Ronald Clark - Yelp, Inc. Jeremy Stoppelman - Yelp, Inc. Joseph R. Nachman - Yelp, Inc. Charles C. Baker - Yelp, Inc..

Shweta Khajuria - RBC Capital Markets LLC Douglas T. Anmuth - JPMorgan Securities LLC Lloyd Walmsley - Deutsche Bank Securities, Inc. Deepak Mathivanan - Barclays Capital, Inc. Christopher Merwin - Goldman Sachs & Co. LLC Matthew C. Thornton - SunTrust Robinson Humphrey, Inc. Colin Alan Sebastian - Robert W. Baird & Co., Inc.

Ryan Goodman - Bank of America Merrill Lynch Peter C. Stabler - Wells Fargo Securities LLC Brent Thill - Jefferies LLC Anthony DiClemente - Evercore Group LLC Ronald V. Josey - JMP Securities LLC Brad Erickson - KeyBanc Capital Markets, Inc. Rob J. Sanderson - MKM Partners LLC Tom Forte - D.A. Davidson & Co..

Good day, ladies and gentlemen, and welcome to Yelp's First Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Today we will be conducting a question-and-answer session and instructions will follow shortly. As a reminder, today's conference is being recorded.

I'd now like to introduce your host for today's conference, Mr. Ron Clark, Head of Investor Relations. Sir, please go ahead..

Good afternoon, everyone, and thanks for joining us on Yelp's first quarter earnings conference call. Joining me today are CEO, Jeremy Stoppelman; CFO, Lanny Baker; and COO, Jed Nachman. Before we begin 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.

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 adjusted EBITDA and GAAP net income margin to adjusted EBITDA margin.

And with that, I'll turn the call over to Jeremy..

Thanks, Ron, and welcome everyone. We're off to a strong start to the year. Our first quarter results exceeded our outlook driven by our core business. We accelerated advertising revenue with the rollout of our non-term advertising product, which drove record advertiser additions.

As a result, we've raised our business outlook for the year, and we're encouraged by the progress we made in the quarter. With that, we'll open it up to your questions..

Our first question comes from the line of Mark Mahaney with RBC Capital Markets. Your line is now open..

Hi, this is Shweta for Mark. Two questions please regarding flexible non-term ad product that you called out. You've now migrated majority of the salesforce to selling these non-term contracts.

How much of the ad revenue acceleration in the quarter would you contribute to this change? Also, head count grew 29% year-over-year, so any thoughts on productivity because of the change in the non-term contracts? And that's one.

And number two, on Request-A-Quote, so that was $23 million annualized run rate now, which is sizable from prior $18 million. Any update on the timing for transactional monetization model and any learnings from – I know you guys are testing right now, but any early learnings on that? Thanks..

Hi, Shweta, this is Jed. I will take the first part of the question. And will let Jeremy take the second one. In terms of revenue acceleration and account acceleration, a lot of that was due to the transition over to non-term contract.

We've obviously went from 7,000, to 14,000 quarter-over-quarter in terms of new adds, although this is still fairly new for the salesforce. So, while you can attribute a component of that acceleration to this move, it's still for the vast majority of folks, they've only been selling it for two or three months.

And we'll wait and see kind of how that affects the rest of the year, but we're feeling really good about it thus far..

And as for Request-A-Quote update, things are going great. We attributed about $23 million in annualized run rate revenue is now coming from that. It's up from $18 million in December of last year, so really nice to see that. Request-A-Quote volume was up 90% year-over-year, so real bright spot I would say in the quarter.

We've got about 1 million active businesses now, active pros that can participate in Request-A-Quote, so we think that gives us a real advantage in this space. And Request-A-Quote is a part of our overall – an increasingly important part of our overall home and local strategy. And home and local is really doing quite well.

It's 268 million run rate at this point – sorry, $268 million in revenue, which is up 30% year-over-year. So, the home and local services category is just doing fantastic. It's our fastest growing and largest revenue category. As far as other experiments, we've talked about take rate. And all of those are just very early.

And so we've got a bunch of different things there that we're trying out, but the progress that we're seeing is really encouraging on Request-A-Quote. Thanks..

Our next question comes from the line of Doug Anmuth with JPMorgan. Your line is now open..

Thanks for taking the question. I just wanted to follow-up on the no-term contracts.

