Good day and welcome to the Yelp Fourth Quarter 2020 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to James Miln, Senior Vice President, Finance and Investor Relations at Yelp. Please go ahead.

Good afternoon, everyone and thanks for joining us on Yelp's fourth quarter and full year 2020 earnings conference call. Joining me today are Yelp's Chief Executive Officer, Jeremy Stoppelman; Chief Financial Officer, David Schwarzbach; and Chief Operating Officer, Jed Nachman. We published the shareholder letter on our Investor Relations website with the SEC, and hope everyone had a chance to read it. We'll provide some brief opening comments and then turn to your questions. Now, I'll read our Safe Harbor statement. We'll make certain statements today that are forward-looking and involve a number of risks and uncertainties that could cause actual results to differ materially. Please note that these forward-looking statements reflect our opinions only as of the date of this call and we undertake no obligation to revise or publicly release the results of any revision 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 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. While 2020 was a challenging year for Yelp, our mission of connecting people to great local businesses has never been more relevant. In addition to helping local businesses stay connected to their customers during the pandemic, we completed a business transformation. I'm proud of the significant progress made on our long-term strategic initiatives by all of our teams under extremely difficult circumstances. We achieved this progress through an elevated pace of product innovation, delivering more functionality and value to both consumers and businesses in our local communities. Yelp continued to demonstrate its relevance to consumers as a source of trusted reviews and content. In 2020, Yelp reviews maintained solid year-over-year growth as our users contributed nearly 19 million reviews. As a complement to our valuable review content, our product teams rolled out a series of COVID-19 features that enabled local businesses to communicate up-to-date information to their customers, highlighting updated hours and health and safety measures. While our consumer traffic remained below 2019 levels at the end of the fourth quarter, and we saw a slight decrease in activity during the winter, the positive trends we observed over the summer as COVID cases declined gives us confidence that engagement will return organically as more people are inoculated and restrictions ease. While it's still quite early, COVID case counts nationally are once again falling. And in early February, we have seen signs of more consumer activity. For businesses navigating the restrictions of the pandemic, we launched multiple offerings to drive more value in new ways. We launched a new profile product, Yelp Logo and scaled Yelp Connect, a quick and easy way to share updates with customers to approximately 75,000 locations by the end of the year as part of a bundled offering for Multi-location customers.…

Thanks, Jeremy. We entered the fourth quarter with considerable uncertainty around the impact that rapidly escalating COVID cases would have on our business. Notwithstanding broad-based shelter-in-place orders and increased restrictions, we continued to see impressive year-over-year improvement in revenue retention. In addition, paying advertising locations further increased from the third quarter to reach 520,000 in the fourth quarter, a decline of just 8% year-over-year. As a result, net revenue reached $233 million, a 13% year-over-year decline. Our revenue performance, combined with continued expense management, enabled us to deliver $21 million of net income and $60 million of adjusted EBITDA. This represents a 26% adjusted EBITDA margin and demonstrates the potential leverage in our model. Our lower-than-expected expenses were principally the result of lower than forecasted headcount. We have increased our operational focus on hiring outside of the Bay Area. With nearly an entire year as a fully remote organization, we are confident in our team's ability to maintain productivity who are working from home. As a result, we plan to continue operating with a more distributed workforce, which we believe will enable us to expand our presence in lower cost markets and reduce our real estate footprint. During the fourth quarter, we reinitiated our share repurchase program. As of February 9, we had deployed $49 million to repurchase approximately 1.6 million shares at an average price of $31.34 per share. We currently have approximately $220 million remaining under our share repurchase authorization. We plan to continue our share repurchase program, subject to economic and market conditions. Our cash balance increased modestly from the third quarter to $596 million at the end of the fourth quarter. Turning to our outlook, we anticipate first quarter net revenue will fall between $220 million and $230 million. In addition to ongoing COVID-19 related headwinds,…

We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from Colin Sebastian with Baird. Please go ahead.

Hi. Good afternoon. Thanks, everybody. I have - two questions from me, please. One at a higher level, with the recovery in your business clearly evident and as we look ahead now to pretty strong growth, can you clarify the drivers of that from an advertiser point of view? Is it a larger share of wallet per advertiser or is it the broadening of the platform to attract a larger number of advertisers? And then secondly a bit more granular. Regarding the number of products offered on a bundled or subscription basis, can you just give us a sense for the portion of advertisers or budgets that are being monetized this way? Thank you.

