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spk10: Good afternoon, and welcome to the Yext Fourth Quarter Fiscal 2021 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 Yuka Broderick, Head of Investor Relations. Please go ahead.
spk00: Thank you, Gary, and good afternoon, everyone. Welcome to YEC's fiscal fourth quarter 2021 conference call. With me today are CEO Howard Lerman, President and Chief Revenue Officer David Rudnitsky, and CFO Steve Cakebread. Before we begin, I'd like to remind everyone that this call may contain forward-looking statements. including statements about revenue, non-get net income, operating cash flow, sales efficiency, hiring targets, expense margins, market opportunities, business performance, including of our listings and Answers products, capital expenditures, and other non-historical statements as further described in our press release. 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, including with Answers, and general economic and business conditions, such as the impact of the COVID-19 pandemic. We undertake no obligation to revise any statements to reflect changes that occur after this call. Descriptions of these and other risks that could cause actual results to differ materially from these forward-looking statements are discussed in our reports filed with the SEC, including our most recent quarterly and annual reports and our press release that was issued this afternoon. During the call, we also refer to non-GAAP financial measures. Reconciliations with the most comparable gap measures are also available in the press release, which is available at investors.yext.com. With that, I will turn the call over to Howard.
spk08: Thanks, Yuka. You know, I couldn't be more proud of what we accomplished during a challenging year. First, despite extraordinary headwinds from location lockdowns that disrupted the core value proposition of listings, it's Product annually recurring revenue still grew this year. Next, we built a more durable and sustainable business model going forward. We were operating cash flow positive for the year, non-GAAP net income positive for Q4, and we showed a tremendous 16-point improvement in non-GAAP operating margin versus the year-ago quarter. Finally, we stood up a new search category disruptor product in the X-Dancers. As the world comes back, we're ready. But it has not been easy. Our fiscal year started last February, and in a matter of days, we were dealing with the onslaught of a global pandemic. Like every business, we faced challenges and had to make a number of adjustments. Our typical event and in-person sales approach was severely hampered. But this forced us and led us to focus on efficiency. And you can see that quantitatively. A dramatic seven-point improvement in our non-gap sales and marketing percentage, spend as a percentage of revenue, From 61% in the year-ago quarter to 54% in Q4, listings felt the force of the macroeconomic headwinds that brought foot traffic to businesses to a halt. Now, people still search for a lot of important answers that our listing solution provides. These include answers on products and doctors, FAQs and jobs, just to name a few. This was and still is critical across most industries, but the reality is seeking information about physical locations, like driving directions or operating hours, has been severely impacted by COVID. In fact, in Q4, Google Maps views for our customers declined over 50% year-over-year on a per-location basis. Now, recall, we told you early in fiscal 2021 that 25% to 30% of our total ARR comes from retail and food services, which are heavily location-oriented. And as we know, these industries have still not recovered. I recently took a drive around Aventura, Florida. The popular mall was pretty empty. Shopping centers look like they're at 20% capacity. Parking is always a no. Despite all of that, ARR for our listings product still managed to grow last year, and that is a sign of its resilience and strategic significance for our customers. Now, meanwhile, we saw strong momentum with our Answers site search product. We closed 130 answers-led deals in Q4, up from 86 in Q3. And answer search queries in Q4 grew 16 times the year-ago quarter. This is just the beginning. Keyword search hasn't changed in 40 years. It's a subpar customer experience. It slows businesses down, yet it is still ubiquitous. Companies make huge investments in search, site search, workplace search, e-commerce search, app search. Support search. Building these search experiences is expensive. You've got to have a team of experts, and the end result is never good enough when it's keyword search. So keyword search is ripe for disruption. With Yes to Answers, we've invented a better, faster, cheaper search. Why hire a team of PhDs to build a search engine over years that only handles keywords when you can just turn on ours in an hour and have a modern, sleek, natural language search? A search experience that delivers answers, not a bunch of links. We've got extraordinary innovations in search coming out in two weeks, including extractive Q&A document search, a web crawler. I can't wait to show you more about all that. And I look forward to telling you more about it and our vision and how we're going to keep disrupting the huge search category at Investor Day in a couple weeks. We don't know. We don't have a specific date when life will return back to normal. But I'm confident that as industries like retail and food services get back to business, we're going to see our listings product rebound. And meanwhile, our Answers search platform will help us disrupt the huge search category and make keyword search a thing of the past. The founding principle of Yext is that every business and organization in the world ought to be in control of their information online. With our Answers search platform and its incredible powerful, multifaceted solutions, all powered by our knowledge graph, we are well positioned to achieve this goal. Despite a lot of unknowns, I believe we've set up our company for an extraordinary future. Finally, I'd like to congratulate David Rudnitsky on his promotion to President and Chief Revenue Officer. Unifying our global go-to-market under a single leader makes the most sense as we gear up to disrupt the search category with our better, faster, cheaper answers service plan.