Can you guys just help us understand what kind of economics those newer advertisers are coming in at and how that compares to the existing set of advertisers in terms of the monthly spend numbers? And then secondly, what are you seeing in terms of repeat rates and I guess really retention of those newer advertisers? Thanks..

Sure, I'll take this one, Doug. It's Jed. So, I guess taking a step back, the overall goal of non-term contract is to really reduce the friction in the buying process, open up the acquisition funnel and ultimately have a positive net effect on rep productivity.

We've also heard feedback from the marketplace that flexible or non-term contracts have become more of the norm as evidenced by Facebook and Google. We've been testing this model for close to two years now with a small group of reps and really started to accelerate that in Q3 and Q4 of last year.

By the end of 2017, we had transitioned about 40% of the salesforce to the non-term contract model. And by the end of Q1, we had close to 75%. There are three things that we've really learned during this testing phase. Number one, reps are certainly able to sell more customers on a monthly basis.

Number two, we still see the same long-term loyal customers buying under this model, so they haven't gone away. But we also see a group of customers that come in to trial Yelp advertising or purchase seasonally.

That last group, these customers, not only provide additional revenue in the short term, but are also activated into the Yelp ecosystem where we can really actively market to them and take friction out of those folks, reactivating into an advertising program.

We're in fact seeing a low double digit percentage of new businesses in any given month come from a pool of previous advertisers. In terms of the economics of those clients, certainly on the seasonal and trial folks, they're not going to be spending – they don't have as large of an LTV as our kind of traditional customers.

And kind of blended, we're seeing net overall productivity out of the salesforce in a better position..

And I'll just touch on the repeat rate. That calculation is an interesting one, because when you have an acceleration as we have had in new customers, they have no opportunity to be repeat customers.

And so what we saw this quarter was the repeat rate came down into the low 70s and that was a function of steady, recurring customers have been there from a year ago, or over the past year and real acceleration in brand new customers who couldn't have been in the repeat calculation.

So that really what's happening is the repeat rate is going down as the new customer rate is going up. And were you to strip out the new customer effect, the trend line in the underlying sort of recurring retention is just as it's been over the last year.

I think you probably will see if we continue to be successful in opening up the top of the funnel as Jed said, the repeat rate could go a little bit lower, but that's going to – at least thus far, that's been a function of acceleration in new customers rather than any change in the pre-existing sort of returning rate..

Got it. Okay. Thank you both..

Our next question comes from the line of Lloyd Walmsley with Deutsche Bank. Your line is now open..

Thanks.

If I can two, first, just looking at the Nowait and WiFi businesses, I'm wondering if you guys still plan for those to be I think $25 million kind of drag in 2018 on EBITDA? And can you help us just understand what you're seeing in this unit? It looked like it was only about $2 million of revenue in the quarter, but what do you see that makes you invest so much in this? Is it financial returns? Is it strategic investment and frequency in the restaurant category along the lines of what you guys wrote about in the Shareholder Letter, like any color you can give there would be great.

And then secondly, wondering if you can just talk about any early results on the Yelp Certified Partner program and maybe help us understand what kinds of businesses are best suited to buy through this channel and how meaningful you think that could be over time? Thanks..

Great. I'll start with the Yelp Reservations, Nowait, WiFi question. I think these are medium to long-term investments. We do believe that they are really standalone businesses, that it should generate meaningful revenue once they get up to scale. At this point, it's really about deepening our moat.

We have a very strong content moat in restaurants, but we feel like allowing users to take that next step of booking a reservation or skipping a waitlist or getting onto WiFi, deepens their engagement, deepens the utility of Yelp. So, we like it strategically. And also restaurants as a reminder, drives frequency.

So, if you think about how do you succeed as an app on someone's phone, it's about having high frequency. All the most popular apps tend to have very high frequency of use, and so that's why we love the restaurant category.

And of course many of those restaurant users end up going into other longer-tail categories like home and local services that over-index on the monetization side.

And so, we see there's a great business opportunity in the restaurant category for us with these, but then also there's additional money to make by convincing the user to do a search for, say, a plumber or a mover, et cetera. Already, we're seeing really strong growth.

