Yahoo ended the quarter with 14,200 employees, 300 more than in 2009's fourth quarter.
In the first quarter, Yahoo saw a net benefit of $78 million from Microsoft reimbursements related to the companies' search deal, which got regulatory approval in the U.S. and Europe in February.
That 10-year deal calls for Yahoo to use Microsoft's Bing search engine for back-end functions like crawling, ranking and indexing Web sites. Yahoo will continue to be in charge of its search user interface.
The deal also calls for Microsoft to be in charge of self-serve, search ad sales, while Yahoo will manage premium search ad sales.
Implementing fully the search deal could take about two years. In the meantime, Microsoft will reimburse Yahoo for transition and operating costs. Yahoo expects net reimbursements from Microsoft of between $75 million and $85 million per quarter for the remainder of 2010.
A key motivation for Yahoo to enter into the search deal with Microsoft was to reduce its search-related costs. In addition, the companies believe they will be able to offer a more attractive option to advertisers together than individually, and thus be a more credible competitor to Google, which broadly dominates search usage and advertising globally.
Yahoo ended the quarter with free cash flow of $64 million, down 70 percent from 2009's first quarter, and with cash, cash equivalents, and investments in marketable debt securities of $4.24 billion, down $274 million from 2009's fourth quarter.
Yahoo expects revenue in the second quarter of 2010 to be between $1.60 billion and $1.68 billion. Commissions and fees paid to partners should be between $475 million and $495 million.
Morse said key signs point to an improvement in Yahoo's financial performance, including the first quarter's revenue increase after the company's revenue fell year-on-year all four quarters of 2009.
"Our underlying business performance is clearly improving. Our revenue is returning to year-over-year growth, led by display. We're transforming our cost structure to support our growth and profitability objectives, and our earnings metrics are showing substantial gains versus last year," Morse said.
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