spk07: Thanks, Howard. I'm excited to be leading the team as we look to scale X to much greater levels in the years ahead. Given a continued challenging environment, we had a solid Q4. We saw renewed strength in EMEA following a tough beginning of the year due to their strict lockdowns and a solid second half for mid-market. Our enterprise team fought hard in a tough macroeconomic environment. The total number of the X direct customers, which excludes SMB and third-party resell customers, increased 21 percent year-over-year to over 2,400. We're introducing a new metric for investors this quarter, which we believe is a good indicator for our business and our progress with larger customers. Our direct customers, excluding SMB and reseller, with ARR over $100,000, totaled 550 at the end of Q4 up 12 percent year-over-year. This metric is replacing deals closed after this quarter. In Q4, Yext overall closed 216 new and renewal deals with at least $100,000 of total contract value. This includes 22 deals with more than $1 million of total contract value. We ended the fiscal year with nearly 250 quoted carrying reps, roughly in line with our target of 255. Our new logo signings included La Poste, the French National Postal Service, Endeavor, Casio Computer, and Popeyes. Financial services, including insurance, showed continued strength for the year with upsells from JPMorgan Chase, Liberty Mutual, and Farmers. Other upsell deals during the quarter included United Healthcare Service and Accor Hotels, as well as Panera. We're cautiously optimistic about our opportunities with food services companies when businesses begin to reopen. Renewal deals included AT&T and Luxottica. We continued to see momentum with Answers Site Search. As Howard mentioned, we closed 130 Answers-led deals in Q4, which included the first quarter of significant contribution from EMEA and Japan, following the release of Answers in Spanish, French, Italian, German, and Japanese in the summer and fall. Answers Site Search continues to open up the door with use cases, and significant opportunity with new companies that we haven't sold to previously. I want to tell you a little bit about our six-figure deal with CoinMover this quarter. CoinMover runs a network of cryptocurrency ATMs, providing its customers with a simplified and safe experience for buying and selling digital currencies. They wanted to make sure that customers could find the right information about CoinMover across the Internet, so they bought Answers to answer customer questions on CoinMover's website. And they bought listings to provide information about their network of physical ATMs in New England and the Pacific Northwest. CoinMover is seeing tremendous value from our partnership with us. They're seeing a significant boost in their website engagement and conversion rate by leveraging the answers on the site. And in the past 90 days, Yext has driven an 83% increase on their Google search impressions and a 41% increase in Get Directions clicks. We're pleased to be partnering with the company in this rapidly growing space. I've never been more optimistic about YEC's long-term future than I am right now. We have a great team and a platform that drives demand from a diverse group of clients and prospects worldwide. We believe we are well-positioned to capture that demand as it materializes. I couldn't be more excited about the opportunity ahead and the team fueling our growth. With that, I'll turn the call over to Steve.
spk06: Hey, thanks, David. As Dave said, we had a solid quarter last revenue above our guided range, achieving break-even for the first time ever on a non-GAAP EPS basis, positive operating cash flow, and continued improvement in sales and marketing efficiency. I just want to thank the finance and IT teams for executing incredibly well and delivering these results in a challenging work environment and setting us up for economies of scale as the economy recovers. We're really proud. well positioned for growth going forward. Our fourth quarter revenue grew 13% year over year to $92.2 million. Fiscal year 21 revenue grew to $355 million, which is an increase of 19% over last year. Unearned revenue increased 8% year over year to $192 million. And annual recurring revenue, or ARR, at the end of Q4 was $354 million, and that's up 8% year-over-year from the year-ago quarter. Our trailing 12-month net dollar-based retention, which excludes our small business customers, was 102%. And our trailing 12-month net dollar-based retention for directs, which also excludes small business and our third-party reseller customers, was 103%. Our retention in Q4 was impacted again by muted upsells in this tough macro environment. Before turning to margins and expenses, I'd just like to note that I'll be discussing non-GAAP results unless I otherwise say. And we provided, as Yuka has mentioned, a reconciliation of GAAP to non-GAAP financials in our earnings release. So Q4 gross margins were 78.4% this quarter. That compared to 75.7% in the year-ago quarter. This increase in margin was primarily driven by leverage on employee costs and publisher fees, and was partially offset by higher data center costs. Fiscal year 21 gross margin was 77.3%, and that compares to 75.6% a year ago. Q4 operating expenses were $73 million, or 79% of revenues, and that's down from $75.3 million, or 93% in the year-ago quarter. We continued to