Yelp Reservations and Nowait customers were seated, or consumers were seated – the rate that they were seated at was up 27% quarter-over-quarter. So, the number of people booking from the Yelp app, Yelp site was up 27%. So, really nice consumer traction right out of the gate.

And Lanny, do you want to comment on the spend?.

Sure. Financially, we have a pretty clear plan of what we're trying to do this year. It's about product investments and sales investments. And at the end of the first quarter, we're right on track for the numbers we talked about a quarter ago..

Great. And this is Jed, I'll take the Certified Partner. This program is really new for us. We are certainly optimistic about it, and very early results are promising.

There's obviously a long lead time with some of these partners, so you have to, A, establish a relationship, B, get inside the partner agency and have the right training in place, both online and offline.

We recently released the ability for these folks in the certified ad partner to kind of buy via self-serve, so they don't need to talk to a rep from Yelp. But there's a lot of hand holding in terms of introducing a new product out into the reseller marketplace.

We don't operate in the same way that Google or Facebook does, but I will just say, anecdotally, there's certainly a thirst to kind of break away from the duopoly situation and have the ability to just kind of spend money in other places. So, we're encouraged.

We see same store sales I guess within agencies moving in the right direction, as well as bringing on new kind of partners on a monthly basis. But it's still off of a relatively low base. So, we'll continue to kind of invest in that channel and that's the update there..

All right. Thank you..

Our next question comes from the line of Deepak Mathivanan with Barclays. Your line is now open..

Hey guys, thanks for taking the question.

So, if you think about the ramp in the no-contract flexible program, over the next two to three years, how big do you think it can be as a percent of the total advertiser base? And then the second part of the question related to that is, obviously strong net adds driven by the no-contract, but if you think about the revenue upside for the full year that you guided, it was better but it was slightly immaterial.

So is that a function of the churn expectations that you expect from this program? Or is that a function of net adds from this program? Thanks..

Hey Deepak, thanks for the questions. In terms of how big we think the non-term contract will be in the long-term, right now I'd say we are headed towards selling all of our new customers via the non-term contract moat. This seems to be really popular with them.

They've been telling us both with their actions and their words that they prefer that level of flexibility and control over their spend.

We've spent ten-plus years migrating the world away from the old yellow pages model of an annual contract to really what's more the currency in the digital realm today, which is something that's much more dynamic and much more flexible. So I think in the long-term, the bulk of our business will be non-term contracts.

Now, a year from now, will there be ways that you can offer long-term incentives and things like that? Sure, there may be. But at least in terms of customer acquisition, we're headed in the direction of removing that long-term contract. So, it'll be a very big percentage of the base in the long-term.

In terms of the outlook, and the additions that we're seeing from non-term contract and retention and things like that, I guess what I'd say is that we've been testing this program for two years. It's been in trials, it's been in pilot. We've been scrutinizing it, as Jed said, really carefully.

We've been rolling it out fairly methodically sort of one office at a time, one team at a time and feel very good about the transition progress thus far. It's also a big change. And so, as encouraged as we are, we continue to go through this change with a bit of caution about what we may see in the coming months.

And what's reflected in our outlook for this year is a good quarter under our belt in which the execution on that transition was really good and continued caution about it because it is a different world for us..

Great, makes sense. Thanks a lot..

Sure..

Our next question comes from the line of Chris Merwin with Goldman Sachs. Your line is now open..

Okay, thank you. Two questions from me. For Request-A-Quote, you called out the improving revenue run rate there and the volume increases. It looks like monetization per quote I think is still about a $1 per quote.

And so, do you see volume as the biggest driver of Request-A-Quote revenue from here or can you start to charge a bit more for those leads? And is the spend that you're seeing with this product incremental to advertiser budgets? And then for Yelp Custom Ads, I think you said in the letter that about a third of customers are now using them.

For these customers, did you see anything change in terms of spend level or retention? And how should we think about the impact of this product to advertising revenue over time? Thank you..

I'll take the first one on Request-A-Quote. At this point, we are still giving out a lot of free quotes essentially. So if you remember when we turned on the functionality, it was available, it's completely unpaid. And then we started monetizing some of those opportunities.

We still have a significant portion of ad opportunities that we are not running through the auction and are not being monetized. So, I think that's why the economics look low as you do your calculation there..

