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spk07: Good afternoon and welcome to the Yext Incorporated fourth quarter fiscal 2024 financial results conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Nils Erdmann, Senior Vice President, Investor Relations. Please go ahead.
spk00: Thank you, Operator, and good afternoon, everyone. Welcome to Yext's fourth quarter fiscal 2024 earnings conference call. With me today are CEO and Chair of the Board, Mike Walrath, and CFO, Daryl Bond. During this call, we will make forward-looking statements. including statements related to our future financial performance, expectations regarding the growth of our business, our outlook for the first quarter and full year fiscal 2025, our strategy and estimates of financial and operating metrics, capital expenditures, and other indications of future opportunities, as further described in our fourth quarter shareholder letter. These forward-looking statements are subject to certain risks, uncertainties, and assumptions, including those related to Yext's growth, the evolution of our industry, our product development and success, our management performance, and general economic and business conditions. These forward-looking statements represent our beliefs and assumptions only as of the date made, and we undertake no obligation to revise or update any statements to reflect changes that occur after this call. Further information on factors and other risks that could cause actual results to materially differ from these forward-looking statements is included in our reports filed with the SEC, including in the sections titled Special Note Regarding Forward-Looking Statements, and risk factors in our most recent quarterly report on Form 10-Q for the three months ended October 31st, 2023 and our shareholder letter that was issued this afternoon. During the call, we also refer to certain metrics including non-GAAP financial measures, reconciliations with the most comparable historical GAAP measures are available in the shareholder letter which is available at investors.yext.com. We also provide definitions of these metrics in the shareholder letter. With that, I will now turn the call over to Mike.
spk05: Thanks, Nils. Good afternoon, everyone, and thank you for joining us today. As we discussed last quarter, we have published our quarterly shareholder letter and financial commentary on our investor website, and we look forward to taking your questions here today. There are a few high-level themes I would call out from our letter before we dive into Q&A. First, we are pleased with the progress we made in fiscal year 2024, despite a very difficult operating environment. We believe our record profitability, increases in sales productivity, and some of the difficult decisions we made to be more focused will serve the company well in the future and drive more efficient growth. As I've talked about in the past, the recipe for efficient growth is a combination of increased sales productivity and the ability to measure qualified pipeline so that we can increase our investment in direct revenue generating roles. We will continue to focus on efficient operations, but we have seen enough to be ready to direct more investment into direct selling and sales development to drive growth in the future. Second, we made great strides last year in shifting more of our focus to the core product offerings our customers value most and have reoriented our roadmap around our customers' highest priorities. We have also reallocated our investment in customer support, services, and success to drive customer satisfaction and value. In fiscal year 25, we will continue to proactively deliver value-driving innovation in our core listings, pages, reviews, and search products, customer service and support, and deliver new product functionality in adjacent product areas that are most valued by our customers. These include generative AI features, including broader application of content generation technology, as well as much more robust social management and analytics features. The strength and breadth of our platform, particularly the advantage of our content knowledge graph system as a single data source of truth for our customers across all of the product use cases will serve us well in an environment where customers want fewer partners and more ROI. We will continue to invest R&D into high potential areas such as chat and other generative AI technologies. But these investments will be more measured and focused on customer priorities than in the past. Finally, we continue to take a conservative point of view on the market environment and the timing of uptake of generative AI solutions at scale. Our customers include some of the largest brands in the world, and they continue to digest and optimize their technology stack after over a decade of investment. Our outlook anticipates that this trend will continue this year as uncertainty around the economy, inflation, and interest rate environment continues. We believe this is prudent and will support our customers work to identify areas to do more with our platform and be more efficient. We are highly positive on the future of generative AI to drive efficiency for the enterprise. And we are seeing signs of early adoption as evidenced by increased adoption of generative AI review response features. This week marks the two year anniversary of my taking the CEO position. I'd like to take a moment to acknowledge that the last two years have been challenging on many levels for our team. I'm incredibly proud of our global team's willingness to take on the difficult tasks of reshaping the X operating profile, adjusting to a difficult operating environment, and recommitting the company to our customers. I believe the work has been harder than we would have anticipated two years ago, and the work will continue to finish our transformation. I'm incredibly grateful to our team for their resilience and commitment in the past couple of years and for the future. With that, I'd like to open it up for questions.