execute on cost management and efficiencies this quarter and drove year-over-year margin leverage in each of our OpEx line items. Sales and marketing expense decreased as a percent of revenues from 61% in Q4 fiscal year 20 to 54% in Q4 fiscal 21. G&A expense decreased as a percent of revenues from 19% in Q4 last year to 15% in Q4 this year. Compared to the year-ago quarter, the primary drivers of operating expense decreases were leverage on employee costs, reduced spend on travel and events, and increased productivity. Fiscal year 21 operating expenses were $296 million or 83% of revenue. That compares to $281 million, or 94% of revenue a year ago. We see many of our cost efficiency efforts as sustainable changes that will drive our operating margins higher over time. These efforts include reduced selling cycles, productivity enhancements through system and process improvements. We'll continue to invest in innovation and revenue generating opportunities, and we will accelerate these investments as we see the demand environment improve. Regarding investments in our sales efforts, we're targeting a quota-carrying sales rep headcount of 255 at the end of fiscal year 22. That's as we balance our prior investments in revenue-generating opportunities against driving productivity in this area. Recall that we've maintained our Salesforce hiring plans last fiscal year despite the pandemic impact. This fiscal year, we plan to take advantage of that capacity, and as we see the macroeconomic environment improve, we will begin to accelerate our investments in quota-carrying headcount. Q4 net income was $94,000, and as a result, we have recorded our first-ever quarterly net profit. This compares to a loss of $13.7 million in the year-ago quarter. Our Q4 net profit per share of breakeven compares to a 12-cent loss year-ago quarter as well. In Q4 fiscal year 21, our net loss on a GAAP basis was $18.3 million. In Q4 fiscal year 21, GAAP loss per share of 15 cents. Cash and cash equivalents were $230 million at the end of the fiscal year 21, compared to $256 million at the end of fiscal year 20. This is a strong result given the $61 million in facilities capex we incurred in fiscal year 21. We continue to believe our balance sheet is strong and positions us well to weather the current economic environment and provide resources for investment in future growth. Net cash flow from operations for Q4 was a positive 24.9 million as compared to a positive 11.7 million in the year-ago quarter. For fiscal year 21, net cash flow from operations was a positive 1.2 million. That compared to a negative $30.8 million a year ago. We believe we will continue to run at least break even operating cash flow on a full year basis going forward from here on out. CapEx was $11.2 million. That compared to $4.5 million a year ago. And CapEx for fiscal year 21 was $65.1 million, of which $60.6 million was related to our building projects in New York. Washington, D.C., Tokyo, and Paris. These projects are now nearly complete, and we expect remaining capex related to these projects to be about $8 million, with most of that to occur in Q1. Once these building projects are completed, we expect a return to our more modest levels of capex spending as a percent of revenue, more similar to our historical levels. Now let's turn to our outlook. We expect Q1 revenue to be between 87 million and 89 million. And we expect non-GAAP net loss per share to be between 5 cents and 7 cents. We will have and expect a weighted average basic share count of approximately 125.4 million shares in Q1. As we came through Q4, we saw a continuing softness with the new and existing customers given pandemic-related business pressures. Until we see positive changes in the economy, we will manage the business as we did this past year. We'll focus on driving cost efficiencies and sales productivity. However, once we see positive improvements in the economy, we will invest into the available growth opportunities that afford us. For full year fiscal 22, we expect revenue of between $375 million and $380 million. our non-GAAP loss per share range is expected to be between 17 and 22 cents. And this assumes a basic weighted average share count of approximately 128.4 million shares. As we consider the demand environment for fiscal year 22, we're confident that our listings product will rebound as businesses reopen. But the visibility on the timing of the reopening remains limited. And as such, we are not including improvements in the demand environment in our fiscal year of guidance. We are basing our guidance on the business conditions we see for ourselves and our customers currently, with the macro economy, which remains sluggish, and customers who remain cautious. We are well positioned for when the business environment improves, and especially for the long term. We are excited to push forward with our expansion into various areas of search, with expanding products and features driving a broad new set of solutions we can sell on our Answers search platform. To wrap things up, we are pleased with our resilience in Q4 and overall for fiscal year 21, given the challenging environment of our products. We nimbly took action to support our employees, refocus our sales efforts, accelerate our search innovation, and drive efficiencies. We're poised to grow when the macro environment improves. With that, I'll turn it over to Yuka.