And in terms of is the spend incremental, the way we're monetizing the bulk of Request-A-Quote right now is really through the core ads product. And so it's not incremental, like it's a completely different advertising revenue stream.

But when we look at it, we're delivering an upgraded lead quality, given that it's a fully sort of user submitted request brought right into the business.

And when we look at business owner response rates, business owner renewal rates, new sales rates in the category, revenue growth in the category, cost-per-click in the category, it's hard to untangle the benefit of Request-A-Quote, but it really clearly looks to us, any way we size it up, like Request-A-Quote is helping the momentum in that category.

On Custom Ads, I guess I would talk – the way I would talk – I'll answer your question really directly, and then I want to make a bigger point. The very direct answer is the increased flexibility that we're offering is having a benefit in the realm of customer retention and customer satisfaction.

We are finding that customers who take advantage of it have a little bit higher retention and satisfaction with us. But there's a bigger point there, and that is that over the last year-and-a-half we've built a Customer Success team like Yelp has really never had before.

And that's led us into a place where I think we're listening to the customer, hearing the customer, bringing their concerns or interests or inquiries back into our product and advancing the product.

So pick your ad, pick your photo, pick your review, pick your term length, all of these things are really about us trying to make our overall advertising product more responsive and more flexible according to the things we're hearing from our customers through our Customer Success organization.

And all of that is about improving retention and satisfaction..

Yeah, and I'd add just one quick thing on that that even folks who don't take advantage of the features, the fact that it is available to them, gives them a sense of control and we see that kind of bear out in the numbers as well..

All right. Thank you..

Our next question comes from the line of Matthew Thornton of SunTrust. Your line is now open..

Hey, good afternoon guys. Thanks for taking the question. Two if I could. I guess first on the channel mix, I wonder if you can give us a little update there just in terms of growth rates and just the overall revenue mix between self-serve, regional, national and then kind of local-local.

And then secondly, with the Grubhub transaction, I think the integration having closed back in March, just what you're seeing here in the early weeks here and how you're thinking about that partnership relative to maybe what you thought three months ago? Any color there would be helpful. Thanks, guys..

Sure. On the channel mix, we had a record quarter in the self-serve channel for us. It's our fastest growing channel. The local channel had acceleration this quarter from where it has been in prior quarters and the national multi-location business was in between the two. So we saw, as you can see, acceleration in overall advertising growth.

I think when we break it down by category, the revenue growth rate in every single category that Yelp sort of classifies advertisers in was up this quarter from where it's been in the last couple quarters.

And the channel mix feels to us very healthy with highest growth rates in self-serve and the bulk of the business still coming through the local sales force..

And on the Grubhub side, things are going well. We've completed most of the integration points and have seen a sharp acceleration in food orders. We're also seeing improved diner retention. And on the platform now we have close to 80,000 orderable restaurants, so we feel really good about our position there so far..

Our next question comes from the line of Colin Sebastian with Robert W. Baird. Your line is now open..

Great, thanks. Good quarter. First off, I was hoping for some additional color on the impact you're seeing on engagements related to some of the personalization features. I noticed the nice increase in cumulative reviews as well.

And then how sustainable would you say that quarterly or sequential increase in paying accounts should be? Or is there somewhat of a temporary boost to that number before it normalizes given the rollout of the new non-term contracts? Thanks..

I'll take the first part of that question around engagement. Engagement metrics look strong. So page views were up 25% on the app, and I think you called out reviews grew 22% across the board. So we're feeling pretty good about how consumers are engaging with the site and app..

Yeah. In terms of the sustainability, we've obviously kind of one real quarter into this thing so far, but I would expect that net adds remain higher going forward. The degree to which, we're going to have to see how that works out..

Thank you..

Our next question comes from the line of Ryan Goodman with Bank of America Merrill Lynch. Your line is now open..

Hey, thanks. Couple questions on the subscription business. Last quarter you had given us some numbers just on the restaurants that are currently covered by Nowait, Wi-Fi, and Reservations. I think it was about 14,000, 4,500 on reservations. Just curious, we're one quarter in now on the push to expand that.

Do you have anything you can update there or just give us an idea on how we should be thinking about growth in that restaurant base for the year? And just in average revenue per restaurant, should that be relatively flat and just mix driven or is there anything we should be modeling in on that side as well? Thanks a lot..