Sure. I can take that question. This is Jed speaking. So, in terms of the drivers going into next year, it's really a combination of both, expanding the footprint and adding more local businesses, as well as driving the retention component of our business. You saw really strong trends over the course of 2020 on the retention side. We saw a 25% improvement in the fourth quarter. And this was driven by really product innovation, number one. We were able to introduce new products into a bundle. We just started bundling in Connect, we have Yelp Logo that was introduced and we revamped our business owners account into kind of a more modern design with reporting and analytics included, things like an ad impression heatmap. And so, that continued innovation, where we have kind of a long pipeline to go from a product perspective, will continue to drive growth. I think if you also look at the channel mix, we are seeing continued momentum in both Self-serve as well as the Multi-location segments of the business, and we believe we're really well positioned in both of those areas going into 2021. In terms of the second question on the percentage of profile products that we end up monetizing, it's about a three-to-one ratio ads to profile products. And that's great that we're able to go monetize those, but we also see a benefit on the retention side of bundling those in. And so the more value that we can offer kind of with the complete package, we see that driving growth as well.

And I guess, just adding to the first part there, I'd also call out increasing monetization on the services side, we've made progress there with 20% of our leads monetized, but we see a deep well of ideas in product enhancements to keep moving that up in the right direction.

Thanks, guys.

Sure.

The next question comes from Andrew Boone of JMP Securities. Please go ahead.

Hi, guys. Thanks for taking the question. I've got two, please. So, one, just in terms of the rebound that you guys saw in 1Q more recently, can you talk about that? And just kind of how broad was that, what sectors was that, can you help just quantify it a little bit? And the number two, on the product side, I think you rolled out new ad objectives, I think you were targeting late last year. Can you talk about uptake here and just the extent that it's improving ROI for advertisers? Thank you.

So, I can take - let me take that second one first, this is Jed speaking. We certainly have added control features over the past couple of years and we have such a broad client base that we're seeing uptick certainly among certain segments when you kind of look at that mid-market segment that kind of want to have more control of their advertising campaigns, things like service offerings and the ability to negative keyword target and there is still some road there in terms of other features that we can add to that.

And on your question around rebound, I think you're probably talking about traffic trends. If you go back to the summer of 2020, as we saw virus counts decline, we saw traffic recover pretty substantially. And so that gives us a lot of confidence in how this is all going to play out. As we got towards the end of the year, virus counts took off and we saw some modest impact to consumer activity. People get scared, restrictions get in place, and so they stopped transacting and going out and about and doing their business. One thing that gives us some encouragement more recently is as we look at trends in early February, and clearly, it's early days, but virus counts as many of you probably have followed have started declining pretty dramatically in recent weeks. And so, we are seeing a pick up once again with consumer activity, but it's still early. But that gives us some confidence that that's going to play out pretty consistently across the year.

Thank you.

The next question is from Lee Horowitz of Evercore ISI. Please go ahead.

Great. Thanks for the question. Two related ones, if I could. Given the impressive new product cadence you've seen recently, can you help stack rank some of the most important products we should be thinking about in '21 and '22 from a strategic perspective in terms of reaching your revenue goals? And similarly, can you help us maybe bifurcate our thinking in '21 and '22 as it relates to the mid-teens growth between the drivers of CPC and click growth? Anything there would be helpful as well. Thanks so much.

Hi, Lee. I'll try and tackle the first part here. So, as we think about revenue growth driven by product, there is a few buckets that we focus on. One I mentioned earlier, which is increasing monetization primarily by better monetizing our leads. So, we have tremendous organic traffic and we currently only monetize, particularly in the services - Home & Local Services categories, we're only monetizing about 20%. So, that gives us a lot of room for better matching enhancements to our ad targeting, our Request-A-Quote matching algorithms. There's just a lot of under the hood kind of enhancements that we can do there, that we've done before. We are familiar with these, obviously, there is new technologies we can layer on, but we have a long track record and confidence behind these product initiatives. We also want to continue iterating on Self-serve and Multi-location, providing new tools to our Multi-location team, new products to sell into that segment. And on the Self-serve side, it's about ironing out flows, reducing friction, providing new features and functionality like some of the profile products was launched that bring people into the Self-serve flow and allow them to transact on their own, which actually flows then into retention, which is really the big lever as we're constantly talking to thousands of businesses all the time, and when we bring them in, the best thing we can do is keep them in. And so, it's really about delivering more value to our advertisers at the end of the day. If they're spending money with us, they're feeling a positive ROI, both just in kind intangible they're seeing stats and metrics that make them feel confident. But also the most important thing is our business is doing better. I think that's going to deliver value over the long term, and that's going to deliver the outlook that we've put out for this year and beyond into '22.