spk00: Thanks, Steve. Before we move along to Q&A, we'd like to invite you to register for our Investor Day on Wednesday, March 17, 2021. Please go to investors.yext.com for more details. Joining the Q&A session will be CEO Howard Lerman, President and Chief Revenue Officer David Rudnitsky, and CFO Steve Cakebread. Gary, can we please open to questions?
spk10: 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. Our first question is from Naved Khan with Truist Securities. Please go ahead.
spk03: Yeah, thanks a lot. Just a couple of questions. So I'm trying to understand the outlook for Q1 and the sequential decline versus the fourth quarter and what the components of that might be. And then maybe a related question just on the – can you give us some color on the type of wins, customer wins you might be getting? Are they smaller deal sizes? And maybe talk about your pipeline a little bit. Any color would be helpful. Thank you.
spk06: Yeah, why don't I start with the quarter? You know, we recognize our revenue daily. So the fourth quarter has three more days than the first quarter does because of February. So that accounts for a couple million dollars of the sequential decline and predominantly most of it. So I don't see any real problems with the decline in terms of dollars. It's more of a math exercise. Clearly, we didn't have upsells. as much as in the Q4 as we wish, so that contributes to it as well. But it's mostly a day count for us. Customer wins, David, or Howard, do you want to take that?
spk08: Yeah, I think we talked about some of our customer wins in Q4. One of the places you can always follow for what's going on, follow us on Twitter. Our social media team is very active, and almost every day we tweet questions a new Yext Answers experience that has gone live. I think a couple of days ago, we treated Northern Trust, where I am sitting in a building right now. It's kind of neat to just watch all these great site search experiences come up where customers can get answers. We talked about some of the, DR talked about some of the, DR is Dave, by the way, not doctor, talked about some of the logos we want in Q4, the French Post Office, LaPoste, Endeavor, Casio Computer, Popeyes, and Then, you know, I retweet all of the stuff that we're tweeting, so you can follow me at Howard on Twitter to see each day the new Answers Experience is going live. Q1 pipe looks solid. We continue to be conservative with our outlook with regard to the current macroeconomic pressures that are happening in the world. We are in the business primarily or have been primarily in the business of serving location-based businesses. As locations are closed, that is a bit more challenging. in certain location-based verticals. As the world comes back, we'll invest and continue to get back into those industries as things open up, as those companies get back to business.
spk10: Thank you. The next question is from Mark Murphy with JP Morgan. Please go ahead.
spk01: Hi, good afternoon. This is Matt Koss on behalf of Mark Murphy. Thank you for taking my questions. You know, Steve, on the continued improvement in sales and marketing efficiency, can you quantify what that improvement was this year and then sort of what you expect that improvement to be going forward as you leverage all these new sales hires?
spk06: Yeah, you know, I think the quantitative part you can just look at, if you look at our year-over-year dollar spend from last year to this year, and then the percents of revenue have been pretty significant. A lot of that is coming from, obviously, as Dave talked about, more tenured sales reps, more effective selling and marketing processes. I think going forward, we've always said that we're going to continue to drive our sales and marketing as a percent of revenue back down in line with what you'll see from other SaaS companies. How quick that goes is obviously a function of revenue and our efficiencies. I don't really have a time frame there, but I think you'll see it continue to decline over the next couple of years until we get in line with companies that in our same size and space.
spk01: Very helpful, thank you. And the way you're guiding, you make sense based on what we're able to see in some of the challenges that you're still seeing in retail businesses. But are you making any other changes in the way that you guide, perhaps assuming lower close rates or any other big differences versus the way you've looked at guidance historically?
spk06: If you go back and look at how we guided Q3, it's a similar stance. We've got this quarter coming up, February, March, April, still a lot of countries and a lot of states are closed. And so we took the position that we're only going to be realistic like we were before. As I said in the prepared comments, we're not looking or anticipating any openings at this point in time. I think customers, as David talked about, you're seeing us get a lot of interest and a lot of opportunity here. But as we said in our retention, upsells aren't happening to the extent that we think they should. And we think that's a lot to do with macroeconomics. And while there's a lot of people interested, there's still people being very concerned with how they spend their money until they see, you know, not just the light at the end of the tunnel, but they're at the end of the tunnel. So, you know, I think it's stay tuned. I think all of us feel more optimistic about the future with vaccines, et cetera. But the world economy has got to start to come back. And that's certainly going to be timing is something we just can't predict right now.
spk01: Very fair. Thank you very much.
spk10: The next question is from Stan Dlotsky with Morgan Stanley. Please go ahead. Mr. Dlotsky, your line is open on our end. Perhaps it's muted on yours. Moving on, our next question is from Arjun Bhatia with William Blair. Please go ahead.