Yes, I'll take that, on the restaurant side. What we're really focused on is consumer engagement. All restaurants are not necessarily created equal, so the ones that drive the most engagement are actually more valuable to us from a strategic standpoint.

And I think you can see that showing up in our Yelp seated diners number which was up 27% quarter-over-quarter. And so what we really want to do is acquire the busiest restaurants that are out there.

And so you will see our number of restaurants tick up, but as you can imagine like most markets, there's an 80/20 rule, and we want the ones that are most popular with diners..

Yeah. And I think from a revenue per restaurant perspective, there's not any big difference between different cohorts or types of restaurants. Certainly if we sign somebody who owns multiple restaurants, it'd be more revenue per customer. But on a per location basis, the pricing is pretty equivalent regardless of the size of the restaurant.

Now just as a reminder, our restaurant monetization is a subscription fee against Yelp Reservations or against the Yelp Nowait products or the Wi-Fi products. At this point, there's no incremental pricing like some other folks have for the seated diners or for other marketing which you might do on top of that.

Incremental monetization, as Jeremy sort of alluded to, does come from higher engagement rates that bring people back to Yelp more often. And as a reminder, 85% plus of Yelp's revenue is in all the other categories.

And the growth and engagement that we're seeing in the restaurant category, as we add more high-quality restaurants, is also showing up in ad revenue in other categories..

And just a final point on that. If you look at home and local services, search is – 75% of those users had searched in a restaurant category in the six-month prior. So essentially a user may start in a high-frequency category, particularly restaurants, but often does find their way to other long-tail, highly monetizable categories..

Okay. Got it. Thanks a lot..

Our next question comes from the line of Peter Stabler with Wells Fargo Securities. Your line is now open..

Good afternoon. Thanks for taking the question. I want to go back to the well on Request-A-Quote. So just, first of all, I think the UI looks great on the structured request. And secondly – I just wanted to call that out, but secondly, a couple questions around the numbers you presented in the Shareholder Letter.

The 1 million professionals receiving these leads, that's a huge number. And you've got four point some million claimed businesses on the platform.

So am I right in assuming that a quarter of all the businesses on the platform are enabled to receive leads now? And then if we look at the 177,000 paying accounts and kind of cross tap that with the million, can we assume that half of the 177,000 are seeing click budgets implemented through Request-A-Quote? Just how can we kind of think about these couple metrics side-by-side? Thank you very much..

Peter, thanks. We haven't given out that level of detail on the accounts by category ever. And it's an interesting question. I think that as we start to think about the business a little bit more discreetly category-by category and we've started to share numbers about restaurant customer base. It might make some sense for us to do that down the road.

Right now we haven't broken it out. Yes, you are correct in sort of comparing 1 million businesses enabled for Request-A-Quote with the total number of claimed businesses on Yelp. That's a fair characterization. We....

And then Lanny, if I can follow-up quickly.

So, is it the situation where a sales person is kind of surfacing the Request-A-Quote conversation? Or how does a business go about enabling participation in the lead-gen mechanism?.

Yeah. This is Jeremy. Yeah, to participate, you just have to claim your page and you're pretty much active. So the million is the number of businesses that can receive Request-A-Quote, not all of them as I – I think earlier on the call we were talking about, not all of them are currently monetized.

So a consumer could arrive on your business page and then start making Request-A-Quote directly to you. And then might also send it off to three or four other businesses as well. And so in that case, you're receiving one, you didn't necessarily pay anything at this point for that..

Got it. Thank you for the color..

Sure..

Our next question comes from the line of Brent Thill with Jefferies. Your line is now open..

Good afternoon. Lanny, the Q2 guide on the bottom line is a little softer than the Street had thought.

Is there any one-time anomalies in Q2 or any items that we should be aware of that are different than you've seen in past quarters?.

No, no. Pretty consistent with our laid out plan for the year..

Okay. And a quick follow-up for Jeremy.

Just relative to some of the verticals that you're in, is there one or two that are particularly attractive to you right now in terms of low-hanging fruit, or do you love all your children the same at this point?.

I do love all of my children the same, if I had any children.

Are you speaking specifically about within Request-A-Quote or just across any vertical on Yelp or how are you thinking about it?.

Yeah.

