Q3 2021 Yelp Inc Earnings Call

Statements today that are forward looking and involve a number of risks and uncertainties that could cause actual results to differ materially.

Please note that these forward looking statements reflect our opinions only as of the date of this call and we undertake no obligation to revise or publicly release the results of any revision to these forward looking statements in light of new information or future events.

In addition, we are subject to a number of risks that may significantly impact our business and financial results.

Please refer to our SEC filings as well as our shareholder letter for a more detailed description of the risk factors that may affect our results.

During our call today, we'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 as.

As 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, Jeremy and welcome everyone.

Same time revenue from restaurants retail and other businesses further recovered in the third quarter, reaching $100 million.

We were also pleased to see paying advertising locations improved by 7000 from the second quarter to 535000 in the third quarter, an increase of 6% year over year.

Our efforts to increase services monetization and deliver more value to advertisers also contributed to record revenue per services location in the quarter.

Even as we increased our head count to support strategic investments in the third quarter a record 26% adjusted EBITDA margin is another important proof point of yelps margin potential.

While our distributed operating approach provides an opportunity for us to continue to drive efficiency through our real estate expense over the next several years.

We remain focused on investing behind our initiatives to drive long term sustainable growth.

We expect the office space reductions we've executed to date will result in annual GAAP expense savings of approximately $15 five to $17 $5 million.

Through the end of the related leases and sub leases between December 2024, and July 2025.

We anticipate that this GAAP expense reduction will benefit adjusted EBITDA by approximately $15 million to $17 million on an annual basis.

Returning excess capital to shareholders in the form of share repurchases as an important part of our overall capital allocation strategy.

Since we resumed share repurchases in the fourth quarter of 2020, we had repurchased $224 million worth of shares as of October 29th including $49 million worth of share repurchases in the three months following our second quarter earnings call.

Turning to our outlook.

Net revenue in the third quarter matched our record quarterly performance. Despite a slowdown in economic recovery as labor and supply chain issues continued and the COVID-19 Delta variant spread across the United States.

While these macro impacts were less severe than in previous waves of the pandemic paying advertising locations decreased in August and September compared to July.

Some multi location advertisers in our restaurants retail and other categories pause their spend.

As a result of these trends and continued macro uncertainty related to COVID-19, we expect fourth quarter net revenue remained relatively flat with the third quarter coming in between $265 million and $275 million. We now expect net revenue for the full year will be between $1.02 billion.

And $1.03 billion.

Turning to adjusted EBITDA, we continue to see attractive investment opportunities and plan to further increase our head count as we continue our hiring efforts in the fourth quarter across sales product and engineering.

As a result, we anticipate expenses will increase sequentially and expect adjusted EBITDA will come in between $55 million and $65 million in the fourth quarter.

And between $233 million and $243 million for the full year.

In closing our third quarter results again demonstrated our consistent execution of our strategic initiatives and structural improvements have transformed <unk> into a better business than ever before.

In addition to seeing substantial room for further recovery in our business categories. Most impacted by the pandemic, we believe that continuing to invest in our broad set of strategic opportunities will allow us to drive sustainable growth at attractive margins over the long term.

With that operator, please open up the line for questions.

Yeah.

Thank you.

Or value, we're delivering currently and we believe that shows up in our retention rate and so you know there is a long pipeline a product improvements into that that we have going into the AD system as well as merchandising our ads and I guess Ah. Another thing I would point out is that you know we have about 25 person.

<unk> of the Leafs blowing through Yelp right now in the services.

The services category are monetized.

So that gives us a lot of room to continue driving that number up over time and capturing more value of the of the grade down front of leads that are flowing through the system. Yeah. So so there's a lot more work to do but we're really happy with the progress that we've made thus far.

Thank you Justin.

Our next question comes from calling Comcast I stopped smoking. Please proceed clay.

Each of the questions I had two maybe one can Jeremy when you <unk> just so.

She was a little earlier around August September and the death of Dawn on me and has that had on hold on location and multiplication stand just just curious maybe if you could give us an update on your <unk> coming in October and more recently as a season.