spk11: Thank you. Steve, I maybe wanted to just follow up on that last point that you made about the light at the end of the tunnel. It seems like we're, you know, vaccinations are going better than expected, I would say, and it seems like there is some light at the end of the tunnel that's visible. What are your conversations like with customers that have maybe stopped expanding this year, but as they see that, hey, you know, we might things might start to come back to normal over the summer or later on this year. Are they starting to think about expansions? Are they having conversations about listening or cross-sell with answers? Just help us understand what you're hearing from customers as you're talking about later on in fiscal 2022.
spk06: Yeah, Arjun, that's a great question. I think David or Howard, you might be better served in answering that.
spk08: Arjun, I'll take that question. The key stat that we talked about on the call just a minute ago was that Google Maps views have declined 50%, more than 50% year over year for our customers on a per location basis. That is a primary value proposition of using the product. It drives foot traffic to physical locations. So as that happens and has been happening, that has presented challenges for upsell and retention. Now, I don't believe, like I don't think anybody believes, in a year that people are going to not be using map services to use driving directions or phone calls to go outside, to drive to places, to go to stores, to go to restaurants and events and travel and go to hotels. Fact is, in Q4, it was more than 50% lower than it was in the previous year. And looking forward, we don't We have not seen quantitative evidence of a recovery, though, like you, we remain optimistic when you read the news that it could happen, but we're just not going to put it into our outlook until we can quantitatively see it. That said, while we are continuing to see headwind in the location-related industries, you've seen in Our financials, we've really focused on getting efficient in sales. We have, like Steve said, a 7% year-over-year improvement. Efficient with our operating margins, a 17% swapping improvement. We broke even cash flow positive for the year. We focused on building a sustainable, durable approach going forward, and we set up a whole new category with search and leveraged our wonderful Knowledge Graph technology which is filled with authoritative primary information, to take that to the next level and build a natural language search on top of it, which we closed more than 130 transactions in Q4, up from quite a bit in previous quarters that we had disclosed. So, all in for the year, we don't know when listings will return yet, we haven't seen it, because people are still not going outside, But things are starting to open up. I read the news like you do. We can't call a specific date. When that date comes, this company is going to be ready with a more sustainable business model, with a product that we hope will see a tailwind from the recovery, and a new category product with extraordinarily large opportunities in a number of categories, from site search to workplace search to support search. I'll tell you more about that. at Investor Day and watch for our spring release with breakthrough extracted Q&A technology. You know, I've never been more excited to lead this company. The opportunities have never been bigger in the long run. We'll just have to wait and see with what happens with regard to the lockdowns and shutdowns to locations.
spk11: Got it. That's helpful. And then on the answer side of the business, you know, last quarter we touched on some large deals that came through, some that were answers-led, some that were mostly answers, but what can you share with us about deal sizes on answers that you've seen this quarter relative to, you know, what we were talking about last quarter earlier in the year?
spk07: So, Arjun, it's David Grunitzky. So, a couple things on answers, what we're seeing is, you know, Howard talked about the number that we did. We did 130 answers-led deals. We've got a good motion in terms of how to, you know, identify those, qualify them, and close them. It's shown that we have a little bit of a quicker sales cycle with Answers. We've had now demonstrable success. We know how to measure it. We know how we have customers that we can reference. We have experience under our belt for it. And not only are we seeing a quicker sales cycle on it, we've seen a couple things that are interesting. One, the Answers-led deals, Answers is getting us into companies that we necessarily would not have sold to when we were talking to you a year ago. There's verticals that we've now penetrated into as a result of leading with answers. When you look at higher ed, you look at technology, you look at CPG, you look at direct-to-consumer, you look at public sector, you look at NGO, these are customers we've acquired, many of which in Q4, where answers is the opportunity that opened the door for us there. Thank you for taking our questions.
spk10: The next question is from Rohit Kulkarni with MKM Partners. Please go ahead.
spk04: Okay, thank you for the questions. In terms of guidance, Steve, any more color you can give on what are you assuming in terms of beyond first quarter contributions from listings versus answers and any backward looking data you can share in terms of how the mix of listings versus answers gradually changed as the year progressed and how do you think that would as you think, as you're modeling in the guidance. And then I have one follow-up.