Just cutting across the business, is there one that's standing out that you could say by the end of the year, you'd like to show bigger improvements or there's just a big opportunity right now that you think could blossom? What's the one standing out?.

Yeah. I mean, I'm feeling really encouraged in the restaurant vertical where we've got some of these big investments. I think seeing Yelp seated diners grow by 27% quarter-over-quarter was pretty exciting for us. And the quality of restaurants that we're adding on Yelp Reservations and Nowait gets me pretty fired up, so..

Jeremy, I would add to that, by just saying that, on one hand, we've got some really exciting things going on in restaurants in terms of user engagement, and on the other hand we've got monetization story that's really coming on strong in the home services category.

And I think there's runway in both of those areas for us based on the investments in the product and the marketing and the selling that we're doing..

Yes..

Great. Thank you..

Sure..

Our next question is coming from the line of Anthony DiClemente with Evercore ISI. Your line is now open..

Great. Good afternoon and thank you for taking my questions. Maybe a question on data privacy. So acknowledging you're highly leveraged to the U.S.

GDPR, perhaps not as relevant, but as we've seen with the headlines this past quarter, the shifting kind of in the industry on data privacy, how should we think about how some of that could impact your business? And then maybe a follow-up for Lanny.

Just in an answer to one of the other questions around the non-contract dynamic and moving to shorter term. From a planning perspective for you and your outlook, it seems like what you're trying to say is that it restrains your visibility a little bit in terms of the guidance.

And so just wondering is there – I just wanted to explore that for a second. Is there a level of conservatism in your guidance that you'd ascribe to maybe the change in that in terms of the visibility that you have and providing guidance to us? Thank you..

All right....

Hi, Anthony. I'll take the first part on GDPR. So we're obviously aware of the deadlines and making preparations to be fully compliant. We don't have any revenue in Europe. So the stakes for us are somewhat diminished. And we don't collect data frankly on the scale of a Facebook or Google. So I think that reduces risk.

So there's work to be done, but we don't see any major impact to the business at this point..

And on the visibility, I think the nature of the business has changed when we're moving from a 12-month contract to something that's more dynamic. Different indicators become more important.

In the last 12 months, in fact in the last three months, we've had two of the best periods, actually the two best periods in the company's history for newly-claimed businesses. And newly-claimed businesses is the best predictor of growth in advertisers.

It's the businesses that have opened up shop on Yelp and then as they work with Yelp and they update their presence and they see the rave reviews come in, they're the most likely prospects for us to be able to sell advertising against.

And so, whereas in the past you might have looked at, well, how much long-term revenue do we have in the bank and in the book under contract, so they'll be looking at a little bit different metrics, and we're looking at more of the customer inbound flow, the returning rate, our ability to upsell people and the like. So it does change a little bit.

In terms of visibility, I don't think in the long-term there'll be a huge change in visibility because ultimately we're selling a pretty similar product to a pretty similar customer base just with a little bit different pricing structure.

But I do think as we we're going through this transition from one model that's been in prevalence for a decade to something that is – we've tested it, we have confidence in, and we think it'll be the right way to be in this market for the next decade.

Just as we're going through these months, these quarters right now, we have a conservative view of things and want to make sure we step through this transition carefully..

Thanks very much..

Our next question comes from the line of Ron Josey with JMP Securities. Your line is now open..

Great. Thanks for taking the question. I wanted to go back to the Grub and food delivery. I think in the letter you mentioned one in 65 app users ordered food on Yelp. So can you just talk about the plans to increase the visibility of food ordering and delivering on the platform? I think you mentioned like new tabs or whatever.

But as it ramps, I believe it should be high-margin revenue. So, Lanny, as you think about your guidance for EBITDA for the full year, I'm wondering if you've baked in any benefits from this. Thank you..

On the first part of your question around how are we raising awareness. There's a lot that we can do and we continue to build muscle and product marketing and merchandising. I think we've got a photo there in the Shareholder Letter showing the delivery tab. So it's things like that.

Raising the exposure in the app I think is a great way to continue to grow food orders. We are seeing a nice acceleration there and improved retention as a result of the Grubhub deal. So we feel good out of the gate, and then we'll see how we can drive it through the rest of the year.

Lanny, you want to take the second half there?.

