know the strategies for coming out on the other <unk> I just didn't recall on that would be helpful. Thanks.
Tracking I can <unk> start off and if they would wants to jump in after feel free you know in terms of self serve versus our wraps hotel was actually seen in line in terms of our percentage and and no aberration on either one in terms of a break from trends. So people are still buying Ah.
Customers are still buying high in both channels, obviously, there's a a mix shift as a result of of covert but we're really encouraged with the progress. We've made on the self serve channel and I think I don't have a proxy for that right. Now first of all if you look at claim to businesses. They're up you know we've had significant progress here over your own claim businesses, which shows.
Their businesses are interacting.
With you know what is the self serve platform and then you look at all of those features that have been adopted as as as part of the the covert effort and whether the last visit highlights or the special color with banners or the connect product that wishing upwards of 10000 folks who have who have kind of I chose into kind of use that as well.
It really bodes well for self serve over over the long term and what you're really want and these periods of times <unk> is engagement and there might be a subset of businesses that today in in April may cannot afford to go advertiser worried about survival in their employees and kind of coming out of the thing and navigating through through their various circumstances.
But you know, they're still engaging and understand that yelp as important platform in an important communication platform word of them and and you know, we they're making improvements both in in in our kind of platform as well with a a new business or their site that there's a lot more rich in terms of the features or functionality and and what really pleased with the end.
Judgment that we're seeing that far so I think it bodes well for coming out of this as a as a as a continued shift toward self serve well always going to have a local sales force and we'll be really mindful of how we grow that I'm kind of coming out of this and make sure that we have enough coverage, but also that we continue down the path of trying to get more efficient with with the <unk>.
That we do have.
Run this is David we didn't quite catch the second part of your question there.
Yeah no. It was just kind of asking how you know in terms of like to go forward and coming out on the other side. It is how do you you know.
Maybe strike that balance in terms of <unk>.
<unk> in to self serve the kind of like the more rapid response versus you know the changing dynamics or the sailor sports, especially given increased <unk> salesforce given the <unk> you eating it's a bit more heavily said just kind of going forward How'd, you how'd, you balance two different channels or try to kind of prioritized.
What's the best combination for really emerging out of this is strongest.
I can I can take a crack at that one too <unk> you know, it's really looking at you know, making sure that we're serving a customer whichever way they want to get served and you know we can see that you know some folks are always going to want to have a self provisioning.
You know interface and not want to talk to a a salesperson and there are folks it no matter what you do want to get somebody on the phone and actually have them walk them through an advertising program. So I guess going back to my you know kinda last answer we're going to we're going to be L.C. that in in in real time, Although I do believe that self service very well positioned to coming out.
Of this and and then in terms of the the Multilocation. We believe we're still very very early in this opportunity for Yelp and you know certainly this time notwithstanding when we come out on the other end, it's going to be a really important segment for us.
It's great thanks very much.
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