spk06: That's a lot of questions. First off, again, like I said, we kind of looked at Q1 as if we looked at Q4 and trying to be realistic about the macro economy. Clearly, listings is a dominant part of our business, but answers is up and coming, but still relatively young. And so growth rates and numbers look, while big, are still small relative to our installed base. So When we look at that, you know, we've said numerous times we think listings will come back, but we don't see them soon, so I can't really give you mixed issues. And, you know, keep in mind, we sell a solution. So a customer may come in to talk to David about answers, but start with listings or vice versa. So it's not really – we're not really able to give you information about mix at this point. We can look at install base after the fact, but in that I'll just tell you it's still predominantly – listings business because that's what we started with and have been selling listings for over five years now. So can't help you on those particular numbers. We'll have a little bit more information at analyst day, but again, you know, answers is a new product that you typically get to sell those new products as you get into this. I think it's been muted only because of the macroeconomics. And so we'll look and see as the economy starts to turn around, I've taken answers, but clearly listings will, should start to come back as well, and anticipating that mix shift is going to be pretty hard.
spk04: Okay. And just on sales and kind of self-service way of selling as well as partner-led selling, be it Adobe or likes like that, any updates, anything noteworthy? I know you have mentioned both of them as new channels that could help drive leverage going forward.
spk08: Well, I think you quantitatively can see seven-point improvement year over year in sales and marketing. And remember, all of our reps were grounded this year in selling over Zoom, and we classically held events and dinners, and we didn't do any of that this year. So I think you are seeing leverage from partners bringing us into deals and from bottom-up self-serve, and we will continue to lean into that going forward.
spk04: Okay. Thank you. Thank you, guys.
spk10: The next question is from Brett Noblock with Barenberg Capital Markets. Please go ahead.
spk12: Hi, guys. Thanks for taking my question. Maybe just curious, as you look to some of the customers you have maybe down south in Florida or Texas, are you seeing anything different given those states are a bit more open compared to, I guess, other regions?
spk08: Yeah, we filled a billion dollars of listings in Texas after they announced the masks. I'm just kidding. You know, it's very hard to make geographical kinds of quantifications like that because companies are headquartered, you know, large enterprises are headquartered all over the world. And so you do see a mix around the world, but it generally typically mirrors the country, not at the state level.
spk12: Oh, that makes sense. And then maybe just one more, you know, as, you know, hopefully the economy reopens kind of sooner than faster. I guess what gives you confidence that, you know, Yext is going to be one of the first solutions that they turn back on? I would imagine a lot of these, you know, retailers are going to be fighting for every single dollar given they've kind of been out of business for so long. And, you know, could there be a delayed turn on cycle, you know, as that does happen?
spk07: Hey, Brad, it's David. Here's the thing. They never turned it off. So they still use us. And what Steve referred to in his comments were the muted upsell and that typically we would expect a greater upsell for them as they expand their own business. But for the most part, we've kept them all. And I think what's exciting about the opportunity is as they open, it's not turning it off. It's actually accelerating what they have. And so my teams look forward to the seasonal upsell or the continued historical upsell that we had, but they've never turned it off because if you think about it, if you're a business that's closed, people still want to know about what places are open, what safety protocols you have, what are the revised hours, do you have in-store pickup, do you have curbside pickup? None of that stuff ever went away and they never dropped their footprint with the accident.
spk12: Okay, understood.
spk08: Thanks. And Brett, that's how kind of the To Steve's point earlier, that is a bit how we grow with customers. They come up to Yext, and often they'll start using our listings product where they put the data into the knowledge graph. We structure that. Then, you know, take the Bitcoin company that Dave mentioned earlier in the call. Then they want to turn on answers. And so they turn on answers, and we start answering questions using our natural language search from the knowledge graph. And then going forward, you know, we're going to be able to take that knowledge graph into – more places, support search, other types of search solutions that they want. This all comes down to search. And the number of opportunities we have now with answers to go into any client, whether they're retail or food, is much larger than it was 12 months ago given our new set of products where we can go in and we can sell them a site search solution. And then once they're on our search platform with Knowledge Graph, we can sell them a support search solution. We can sell them whatever type of search solution that they want. We can expand within the client based off the Knowledge Graph that they have with us.
spk12: Understood. Appreciate it.
spk10: The next question is from Ryan McDonald with Needham. Please go ahead.
spk02: Yes, thanks for taking my questions. First on answers, great to see the continued progress and success you're having there, going from 86 lead deals last quarter to 130 this quarter. Just curious, as you look at the pipeline and as you're closing deals, I think, Steve, you mentioned at our conference in January that you're seeing an increasing mix of customers that are buying the solution off of a demo versus doing the full 90-day free trial. Can you talk about what sort of mixed shifts you're seeing there and how that's, if at all, compressing sales cycles?
spk07: Yes. Steve, I think Ryan and David, I can grab because I see that the point of sale every day The reason that we've shifted away from that and going right to our close is that we learned over the last year how to sell. We learned what's important to the customer. And having that historical background on those deals, like what's driving it, we have a bunch of referenceable customers now. Most customers would prefer to do an evaluation, spend a little time with them, and talk to a reference and understand it versus having to go through an entire trial period themselves. They want to go to market with it quicker. And we've demonstrated that we're able to do that. We've seen, you know, compressed sales cycles, particularly with answers, because we've had that under our belt now in terms of demonstrable success.
