Q1 2021 Yelp Inc Earnings Call
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The risk factors that may affect our results.
During our call today, we'll 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.
In our shareholder letter released this afternoon, and our filings with the SEC each of which is posted on our website.
You will find additional disclosures regarding these non-GAAP financial measures.
Well as historical reconciliations of GAAP net income to both adjusted EBITDA and adjusted EBITDA margin.
And with that I will turn the call over to Jeremy.
Thanks, James and welcome everyone. Our first quarter results represent a strong start to the year driven by the success of our go to market shift and an increased focus on product innovation, which together comprise the foundation of our next stage of growth.
We saw record performance from our services categories self serve channel and non term advertiser budget retention.
Revenue growth in the self serve channel accelerated once again to approximately 30% year over year in the first quarter.
Services revenue performance was driven by ongoing strength in home services, which increased by nearly 15% year over year.
At the same time, we're seeing consumer traffic return with the recovery in local economies benefiting businesses and our more COVID-19 impacted categories.
Demand from these businesses increased over the course of the first quarter.
More recently, the encouraging traffic recovery trends, we saw in the first quarter continued in April.
The views and searches for home services businesses continued to exceed pre pandemic levels, while page views and searches for restaurants have rebounded 40% from December 2020.
Building on the strong momentum of our Q1 performance, we're investing in product development marketing and Multilocation sales to support our initiatives and deliver more value to advertisers.
We believe this will enable us to drive growth and scale, our business and a more profitable way over the long term through increased revenue retention and a more efficient go to market approach.
In the first quarter lower C. P. CS contributed to record non term advertiser budget retention.
We were able to achieve these results with local sales head count remained at approximately 50% of pre pandemic levels, which also enabled us to improve net loss by $10 million year over year to $6 million and deliver a 19% adjusted EBITDA margin, while heavily investing in our growth initiatives.
We are pleased with this start to the year and expect our investments to continue benefiting both revenue and adjusted EBITDA over the long term.
Together with the structural changes we've made to our business over the past year. We believe we are well positioned to fully participate in the economic recovery and to deliver long term sustainable growth in the years to come.
With that I'd like to turn it over to David.
Thanks, Jeremy.
We saw improving trends across the business over the course of the first quarter as COVID-19 cases declined and restriction teeth as Jeremy noted our product initiatives continue to drive strength in self serve and our services categories. As a result of these efforts advertiser demand increased steadily over the first quarter, which together.
With a record retention rate for non term advertisers budget enabled us to deliver $232 million of net revenue. In addition to our strong revenue performance. We were very pleased to see another quarter of disciplined expense management, while investing in our initiatives.
Net loss improved by $10 million year over year to $6 million, while adjusted EBITDA increased by 159% to $44 million.
The healthier than expected macro environment, and a slower head count ramp it provides from short term benefit to expenses versus our expectations for the quarter. However.
However, the lower head count did not have a significant impact on revenue or our strategic initiatives and we expect to continue investing behind our initiatives to drive our revenue momentum over the remainder of the year.
Returning capital to shareholders through share repurchases remains an important element of our capital allocation strategy.
Since we resumed repurchasing shares in the fourth quarter of 2020, we have repurchased approximately $99 million worth of shares as of today at an average price of $34 98 per share.
We currently have approximately $170 million remaining under our current share repurchase authorization.
We plan to continue repurchasing shares throughout the year subject to market and economic conditions, turning to our outlook in the second quarter, we expect to move from recovery from year over year growth and anticipate net revenue will increase from the first quarter to fall within the range of $240 million to 200.
$50 million. In addition, as a result of our strong execution in the first quarter. We are raising our 2021 the outlook for net revenue, which we now expect to be between $1 billion.
And $1 billion and $20 million.
To drive continued growth we plan to invest further behind our initiatives as we catch up on hiring in the second quarter. As a result, we anticipate second quarter adjusted EBITDA will fall within the range of $35 million to $45 million and we are raising our full year 2021 outlook for adjust.
EBITDA, which we now expect to be between $175 million and $195 million with increased leverage expected towards the end of the year.
In closing our first quarter results reflect strong progress towards delivering our plans for the year as Jeremy mentioned these results reflect the success of our go to market mix shift and our increased focus on product innovation, which together lay the foundation for our next stage of growth.
With that operator, please open up the line for questions.
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True.
Our first question today comes from Colin Sebastian with Baird.
Great. Thanks, Good afternoon, guys nice to see the progress here.
First off.
In Yelp connect and the penetration you're seeing across services and multi location accounts and if theres a way to quantify how this is benefiting engagement with adds with advertisers retention or any other relevant metrics.
Hi, Colin this is Jeremy I'll hop in and take that one so are we're very pleased with our progress.
Yes.
And in fact, we talked about in the letter that we released a new audience model, which boosted the performance, particularly for services.