And Lee, this is David. Just to follow up on what Jeremy was saying, one of the reasons that we have shifted the metrics very much is to reflect the points that Jeremy just made, which is by delivering more value to advertisers by providing them with more clicks, add better CPCs, not only do they - does their business do better, but we see higher retention. And so, our expectation is over the year we will see a rebound in clicks with the overall recovery of the business. What's equally important, though, as we continue to invest on the product side, we think that we can continue to improve on matching. And we also think that by bringing new ad formats that we can really deliver additional value that both benefits advertisers as well as consumers. So, both of those - the metric actually goes hand-in-hand with the strategy that we're deploying.

Great. Thanks so much.

The next question is from Chris Kuntarich of Deutsche Bank. Please go ahead.

Hi. Thanks for taking my question. Maybe just starting within the services businesses. You guys were slightly ahead of where you were a year ago on revenue, but still behind on paid locations versus 4Q '19. Just curious, if we should be thinking about this delta here on the business locations side. Is - are these business closures or are there still pockets or prior advertisers that were turning off in 4Q for seasonal reasons that, yeah, weren't turned off in 4Q '19? And then within the restaurant and retail - retail and other segment, maybe just looking back to 2019, can you talk about like what the driver was there for average revenue per location to decrease and if that's how we should be thinking about - is there any sort of mixed dynamics going on there that we should be aware of as you bring in new locations that are driving the average monetization down? Thanks.

Yeah. I can take that first question around paid locations. So, we're down total free up about 8% year-over-year from a PAL perspective, and that is up 38% from kind of the Q2 lows during kind of the depths of the pandemic. And we see varied behavior amongst different sets of customers, certainly we've been strong in the service look - on the service locations side. One of the things we are really happy about is the fact that we gave relief and were able to maintain relationships with a lot of our customers, both on the Multi-loc side as well as the local side. And some of those folks came back, albeit maybe at a more rapid level, but we were able to keep that relationship and anticipate that we'll be able to continue to kind of drive monetization from - on a per location basis. And then on the second one, David, you want to take that?

Yeah, absolutely. So, one of the things that is an important dynamic as we look at average revenue per paying advertising location is the mix between our Multi-location partners versus our SMB customers. And so, what we've seen over time is that we've been increasing the number of Multi-location advertisers that are with us as a share of paying advertising locations. And so, that has an effect on the amount that they're paying. I think the really important takeaway overall is that we do see overall - that we have an opportunity to drive paying advertising locations both across services, as well as restaurants, retail and other. Equally important is we think that this is overall from a monetization perspective relatively stable in the near term. And so, what we are really focused on doing as we've been talking about is to continue to drive value to these advertisers and continue to see improvements that we've seen from a retention perspective.

Got it. Thank you.

The next question is from Justin Patterson of KeyBanc. Please go ahead.

Great. Thank you very much. Could you talk about the drivers of Request-A-Quote growth more? It sounds like there were some product elements behind that that provided a benefit, but I'm curious if there were any other signals you could point to that were driving that healthy acceleration from Q2 all the way into Q4. And then looking at that more broadly toward the monetized leads to service businesses, where - how should we think about just the drivers of monetizing that more going forward? Thank you.