Yeah. You're right that one of the benefits of the transition to this partnership is not only that it has a better profit margin percentage characteristic for us, it also is generating a significantly higher amount of cash flow per order in the partnership than when we were operating as a principal in the category.

So it's an area that we're putting product resources behind, an area we're putting marketing resources behind, it's an area that is getting additional space on the home screen of the mobile app in order to bring people into it, push notifications, email, and everything to drive it because it is a very nice source of incremental cash flow.

And so everything you're thinking is absolutely right. I would just be – I want to make this point really clear. The core ad business is a much, much bigger business than the $10 million or so that we'll generate out of the food ordering this year. And so from a cash flow perspective, there's a lot more cash flow coming from the rest of the business.

It is a high margin source. You're absolutely right. And it's getting our attention for that reason, but from a full year perspective it's not going make or break things..

Makes a lot of sense. Thanks, guys..

Our next question comes from the line of Brad Erickson with KeyBanc Capital Markets. Your line is now open..

Thanks. I just had two follow-ups. First, Lanny, just wanted to clarify something you said. You said there's not anything unusual baked into the guide regarding churn. I think you meant for the quarter, but I imagine the answer doesn't change for the year.

I guess last year after you saw that temporary pick up in churn, you applied a greater level of conservatism to your guide on this same call a year ago, you were able to beat those expectations ultimately. But can you just help us calibrate what you're baking in for churn into your guide this time around..

Well, let's see, how to break it out. There really are two different streams. So one is the long-term contract business that we have and we've always had. And just to be real clear on that, when clients get to the end of a 12-month contract, they go into a month-to-month renewal mode.

And the retention rates that we see on folks in month 13 and 14 and there on out are very, very high. And so that part of our business is – any advertiser who gets to that point of time has kind of made Yelp a part of the way they do business, at least that's been our experience. And the retention rates are really high.

So you've got that dynamic sort of in place, and we continue to make progress on our local client partners who are turning around cancellation requests or upselling customers and helping them see the value in Yelp. So that all the efforts we had a year ago in customer success to improve retention are still in flight and still in place.

The thing that's different now is that we have a lot more what I'd call trial purchase activity. And while it looks like churn, it's almost something really different.

It's almost more like did the trial purchase convert to become a sustaining long-term customer? And the way you go after that sort of dynamic is quite a bit different I think than what we've done in the past.

And so, as we are marshalling our attention, our resources, our product, our client service people to this challenge of sort of adoption and getting through the trial purchase period and becoming a strong long-term advertiser, it's new to us. The customers are coming in that way at a volume that we've never had them come in.

And it's something that we're being cautious about. So as we look at the outlook for this year, we're definitely expecting that the churn rate, if you will, on the non-term contract customers, those of them who are sort of in that trial purchase mode, it's going be higher than we saw in the prior mode.

After a few months, after three or four months though, those things really start to settle out pretty quickly. And we see curves that look like our normal retention curves. So we're cautious about it. It's a different operating environment for us.

And what we've put into our outlook for this year is what we think is a reasonable amount of caution and conservatism about what's really a new way of bringing in customers..

Thanks. That's great color. And then just one follow-up regarding Request-A-Quote, what are you hearing out of your service provider vertical that has led you to want to target that transaction model over time versus say, some type of a short or long form lead based approach? Thanks..

I mean I would say we're doing a number of experiments to figure out what's the best way to monetize all of the quote activity that we're seeing. And so when we did put out a figure of $23 million annualized run rate attributable to Request-A-Quote, that's actually coming from our ad system. And that's up from $18 million in December.

So we're already generating direct advertising attributable revenue from this product and that's working. If we can find a better way to capture even more revenue more efficiently from Request-A-Quote, whether it's take rate or something else, like we will explore that and certainly switch over to that if something works better.

But for right now, we're pretty happy with the ad model that we've got. And if you look at the overall business on the local services, it's really on fire with the $268 million revenue run rate, up 30% year-over-year.

And we attribute a lot of the success that we're having in the category to the whole to Request-A-Quote and the fact that customers are getting these tangible leads. They're seeing Yelp drop leads in their inbox and they're able to interact with their business owner account and see the value of Yelp even more clearly..

Got it. Thanks..

Sure..

Our next question comes from the line of Rob Sanderson with MKM Partners. Your line is now open..