spk07: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question is from Arjun Bhatia with William Blair. Please go ahead.
spk04: Perfect. Thank you, guys. Mike, maybe one for you to start. On the product roadmap, it sounds like there's a little bit of a refocusing going on on the core with listings, and I think in the shareholder letter you also talked about some new capabilities like social media management. Can you maybe just give us a sense of where some of these investments on the product front are focused? How do you plan to build some of these new capabilities like social media management and what might the platform look like if we're talking in December versus in March right now?
spk05: Sure, yeah, and thanks for the question. I think we talked about this when we started this journey. We talked about the need to refocus on the core, to deliver the value that our customers were paying us in listings and pages and reviews and search. And like everything, it takes longer than you think to get things going in the right direction. I do think one of the things we've seen over the last couple of years is as businesses focus on You know, less how do I add, you know, new technologies to my stack? How do I experiment with new things? And more, you know, am I getting the value that I'm paying for in my various, you know, vertical or multi-product software solutions? You know, we need to demonstrate, and I think we are demonstrating to them that there's a lot of product innovation happening inside the core. And where I think our, you know, previously our focuses were a little bit further out When it comes to social, we've always had social features in the product, but I think it's an area that we've heard really clearly from our customers that they want to see more of this. They want fewer vendors. They want more cross-platform visibility. And the other thing they really want, and I mentioned this in the letter also, is they is a data structure that makes sense and allows them to do more with all these different functions. And so this is something we continue to work on and we expect as we get into really get into the second half of the year that there will be a lot more coming through the product innovation cycle on all of the products but increasingly on the social media side as well.
spk04: Okay, got it. You mentioned increase in sales capacity and this being the right time to invest given some of the trends that you're seeing in the pipeline. I would be curious to hear what you're seeing in terms of sales productivity and how you're kind of benchmarking what best in class is, both for Yext and just as you compare yourself. to the industry. I think the pipeline trends certainly seem promising. But talk about where you're hiring, why it's the right time, and how much incremental expense maybe we can expect on the sales and marketing side.
spk05: We are at the highest direct sales productivity that we've seen, I believe, in the last four years was what we stated in the letter. I'm not going to tell you we're best in class because we're not best in class yet, but we've seen marked improvement there and this is something I've talked about a lot over the last four or five quarters is when you're seeing consistent improvement in sales productivity and the qualified demand which obviously you know over the last five six quarters we've seen a really nice increase in our ability to both create but also to measure our pipeline that that's when we can start growing our sales capacity again and so we'll be doing that in a pretty measured way over the first half of the year and that's where we expect to start to see contribution from actually growing our direct revenue generating headcount in the second half of the year. At the same time, to your question about incremental expense, we continue to find the areas of efficiency and optimize the cost structure of the business. And so the cost of the additional revenue generating capacity, which is really mostly in the form of quota carrying heads and sales development or business development representatives, is all baked into our outlook for the year. So there's not a sort of unbudgeted incremental expense there. We're really just focusing a lot of our investment and efficiency work back into what drives the highest revenue generating roles.
spk04: Perfect. Appreciate the color. Thank you.
spk07: The next question is from Tom White with DA Davidson. Please go ahead.
spk03: Great. Thanks for taking my questions. Two, if I could. Mike, in the letter, you mentioned a significant increase in year-over-year lead volume in the quarter and higher pipeline creation. Curious to what degree that's being driven by some of the various initiatives around demand gen that you guys have been working on. Maybe you could just give a few examples of the most successful channels or tactics on that front. Or is there an uplift from just maybe the client spending environment perking up a little bit, exiting the year versus maybe earlier in the year? And then I have a follow up on the guidance.