All right. Thanks for the question, Justin. So, on Request-A-Quote growth, there is a lot of different components there. As we continue to build out the flows and functionality, we do see good consumer demand and we have a large audience, some of which may not be familiar with Request-A-Quote. So, I think just helping educate our consumers on the fact that this flow exists and this experience exists and the fact that they can solve their problem really quickly is one element there. There is also category expansion, so we're constantly looking to see what categories can we add Request-A-Quote experience to by tailoring it for that specific vertical. There is also matching. So, we have an algorithm when you submit that is trying to match you with the best businesses possible, we continue to refine that. And the worst thing we can do is send you - provide a match where it is not relevant, so that business can't service you, et cetera, because that's essentially a wasted opportunity. So, the more efficient we get at that, the less leads we can essentially waste, which just - it creates inventory essentially out of thin air. So, I think it's a combination of whole bunch of those factors. There is a lot of future growth opportunity ahead of us and opportunities to refine the product both algorithmically and just in the funnels that drive consumers into the flow. And then your second question was around monetized leads. How can we continue and move that up? Do we have a runway there? I think the answer is, yeah, 20%, we do feel very confident that there is a long runway there and we do have this large audience. So, I think by providing things like the Request-A-Quote experience and merchandising it better, better ad units, better ad targeting, there is a long list, ad related features and functionality that we will continue to plug away on it. And [Technical Difficulty] So, we feel really confident about that and how it feeds into our 2021 plan and beyond.

Great. Thank you.

Sure, thing.

And the next question is from Trevor Young of Barclays. Please go ahead.

Hi. Thanks for taking the questions. Two from me. First, you mentioned the experimental bundling with Connect and the CPC Advertising. Can you just give us like an illustrative example as to how much of a discount is offered and what are some of the initial learnings from this and when you expect to roll it out more broadly? And then two on what seems to be maybe the longer-term potential cost savings on the lower average cost per employee as you shift away from the Bay Area, as well as some of the real estate leasing and subletting initiatives. How much of that is baked into the 2021 guide or is it just more kind of a long-term opportunity? Thank you.

Hey. Trevor, thanks. This is Jed. I can kind of tackle the bundling. Bundling is something that we just started to really get into in earnest in the beginning of the fourth quarter of this year. And really the driver there was let's give it as much value as possible and try to drive on the retention side. And so, across the breadth of our profile products and whether you look at portfolios or Yelp Logo or business highlights or Connect, making it one of those things that's kind of hard to say no to as you're going through the checkout flow. And they in fact provide a lot of value and trust for the consumer as well, if you look at some of our less established businesses as an example, this is an opportunity for them to tell their story maybe away from reviews as being the driver until they're able to kind of build up a reputation. And so, we're still very early stages on the Connect bundling. And from a pricing perspective, we give enough of a discount that it's going to drive somebody over the line, although we're continuing to kind of experiment with where that perfect kind of match from a pricing perspective is.

And Trevor, this is David. Just to follow up on your question around expenses. So, in terms of our employee base, one of the things that we are very focused on is hiring outside of the San Francisco Bay Area and we will moving forward be working on a much more distributed basis. So, that enables us to hire across the US. We've also been hiring in Canada, particularly in the Toronto area and in the UK. And so, that's something that's going to play out over several years. And then in terms of our real estate expense, we do spend about $50 million a year on real estate. At the beginning of 2020, we had about 6,000 employees. And at the end of the year, we were just below 4,000. And then many of them are going to be working on a distributed basis, which means they're either always working from home or only coming into the office a few days a week. So, we definitely see an opportunity to compress our real estate footprint, but that's going to also take a little bit of time to play out. So, in terms of 2021 outlook, we only have a modest amount of savings coming this year as we go through the process of adjusting how much real estate we have. So, that will start to show up more in 2022.

Great. Thanks.

The next question is from Ygal Arounian of Wedbush. Please go ahead.

Hey, guys. Good afternoon. Thanks for taking the questions. I have a couple of follow-ups on some of the other questions. Just on the dynamics of the paying locations being down 8%, wondering if you could dig in a little bit more into maybe the varying degrees of strength or weakness across the board, like what's kind of the strongest and what's the growth there and what's been the weakest and what's the decline there? I would think that quick-serve restaurants are up a lot, they've seen a lot of strength and they've done well in the pandemic. So, that's the first one. And then on Request-A-Quote, curious what you're seeing. Some of what we're seeing in the market is service providers being pretty busy and that capacity in dialing back some of their ad spend. Are you guys seeing similar dynamics? And I know your monetized leads is up 20%. I was just wondering, how that is factoring in for you guys on Request-A-Quote? Thanks.