Largely it's being bundled in as part of an upgrade package, that's essentially our new model.
So we've been working with as we sell advertising just to give them a whole host of different profile upgrades and include that you feel like connect on the multi look side. We also saw some encouraging early results.
Clients that we piloted with.
And they're essentially seeing better economics on their investment with Yelp based on those studies.
So overall, we're feeling really good about our progress with connect seems to be adding value lifting performance.
From a business advertisers that take advantage of it and so we'll keep you posted on progress there.
Okay, Great and then secondly, just on <unk>, maybe you could just walk through the moving parts why that shifted to the decline.
From a from growth.
Yes <unk>.
The decline, we see as a good thing because ultimately that's more value flowing to our advertising so we like to see that.
And what's driving that partially answers more traffic comes into the system, obviously, that's going to lower prices, which again is a good thing. But then also we are continually refining the AD system and improving the efficiency of that system.
Somebody is taking a look for a business we want to show them. The best possible AD that we tend to invest a lot of our engineering product bandwidth and making sure that those connections happen as efficiently as possible and we are using our inventory as efficiently as possible.
Make progress with that it should.
To drive more value to businesses and ultimately lower prices all things equal.
Alright, great. Thanks, Jeremy.
Thank you.
Our next question comes from <unk> with Evercore ISI.
Great. Thank you added in the channel need for Ashwin.
Just a quick follow up on that on the trends Youre seeing in <unk> program and our CPC decline. If you can put any color around the linearity of that the traffic get access recovery intra quarter and maybe into Q2.
And also the second question is just on the restaurant part of the restaurant Cadent recovery cadence.
What are you hearing kind of sales team regarding like the Montana location business your commentary, especially as we're getting into.
<unk> penetration thank you.
Is our restaurant retail on other category Uhm is down more your over a year. Although we are seeing nice signs of recovery. There we're down about 15 per cent year over year from a Pow perspective, and doing about $81 million.
You know those categories were hit hard, but but we did look to preserve those relationships throughout COVID-19 and and and often gave relief.
Uhm and free services, and and and just work to support kind of retention in that segment. You know we are seeing pay per views and searches in in in restaurants rebound, they're up about 40 per cent from December of 2020 and are about 90 per cent of those <unk> COVID-19 levels as of April of 2021.
I you know Multilocation you typically she had depth early in Q1 and that was a good exacerbated this year with some of the COVID-19 case counts moving up but we did see progress across that segments go out Q1 with paying advertising locations kind of in the range of where we were during queue for.
And so you know good momentum <unk> during the quarter coming out into March and we do see an opportunity to help these natural brand with the reopening campaigns and certainly when you look at national and the restaurants Shankman. There has been some structural movement towards pick up and delivery, but there is certainly demand building both of them the consumer.
Side as well as on the business side for kind of in store dining and we're seeing those trends and their strength in the pipeline kind of going throughout the the.
Out of March. So you know attribution continues to be a very big part of that story, making sure. We can kind of tie both of store visits online as well as any offline conversions and you know, we're just working hard to get back to our original run right within that restaurant retail on other segment.
Thinking that.
Our next question comes from Dan and standing <unk> capital market.
Alright, good afternoon, everyone.
But we did see on a per employee basis that we.
We had lower expense per employee and again I think overall as we've gone through the pandemic.
Have been.
We have seen that employees have availed themselves less of healthcare than is probably the historical norm and so that is.
Seemingly continued at least in the first quarter.
Okay, Great maybe just a follow up I mean is that just people needing to get back out and go into the Doctor again.
Yes.
Yes, it's a fundamental people are pretty apprehensive about heading out and I think in particular to doctors' offices and maybe.
Doing everything they shouldnt be doing and so I would expect as people have gotten vaccinated are more comfortable that we'd see things.
Similar to what they haven't been on a historical basis.
Okay.
Okay.
Our next question comes from <unk> <unk> with Wedbush Securities.
Hey, good afternoon guys.
I wanted to maybe spend a little bit of time on the.
Non term contract retention rate.
He's doing a lot of things there to improve that and then you wrote.
And the letter lower CPC contributor too.
Our record retention rate there so.
Can you maybe spend a little bit of time on.
Where do you think you are there you can continue to improve that retention rate.
Exactly what.
Kind of what you're trying to imply there was the lowest upcs.
Yeah, I mean, ultimately we want to hang on to every customer that we possibly can deliver performance for us. So that's been a big area of focus for us.
It actually ties back to our long term strategy of creating more value for our advertisers.
Talked about in previous quarter or just the percentage of monetize leads I think in Q4, we were talking about something like 20% has made progress on that but there's just an enormous amount of leads flowing through our system. Many of which are flowing to our advertisers. So we poured a lot of product and engineering bandwidth towards bringing that number up and making sure that our.