spk05: Yeah, no problem. So the first thing, I think the last thing you said first, which is, you know, I don't think that we're necessarily calling or seeing an uptick in the spending environment. And I think, you know, our outlook on this, we've been accused of being slightly more dour maybe than some of our peers. But our outlook on this is that we expect, you know, I think we've seen, if anything, we've seen some stabilization. and our expectation, as laid out in the letter, is that the environment will be like this for a while. And I think as long as we have uncertainty around the macro and inflation and interest rates and all that stuff, I just don't expect that there's a big snapback in spending. I think when it comes to developing a really efficient demand generation machine and We've been talking about this since we brought Rayanne in as CMO and really her sort of core expertise and her team's core expertise around this is you have to get a few things right. So structurally, you have to get the machine right so that you can use various channels like content and paid media to obviously drive into the top of the funnel. And then you need the mechanisms to take that top of the funnel and move it through a qualification framework. So there are a whole mess of operating mechanisms that have to be done right in order to trust that what you're seeing coming in the top of the funnel is going to convert into qualified pipeline and ultimately into bookings. And that's all very kind of structural and very hard work. And the teams have done an amazing job of building that machine. The second thing you have to get right is you have to match your campaigns to the environment. And so I think that's – it's probably one of the things that we didn't do quite as well last year as we could have is, you know, I think we were marketing a lot of, you know, more future state use cases for our platform at a time when, you know, I think we're still, you know, I think maybe the market was expecting that the snapback would come faster. And so what happened there, and it was really interesting to watch, is because we had the demand generation machine built, we could see the demand coming in the top of the funnel through campaigns that were geared around products that weren't really as much part of the core. So we were leading with AI messaging and more transformational CMS messaging. And then what we were finding was that a lot of those things were converting more in the core. And so that is a, I would call it like a half miss in terms of the marketing execution. As we've shifted to more value-based messaging around the things that the breadth and capability of our platform can do, you start matching campaigns up more to where the buying centers are interested today, which is much more in how do I either do more with what I have or how do I improve a set of fragmented vertical solutions into a broader one. And so that's another thing that we expect as we run better campaigns this year. We think that the matching of what our customers are really interested in today and the areas of expansion that they're most interested in with our marketing campaigns and ultimately the demand generation machine is part of making that whole system work better. Hopefully that makes some sense.
spk03: Yeah, that was a very helpful call. Thank you. Just maybe a follow-up on the guidance for this year. I guess at the midpoint, you know, the full year outlook implies that adjusted EBITDA expenses are down about $10 million year over year. Can you maybe just parse out a little bit more of the drivers, and maybe Daryl can weigh in here too if he wants. But you talked about adding some heads, which will take a little bit of time to ramp. But then I guess you have the sort of the full year impact of some of the operational changes you made last year. And just trying to understand like how much more kind of further rationalization of the cost base is kind of baked into the outlook. Or is it just kind of like the full year kind of benefit, if you will, from some of the stuff you implemented last year. Thanks.
spk05: Yeah, so I'll start, and I'm sure Daryl will do a better job talking through some of the numbers. But principally, I think what we're doing, and by the way, this is something we see our customers doing. It's part of the thing that colors our view on the environment is that once you start getting the organization really focused on efficient operations, you continue to find opportunities to you know, in various ways to be more efficient. So that can be spans and layers. That can be, you know, duplication within the organization silos. And we've been talking about all this for a couple of years. I think in a perfect world, it never really ends. But obviously, the lifting gets a lot less heavy as we get into, you know, finer and finer optimization. So I really think that's probably the phase that we're in, you know, for the course of this year is just It's become part of, I think, the culture here to think about the efficiency impact and the opportunities to be more efficient across the board. And that allows us to continue to show improvement on the expense line and on the EBITDA line while making really critical investments that are going to be product investments and revenue driving.