Sure. I can tackle the PAL question. Certainly, we've seen strength across Home & Local across the year relative to other categories, and that would kind of fall in line with what you would expect. You think about categories like salons and massage studios, kind of down the line things that require physical contact and we've certainly seen a drop in those areas as well as restaurants, obviously. So, I would say, the dynamic is we're really, relatively speaking, still pretty strong on the Home & Local side. And Multi-loc also is its own beast in terms of the recovery. You have quick-serve, which you mentioned, which has really thrived in this environment albeit in a different way. We see retail with buy online, pickup in store. And what we've really tried to do is partner with these multi-location businesses and kind of provide a solution that they need in the new normal. And so, we have seen a recovery in PALs on the Multi-location side from the second quarter through the end of the fourth quarter. And as the economy continues to reopen, we expect depending on the pace different categories to come back in a stronger way.

And then second question, I think what you're getting at is there is consumer demand in Home & Local Services, our businesses in those categories advertising at healthy levels and I would say we continue to see solid demand for advertising services in those categories. And I think as you can see by the progress on monetized leads, like we're capturing those leads, we're selling them, our sales force continues to sign-up new service pros, so it looks pretty good to us.

Thanks so much.

Sure. Thanks.

The next question is from Eric Sheridan of UBS. Please go ahead.

Thanks for taking the questions. And happy New Year to the team. Maybe a couple. When you think about your broader goals for Self-serve and Multi-location sales over the long-term, how should we be thinking that against the backdrop of which verticals need different approaches to the market to sort of unlock the depth of advertisers that can drive continued momentum on the platform? Or is it just across the entire breadth of advertisers when you think about putting functionality on top of what you're trying to solve for, on a broader revenue base? And when we think about the recovery, obviously, you guys did amazing work in terms of incenting small businesses and giving credits and things to ad people stay on the platform. How should we be thinking about the breadth of growth in advertisers when you look out to '21 and '22 as a reflection of the recovery versus just the depth of spend for advertisers that you think might evolve as the recovery evolves? Thanks so much.

Hi, Eric. This is Jed. I can take the first one. In terms of the different goals for the different channels, I would say, is a broad-based statement. One of the advantages of Yelp is that we are a horizontal platform and we have a lot of consumer traffic that is looking for local businesses across all sectors. Certainly, you see some differences amongst Multi-loc versus local. We are - have a strong and growing retail business, as an example, in the Multi-loc segment, whereas that may not be as prominent in the small local businesses. But we're going to continue to kind of really drive across all categories. But as we've talked about before, services industry specifically has a ton of upside for us if we can get the monetization correctly and continue to deliver more value for those folks.

Hey, Eric. It's David. So, let me talk a little bit about your question, which had two parts to it, I think. One was, how do we see the dynamics playing out across categories? And then the second is, from a revenue per paying advertising location, how do we see that playing out across categories as well? So, let me take the second first. And what we do see is that there is a difference in why advertisers are willing to pay broadly speaking on the services side of our business versus the restaurant, retail and other side of our business. And so, that's one element. And then the second, of course, is we want to really see expansion with our Multi location advertisers. Whereas for our single location or SMB customers, there is less expansion opportunity and that's where the bundled product really comes in. So, what we want to do, of course, is to continue to provide increasing opportunities for services businesses to derive value and especially on higher ticket items where they see the value of advertising and are willing to pay more for those leads, say, compared to the restaurant, retail and other side of the business. One of the things that is important and one of the reasons that we've broken out the new operational and financial metrics for you is that you can start to see those dynamics play out between these two broad sets of categories for us. And as you could see from a revenue perspective, we saw a tremendous amount of compression in restaurant, retail and other. And so, as the US economy recovers, obviously, we will want to participate in that recovery across broadly those categories. On the services side, we feel like we've been able to support Home & Local Services businesses quite well and have continue to see demand there. Some of the other categories that fall under services has seen more of an impact from the slowdown in the US economy. So, we would expect some pick up there. And then just to close out on revenue per paying advertising location - or sorry, to close out overall, we see an opportunity both across categories as well as opportunities to see - in pockets opportunity to increase how much we earn per location.

That's great. Thanks so much for the color, and thanks also for those disclosures. Appreciate it.

Having no further questions, this concludes our question-and-answer session. The conference has now also concluded. Thank you for attending today's presentation. You may now disconnect.