<unk> adds work for our advertisers and our increasingly performance brand.
You are one of our advertisers you should feel that impact you should be getting more customers and therefore stick with us longer and it does seem like we are seeing that the impact of all of that work some of that shows up in lower pricing.
But it also shows up in retention, yes, there is.
Another piece to it which is as we've shifted our go to market more towards self serve if you sell yourself the product you tend to stick longer and so that's playing out as well, we see better retention rates and our self serve channel and thats been growing rapidly and represented about 40% of our F&B starts at this point.
Thanks, So on that point just to follow up on self serve versus sales.
Maybe obviously software is contributing growth faster.
Are you, where you want to be with the balance between self serve and.
I know there's been a lot of focus from a local side, but maybe you could just touch on both local and multi location.
Sure This is jed.
I think from a channel strategy perspective.
Our long term strategy and we've talked about this for 18 months or so now as you know.
Shift a lot of that focus from local sales onto the self serve a multilocation strategy.
And that was certainly accelerated by COVID-19 right now I think we have about 50% of the local sales force that we did kind of prior to the prior to the pandemic. Although we're seeing number one really nice production out of the existing sales people a lot of veteran kind of experienced reps contributing from a production perspective.
But you are certainly see from some of that acquisition come into self serve.
And we feel really comfortable with kind of the mix at this stage.
We're going to continue to kind of improve that business on our platform on the self serve side, but it also benefits everybody we bring in on the sales side as well.
The multi location side, we've been really focused on building out that team and specifically the attribution capabilities and products.
We have to be able to prove that the dollars that are spent on the yelp platform actually yielding either online conversions and or in store or in restaurant.
Tumors and so.
That has been moving along nicely.
We've seen a solid recovery in terms of those paying advertising locations in in that particular segment.
Great. Thank you.
Our next question comes from Chris Terry with Deutsche Bank.
Hi, Thanks for taking my questions, maybe a first one for David.
I think yes.
When you started it was effectively around the time of COVID-19 and.
So I guess, there it's been kind of noisy for your guiding but its been two quarters now in a row, where you've been.
The high end of your guide and I don't think we've had a chance to ask you kind of how your philosophy is around guiding and whether or not kind of the guide is the guide are you looking to do more of a beat and raise.
Sort of strategy or our approach to it and then.
Just could.
Could you help us think about taking up the full year revenue guidance by $15 million at the high end and then similarly, taking.
EBITDA guidance up by 25.
Thanks for the question, Chris So a couple of pretty important components. The first of course is that.
As we think about.
Our business performance.
To ensure is that we're continuing to execute on our strategy and what we saw in the first quarter.
Our strategy is working when you think about record services revenue. We can see that we are continuing to improve monetization as Jeremy Jeremy mentioned.
Also in the process of enabling our self serve customers to really do more and so retained better.
When we look at self serve starts that's also doing incredibly well and retention. So as we think about the way that we want to approach forecasting we want to continue to reflect in our forecast from momentum that we have in the business and I guess I would remind you that as much as we all look.
Going forward to continued performance across the economy, there continue to be uncertainty and so is the way the way that I think about the guidance that we provide is that it's a balance between the visibility that we have the uncertainties of our business and ensuring that we are making strong progress.
Against the goals that we set for ourselves from a capital allocation perspective, so all three of those elements come together.
And the way that we present guidance in terms of the full year numbers clearly we were somewhat behind on hiring in the first quarter and so we wanted to.
Share, where we actually have added into the guide for the year on.
Those numbers, but we expect to be back on track one thing I would say about hiring in the first quarter just to differentiate because product and engineering has become such an important part of our strategy. We were very pleased with our hiring there and that is very much on track, where the hiring was a bit behind was in our local sales force and for that local sales.
Force, we are beginning to make up ground here in the second quarter and will continue to focus on it. The other thing is clearly we want to be able to invest in marketing given the improvement in conversion that we've been driving when people went to the site and go through those self service flows.
So looking at the full year guide.
We definitely see that.
We are doing well against the plan that we set for ourselves, we're able increase to be able to raise the guide for the year, but there was a bit more from a cost.
Cost perspective in the first quarter that had to do with performance against some of the hiring that we wanted to do and that's why you'll see that adjusted EBITDA. It comes up a bit more than revenue.
Got it very helpful and maybe if I could just have one follow up for other Jeremy or Geoff.
There's been a lot of news lately around the $29 billion restaurant revitalization fund.
It seems like the spending should be pretty open ended as far as how the restaurants could be able to see.
These dollars that they'll be receiving so I was just curious if you guys.
Is there anything specific that you have lined up at this point to go and try to capture the advertising dollars that are going to be spending off from the revitalization fund these restaurants get back up and running.
Okay.
This is Jeremy.
Our perspective is businesses are getting.
Getting back to it and we want to participate in that so we have definitely put together reopening plans.