spk02: Yeah, Tom, the only thing I'd add to that is when you look at the EBITDA number in Q1, We've got some seasonal spend that happens in Q1 for certain sales events that don't happen in other quarters of the year. And then to the point that Mike was making earlier about our marketing campaigns and us being able to really attack that area, we've pulled some marketing spend up on demand gen up into Q1, which is also going to impact the quarterly number when you sort of look at the rest of the year.
spk03: Appreciate it, guys. Thank you.
spk07: The next question is from Naveed Khan with B. Riley. Please go ahead.
spk06: Hi. Thanks for taking my question. This is Ryan on for Naveed. I was wondering if you could talk about the customer budgets for the upcoming year and whether there's room to drive upsells into the customer base. And then related to that, was also hoping to get some clarity around the opportunity for mid-tier customers versus enterprise customers. And then I have a follow-up after that. Thanks.
spk05: Sure. So I think as... You know, we see it as, you know, we expect to see a lot, you know, of similar discussions this year that we've been having over the last, you know, kind of six to eight quarters, which is they usually start with what's the value that I'm getting from the platform today? And I think that that's a great place to start the conversation. then it becomes what are the other things that this platform can do potentially more efficiently than other things. So, you know, we still continue to see a lot of interest from customers, particularly larger customers, in having less vertical software and less, you know, kind of, you know, very specialized software doing, you know, lots of different things in their marketing department versus, you know, more versatile, broader solutions that can do more. And so I think what that does is it clearly creates an opportunity to bundle and package more things together in the form of upsells, and it advantages companies who have broader offerings. And I just think that that cycle will continue. I'm not going to predict whether it gets you know, a little bit, you know, whether there's a little bit less or a little bit more focus in the enterprise on the efficiency work this year. I just, you know, I don't think it's done and I think we'll continue to see smart management teams will think about how to, just the same way we are, how do I operate more efficiently and where's the opportunities. For us, those are really, really, those are actually better conversations than, you know, I think some of the competitive challenges we face when, you know, kind of every vertical software was competing for, you know, a budget that was, I think, a lot more elastic than it is today. As far as your question about the kind of smaller versus what we would call the mid-market and the enterprise, I think we see similar dynamics now across those different groups. We are certainly Focusing on the higher end of the mid-market and the enterprise, and one of the benefits of having a really robust reseller channel, which is primarily how we access SMBs, is that the area between SMB and the smaller end of the mid-market can get pretty blurry. And so, you know, we're very much focused on enabling our partners to access, to move up market from just pure SMBs and into more of the mid-market because that allows us to focus our resources and our time much more on what we would call the higher end of the mid-market and the enterprise.
spk06: okay got it thank you and then also i guess my next question is you had talked about it in the last earnings call you also mentioned it in the prepared remarks but the impact of the churn from the large customer in fourth quarter i was wondering how that's going to impact uh fiscal year 25 you know the next few quarters uh growth and comps so yeah so i think we mentioned it was a it was about an 11 million dollar customer
spk02: And their contract ended at the end of December. So we saw one month of impact to revenue in this Q4. And then as we get into this Q1, we'll see a full three months of impact. And obviously, it comes out of ARR. It comes out of revenue for the fiscal year.
spk06: Got it.
spk05: I think it'll just add to that. It'll impact a lot of metrics that we'll do our best to share the effect of this sort of X that singular customer turn. So, for example, our net – I'm sorry, our gross error retention – We've mentioned that this has been in the high 80s since we started giving this metric, and we said we're going to let you know if it changes. With the effect of that large churn, it would have dipped into the mid-80s. When we take that out, we're still sitting in the high 80s there. So it will certainly be a headwind in terms of revenue growth, in terms of revenue, which you can see in Q1. and in terms of things like net retention and the gross ARR retention as we go through the year until we lap that at the end of next December. But all of that is baked into our guidance, and we do anticipate that in spite of that, we'll see re-acceleration of ARR growth into the high single digits by the end of the year.
spk07: The next question is from Ryan McDonald with Needham. Please go ahead.