Hey, good afternoon guys. Thank you. First of all, Jeremy 10 times revenue expansion in six years that's quite an accomplishment, so congratulations. Keeping your eye on the ball here through a lot of dynamic change in the industry. Clearly consistent revenue growth is very important but also engagement is very important.

And Yelp over that time's been much more transactional. And I think the service has a lot more utility. Can you talk about how the nature of engagement has evolved? Any metrics you may be able to share beyond page view growth and like frequency of use or transaction volume per user or growth in transactions or anything like that, that'd be helpful.

And then I do have a follow-up. Thank you..

Well, first off, thanks Rob. It's great to see revenue continue to climb, and that we've built a real serious business here at Yelp. You're talking about engagement and how has that changed over the years. I mean, we can go all the way back to 2004, 2005 the birth of Yelp. It was a website. And so our engagement at that time was particularly light.

You had to Google stuff to essentially find us. And then in 2007 and ultimately 2008 when the app store was born and the Yelp app was born, that really was a gearshift for us in terms of engagement. So we had a much closer relationship with consumers that downloaded the Yelp app.

And that's why we decided very early on to invest in the app store, but then also the app because it really gave us an opportunity to break away from just a web world where people are maybe touching on the content and then moving on very quickly. And so the app continues to drive increased engagement.

We talked a little bit earlier about the page view growth that is up 25%. Review growth continues to be strong. A lot of that is happening increasingly on the Yelp app. We continue to see really healthy growth on the Yelp transaction platform.

I think also earlier in the call we talked about the seated diners, Yelp Reservation and Nowait diners growing by 27% quarter-over-quarter. So just pretty much every metric that I can think of when it comes to engagement has been climbing on the app. And so we feel great about that.

And we're continuing to keep our focus really tightly on that because ultimately, we've got to have an increased engaged audience, so that we can have someone for business owners to reach when they want to grow their business..

And a follow-up sticking with metrics. The repeat rate metric, I've covered the stock since the IPO. And this metric I think has been misunderstood by many people for that entire time. It's not conventional. Most people interpret it to mean churn.

Has there been any thought to maybe reclassifying how you talk about retention or repeat rate or maybe a more conventional churn number or even pulling the metric altogether. I mean, I don't think of any of your advertising peers really give a similar disclosure of retention.

So just thoughts on the metric that seems to sometimes create some noise around the stock..

Yeah, Rob, I think that's a good point. And I do think that the metrics as the business continues to change really on the two dimensions you put your finger on. One is the nature of client engagement is becoming more transactional. And number two, the nature of our business relationships is also becoming more transactional.

This whole sort of all these metrics that arise from kind of a subscription mindset or framework are – they're wearing out in terms of their true applicability to describing the business.

We're trying to tell you what's happening to those metrics as transparently as we are right now as we think about what's really the right way to describe the business going forward. So I appreciate your question.

We're giving that a lot of consideration, and ultimately the goal of all the metrics that we disclose to investors is to help you have insight to evaluate our performance. And if there are things that we're talking about that are not leading to good strong insights, we'll be careful to reel those back and put other things in their place..

Okay, thanks a lot, guys..

Thanks..

And our last question comes from the line of Tom Forte with D.A. Davidson. Your line is now open..

Great. Thanks for taking my question. So wanted to discuss – most of my questions have been asked and answered, but on the relationship with Grubhub, and I apologize if you answered this, what is the expectation as far as contributions going forward? And that's basically the question. Thank you..

Sure, we're expecting about $10 million of revenue on the transactions revenue line. The bulk of that will be Grubhub this year we believe. And if you take the first quarter rate and you were to annualize it, it would look a lot higher than that.

But in the first quarter, and probably coming in a little bit into the second quarter, we have a bit of payment processing revenue that we are recognizing as we move the payment processing of Eat24 over to Grubhub systems.

There's a little bit of revenue per order that we're recognizing as revenue, and that turns right back around as cost of goods sold with no profit associated with it. So the revenue you see on the transaction line has $1 million or $2 million of additional revenue in it this quarter.

That'll wind down over the year and you'll see what's sort of underneath that, which is the true order-by-order revenue coming into the company. And for the year, our outlook is that the transaction line should be about $10 million..

Great. Thanks for taking my question..

Thank you..

And that concludes today's question-and-answer session. Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone, have a great day..