And making sure that our marketing marketing team is reaching out and getting the message out and driving as much self service possible as well as activating our local sales team as well as our Multilocation team. So from a general accountable Hey, how are we tackling the reopening and are very excited about it or are we getting our T brand sit around it absolutely yes, do we have a specific.
Initiatives against the revitalization fine no, but obviously.
Mrs have more money in hand that should be a good thing. So we're happy to see any additional funds that flow into restaurant retail and retail.
Got it thanks.
Our next question comes from Trevor Young with Barclays.
Hi, Thanks for taking the questions just two from me.
Dovetailing on one of the earlier questions can you provide an update on the results youre seeing with bundling it seems like you're leaning in there not just be curious.
Some early learnings from the upgrade package as well as the combination on the reservations and waitlist.
And then separately what contributed to the acceleration in <unk>.
First our core growth this quarter. Thanks.
Sure Jeremy I can take the first one is Chad on the bundling we've been really pleased with the results. Thus far on the bundling I think it goes back to what Jeremy is talking about prior which is just providing more value for our customers.
We have different forms of bundles, depending on what what vertical year end on the restaurant side.
We can do things like bundle waitlist plus adds plus connect.
And it turns out that those three things as an example work in tandem to create a lot of value for our customers and create some stickiness there and we're seeing that.
On the services side, you look at the introduction of things like logo and portfolio in our pharma services business. This gives me just another reason to kind of distinguish myself from the crowd and Inc.
Circumstances as an example.
Or verified license as an example.
In situations, where someone may not have as much of a reputation on yelp. It gives a pallet for those service customers to actually go out and tell their story and tell why they're trustworthy and so we feel like the bundling strategy.
It's in its early days and we're going to have.
A variety of those kind of going forward as we add product into the mix.
But we're happy with the bundling, thus far and you share that are looking towards kind of continuing on that path.
And for the second part of the question request a quote.
Growth, we're very pleased to see requests growth, 30% year over year.
As you mentioned.
It's happening in the macro obviously.
It is.
<unk> ended up with a lot of people moving house and when Youre doing that there's all sorts of home services that can go along with that whether you're getting ready to sell or whether you're moving into a new place or whether youre spruce doesn't add up.
For work from home all of that has created.
Robust consumer demand and I think that's also reflected pulling back a second to our if you look at our home services revenue performance up 15% year over year.
That's really great to see as well.
What else or what are we specifically doing to drive some of that performance.
Have tons of lead flowing through our system you talked about how approximately 20% in Q4 were monetize we're continuing we're continuing to make improvements to drive more of those leads into our advertisers raising performance. We're also trying to improve our matching so every time that we're pulling out the different potential advertisers to match what the.
Consumers request, we want to get those as accurate as possible. So we're not wasting any of our inventory. We're also making flow improvements just making it easier for consumers to make that request, making it more accurate collecting the right information based on the category of things like that.
All of those elements are combining to deliver a department performance that you saw and we're pleased with it it's been a real area of focus and you know from a local services is a core part of our long term strategy.
That's really helpful. Just a follow up on that.
Can you provide an update on the percentage of monetize leads there versus the <unk>.
It has improved since Q4.
Okay.
I don't know David if we have any more color on that.
We're not providing additional detail on the progress that we're making and that we make here in the in the first quarter.
We remain focused on it and as Jeremy said it has improved.
Great. Thanks.
If you have further questions. Please press star and then one at this time.
Seeing no further questions.
Actually I have a follow up from Chris Terry with Deutsche Bank.
Yes, just a quick follow up on thinking through P. A L versus revenue per P. A L could you help us think about it on a sequential basis.
From <unk> and I saw that you had made the comment in the letter that.
P L pls in aggregate, we're back to <unk> or roughly around <unk> levels in March. So I was just curious if this implies that service <unk> grew throughout the quarter or if this was just restaurants.
Sure. This is this is judd, Chris I can take that.
Our <unk>.
From a services perspective.
We were down 4% year over year, whereas restaurant retail and other down 15% and so.
Certainly.
Makes a lot of sense, if you think about kind of how the recovery has happened thus far.
Although we did see acceleration in payoffs throughout the quarter, particularly in multi look where we're back to kind of Q4 levels in terms of where we are.
We expect that services will continue to be kind of resilient for us.
Restaurant retail and other.
To make some progress as the recovery continues you know ultimately we're focused on both kind of the revenue per <unk> as well as the number of P. A L. S.
And have a bunch of initiatives on both fronts, you should expect that some of those metrics can fluctuate, especially within the retail restaurant and other segment over time, depending on seasonality.
Seasonality.
Other factors like that.
Yeah.
Got it thanks.
This will conclude our question and answer session as well as today's conference.
Thanks, Carl Thank you for attending today's presentation you may now disconnect.
Yeah.