spk01: Thanks for taking my questions. Mike, maybe to start on the sort of strong pipeline commentary, can you just talk about perhaps sort of what products you're seeing the most demand for, you know, whether it's listings, search pages, reviews? You know, if there's any new verticals that maybe you've been able to sort of unlock with some of the marketing and demand generation. And then, you know, as we're getting through the early stages of the year here, are you seeing better signs or maybe signs of quicker progression through that pipeline that's given you some of the confidence on, I think, the idea of re-accelerating growth in the back half of the year? Thanks.
spk05: Yeah, sure. I'm happy to get into it. I think there's a bunch of different things there. So one of the things we mentioned in the letter is Boomerang customers. So, you know, we're seeing, you know, and it's well, I think it's well documented that, you know, there was a lot of competition around listings and some of the other products, but particularly listings over the last few years. So we saw, you know, we're seeing an acceleration of Boomerang customers. We're seeing, you know, I think we said we called out 20 direct customers last year and 10 of those were in Q4. I think some of that is the way that we're engaging with former customers and the commitment that we're making to focus on the things that are important to them, as well as what I think some of the dynamics I've described, which is they're seeing that they can do more with us than they can with some of the smaller, more vertical solutions in an environment where they want to be able to do more. I also think it's partly what I talked about on the demand generation side of things, which is when you really start matching up marketing campaigns and messages and content, and we just had a great virtual customer summit with, I think, record attendance numbers for virtual events at Yext. All of these things create opportunities that you can actually action faster because the prospect of is ultimately coming in through a door where they understand what it is. When I juxtapose that against some of the campaigns that we ran last year that were maybe a little bit mismatched with what the customer's near-term need is, it's not that you don't have the opportunity with that customer, it's just that more of your time goes into requalifying that customer and reestablishing the customer need. This is not really surprising. But we've now been at it with Ran and Tom and their teams for, you know, whatever it is, five or six quarters now, and the machine is getting better. It's getting more efficient, and we're figuring out what's working better. And I think when you combine that with messages and discussions with customers that feel much more focused on their needs and what they need next, right, so when we talk about social management and those capabilities, It's one of the things we're hearing consistently from customers is I don't necessarily want to have multiple systems doing these different things. And so that combined with the productivity that we've seen, which is all related to that, gives us confidence that we can start increasing once again I think our quota carrying and direct revenue generating headcount, which we're not disclosing numbers, but has been decreasing for most of the last four or so years. I think we're ready to start increasing that again because we finally have the signal that we need to feel really confident there.
spk01: Okay, that's super helpful. Maybe just on the topic of the Boomerang customers, of the ones that you were able to win in fourth quarter, How is the initial land trending or how did the initial land trend in fourth quarter relative to the size of customer they were when they left you? And then as we think about fiscal 25, what's the rough mix of the pipeline that's from boomerang customers versus sort of net new?
spk05: Yeah, I don't know that I would be able to tell you the mix of boomerang versus net new. And, again, because our product has become so broad, you know, the boomerang customer could be multiple product or single product, and so we're not – I wouldn't be able to quantify it for you that way. You know, I think there's a lot of trends that drive boomerangs. I think in a lot of cases what we're seeing with boomerang customers is that They left for a less costly solution that didn't deliver the return on investment they wanted. Promises were made that weren't kept. Also, in a lot of cases, the platform that these customers may have, we haven't stood still. The innovation that we've driven through our platform creates more additional value as well. I think one of the big shifts is that our overall approach to how we deal with customers and how we bundle and how we package and how we deliver services has become and will continue to become more customer friendly as we've really gotten our arms around the types of services and support that our customers want. So that's another area that I anticipate that we'll just continue to improve the overall customer experience, the amount of support that they get, the proactive nature of that support, as we've been doing a lot of really hard work on that front over the course of the last year, year and a half.
spk01: Appreciate the color. Thanks.
spk07: As there are no further questions, this concludes our question and answer session. I would like to turn the conference back over to Mike Walrath for any closing remarks.
spk05: We'd just like to thank everybody for joining, and we look forward to speaking with you next quarter.
spk07: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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