[noise] improves I think since then and then Jed Uhm last quarter, you talked about needed ketchup on sales hiring maybe if you could just give us an update there is a more bradley just to stay in sales for today. Thanks.

Hi, Corey I'll take the first part of that question.

Yeah, absolutely as we've seen in the past as virus tastes counts go up you know people tend to move around a little bit last turned it back locally a little bit less and so we do see does impact shop as far as you know the more recent trends you know I think it's just it's too early to call anything different.

Delta is obviously still out there, but I guess going back and looking at it historically through the pandemic you know we do see a pattern there which is the case counts go up people do it less as case counts go down people feel safer they they get out there pretty quick and in return to their old patterns and and things they want to do like go out to restaurants.

You know so we really feel very confident about how how things will play out but you know that's the dynamic that exists today.

Brian.

And what are the economics of that look like is it per and install or an ongoing licensing fee just help us unpack that a little bit and then on request a quote it looks like request slowed pretty markedly I think it was up 10% year on year in the quarter versus 50% last quarter, what drove that slowdown was it just more difficult compares or something.

Els and where request actually up Q on Q. Thank you.

Yeah.

Hi, Trevor I can talk to these questions. So first up on the data licensing side.

We have had a strategy of getting our data out there for many many years and you know, we obviously have very trusted local content.

That frankly is rare and theres a lot of people that want to tap into that valuable information.

For some of these relationships are historically, we werent really chasing revenue trying to turn them into paid relationships, but a few years back our strategy has shifted there and we're seeing the benefits of that play out.

Where we're driving revenue, albeit small, but fast growing and so it is an exciting area for us and you know frankly, we're really amazed at the different ways that people are finding value with our data you mentioned in car, where we're pretty excited about something like half the cars shipping next year in the U S are going to have data available.

<unk> in them, but then also things that are maybe less obvious like sales intelligence for businesses that itself.

Sell locally.

So we see a lot of different opportunities there and we'll be certainly keep you posted on that on the request a quote side.

We're quite pleased with where things are at if you look at how Q3 performed relative to 2019, which is a little bit more normal or a baseline from an environment standpoint, we were actually up 25% a year.

Year over two year is the comparison, there and that's been pretty consistent actually and the comparison to 2019 all year long. There is obviously funky stuff going on with the comps are there given what happened in 2020.

Got it so steady comps on that two year basis.

That's right.

Great. Thank you.

Thank you Trevor as a reminder, if you would like to ask a question. Please press star followed by one on your telephone keypad now.

Our next question comes from Dan Salmon with BMO capital market.

He's got to happen.

Hey, good afternoon, everyone I, just maybe wanted to follow up first on the questions on the sales force.

It makes a lot of sense that the remote posture is helping you a lot. But my question is do you expect the sales force to get back to the same level as it was before I don't know I might have missed it in this note, but I think you've said that it was up to 50% before and now you wanted to keep it growing but.

Is is getting it back to the same size still to go or even bigger than that but I'd love to hear more on that first.

And then just second and Theres been a lot of sensitivity around AD performance this quarter and it was related in particular to Apple's privacy changes.

I'd just be curious if any comment about that broadly across your business and maybe in particular, an update on on your yelp audience as product. Thanks.

Yeah, Hey, Dan I'll take the first part in terms of the sales force. Yes. It is our goal to get back up to those levels of 50%.

And as of as of now that's about as far as we're gonna go that being said, we're going to always look at different ROI opportunities as conditions change, but as of right now that 50% Mark is is kind of what we're aiming for.

And then this is Jeremy.

On your second question around.

<unk> performance.

I think more specifically you're honing in on changes.

I like the idea.

Particular <unk>.

You are expensive sort of ketchup.

Or is it more sustainable.

Hey, Jason David Here Uhm. So a couple of dynamics that are at play around adjusted EBITDA first of all one of the things that we've seen with our focus on product in engineering does that when we do better on revenue, we do see that.

Largely to almost entirely flowing through to the bottom line. So we liked that that's part of the.

Strategic shift that we've engaged in over the past couple of years.

And we obviously will continue to invest in product in engineering.

To to to drive that that's the first piece on the revenue side in terms of expensive themselves.

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