spk02: Excellent. And I guess as a follow-up for you, David, you know, now sort of as in the sole CRO structure, just curious, should we expect any sort of changes in terms of org structure, comp structure, or perhaps plans for international and CBU sort of now that it's all sort of under your umbrella?
spk07: Yeah, so that's been, you know, Ryan, that's been underway over the last couple weeks. And what I can share with you is that what I took a look at is unifying all of those. So when you talk about international, you talk about North America, you talk about CBU, they have come together now under this idea of 1EX in terms of really having as many common things as we can to scale the business. I have every Friday, I have all the leaders every Friday on a call with me. And what we're looking at is developing a playbook that's the best of the best There are nuances in the different theaters. There's nuances in the different lines of business. But there's a lot of things that I want our teams to do collectively to scale the best practices across the universe. And it's something that I personally am extremely focused on because that's the way we scale this thing.
spk02: Excellent. And then maybe just last one for Steve. I just wanted to clarify, did you say that from an operating cash flow perspective that you're focused on a break-even op cash flow on a quarterly basis moving forward until you start to see some improvements in the economy? Thanks.
spk06: So what I said was we will be operating cash flow break-even or better on an annual basis going forward. Every quarter is different, as you know, because of our seasonality. So operating cash flow positive or break-even quarterly is a little bit tough depending on when We have events and do other things, but on a full-year basis, we've modeled out and believe that we'll be operating cash flow positive or break-even every year on a full-year basis, not a quarterly basis.
spk02: Excellent. Thanks again.
spk10: The next question is from Stan Delotsky with Morgan Stanley. Please go ahead.
spk09: Oh, perfect. Thank you so much for taking my question. My apologies about the technical issues we had before. Pretty embarrassing for technical issues for a software analyst. But a couple questions from my end. Maybe just on the Answers product. Clearly, you guys are seeing momentum with Answers and the 130 Answers-led deals in the current quarter. When do you think you would get to a point where Answers gets to be material enough as a portion of your overall business to kind of take over the growth baton from some of the other products that you have in the market today?
spk08: I'll take that. Let's talk about what we're trying to do with Answers first, and then I'll let Steve comment on the materiality. Everything we do at Yext stems from the technology that we went out with on our roadshow three and a half years ago, which was our Knowledge Graph. Knowledge Graph is a brain-like database with structured information. In order to give Google and Apple and Facebook and Amazon information about our companies for our listings products, they don't just accept flat files. That data has to be structured. So it turned out that accidentally, we built a bunch of structured information for each of our clients in a structure or a technology which we call a knowledge graph. And our knowledge graph is what makes natural language search possible. Every other search engine out there, except Google, by the way, but every other search technology company out there uses index-based search to crawl sites and assemble an index, and then has a single algorithm that gives you a set of links back. That is how search worked for a long time, and that's how search engines worked for a long time. And Google took things to the next level by building natural language search on top of a knowledge graph. But in order to give an answer back, you have to have a database to contain the answer. And so we built the database first. knowledge first, whereas every other search engine is algorithm first because when you're searching or trying to find a ton of content and you want to find a spot in a ton of content, you need to find the place among a number of links and rank those results. So that was all about the algorithm. So every other search engine out there that's keyword-based or keyword search is algorithm first, whereas the X is knowledge first. And as a consequence of that, we can employ multiple algorithms kind of like a Google search engine results page that when you search for anything now, you have, if you search for Morgan Stanley, six, five, eight different snippets on a page. And those are all coming back from different types of algorithms executing simultaneously, many of them from a knowledge graph. And so I give you this little bit of backstory just because of the fact that when we look at our opportunity with answers, it's not like listings and answers are Yeah, there's product cues for it, but it's all still in this search solution. It all starts with the data. Listings is all about structured data. The Knowledge Graph is the database that holds that structured data. And Answers is the national language search layer on top of it. And every magnifying glass out there, and every app, and every site, and every support site, internally, externally, we intend to compete in those markets. And we intend to have a search platform that's different than every other company that's out there because we have a natural language search platform built in a knowledge graph with multiple algorithms. Now, I don't know, I can't look forward and tell you exactly how fast it's gonna go or exactly how fast listings is gonna go, because quite frankly, we're sitting here and things, even though they feel different than they felt in Q4, we still haven't seen people going outside yet. I think you're probably still at home. Maybe you are. I certainly am on Zoom. But when that happens, it seems like it might happen, then, you know, I'm bullish on where this company is going to go because you can think about a return of listings and, you know, growth and answers on top of this knowledge graph platform, and it's hard to kind of pick them apart.
spk06: I agree, Howard. I mean, it is a platform. We sell and try to sell to customers all of our services on the platform. Obviously, as you described, in a week or two, We're going to announce additional search capabilities. So, Stan, I don't think answers per se dominate. Search capability over time will obviously become a larger part of our business, but it's going to take a while. And I am also very optimistic like Howard. I think the listings business, as people turn around and as Dave described, businesses are going to want to make sure they get found and provide even more information because it's going to be competitive to get your customer back. So, I don't know what the material transition is, and as previous question, what's the mix? Well, we sell a search solution, and I'm going to sell or we're going to sell whatever solution you're looking for here. But I do think search will dominate over time, but that timing is uncertain right now given macroeconomics. But I think clearly the future of this company is in search in a wide variety of ways.
spk09: Got it. Got it. That makes sense. And, Steve, maybe a question for you. Look, you know, the guidance for fiscal 22, 6% growth at the midpoint, a little over 6% growth year-on-year. And I do appreciate the focus on cash flow on an annual basis staying in breakeven or better moving forward. But what about on the operating income side and on operating margins? You know, given the growth of the business, should we be looking for more profitability, you know, out of the income statement and just to really help to balance the growth versus margin equation just a little bit better?
spk06: Yeah, I mean, clearly, Stan, and we've talked about this before, you know, our goal is to get to breakevens operating cash flow and breakeven non-GAAP EPS. You know, clearly we've made, and it's not surprising, right? You're going to hit cash flow before you're going to hit non-GAAP EPS. The timeframes we'll talk about in the future, partly because this year is so still fickle. I think as we get back on track, you're going to see this business get into breakeven operating as well. But right now, I just want to get through Q1 and see how the business starts to come. But I would say if you look at our trends, we're really, really close. Those are two principles that we've had. And I think we've demonstrated we can get to one. As you know, we've been operating cash flow for a full year, two out of the last three years. So we're clearly on track. And I'd say the trajectories that you're seeing with improved sales and marketing spend, improved efficiencies in G&A have us on course to get to non-gap rate even, but the timing is still TBD.
spk09: Got it.
spk10: Thank you so much, guys. The next question is from Tom White with DA Davidson. Please go ahead.
spk13: Great. Thanks for taking my questions. Just to sort of double-click on the kind of gross retention versus upsell dynamics that you guys talked about, I guess, can you just clarify, is the softness that you're calling out there, is it restricted to kind of retail and restaurants and and maybe EMEA? Or are you starting to kind of see, you know, maybe a broadening of that dynamic across your customer base? And then just to follow up on answers, you know, for folks that don't convert from the free trial, what's kind of the main kind of pushback that you get? And curious whether you think there's a chance for conversion rates from the free trial to kind of meaningfully improve maybe once the the macro backdrop looks a little bit more stable for companies.
spk08: Steve, do you want to take the retention and upsell dynamic, and then I'll take the free trial dynamic?
spk06: Yeah, I think in Q4, I mean, clearly our upsells across the board have been challenged primarily in location businesses, as David described. The MIA has been challenged because it's been locked down. We don't anticipate much of that change right now. I think in other businesses, the ones that we started to address with answers are too new to even start to talk about upsells. We have seen a few customers on a very limited basis hit or exceed their capacity, so they're upgrading there, but not enough to change our upsell model at the moment. That's what we're looking for, and I think one could suggest that as the macro economy comes back, we'll see our net retention return to more normal levels, but it's just a little too early yet. But clearly, you know, restaurants are not expanding, hotels are not expanding, and that's the major driver right now of our impact.
spk08: Yeah, and with regard to answers, you know, Tom, we felt pretty good conversion rates from our free trial industry standards. We're ending the free trial at the end of the month. In fact, we're so confident in our ability to sell answers, we are now just showing up and closing answers deals. We will do pilots for enterprises that want to validate that our technology works, and you will also continue to see on our website as we target developers that want to kick the tires on the technology, they'll be able to build accounts and get sandboxes and use parts of the natural language search and knowledge graph for some period of time with some capacity limits. But as for the free trial offer, that was a great way to get the product going. We're excited with where we got. We clearly not just got a lot of free trials, but closed a lot of real transactions with some amazing logos and traction. We're very confident in our ability to continue to sell this going forward without the free trial. as we build up awareness that we can offer a better and faster and cheaper search than any other search technology out there.
spk03: Thank you.
spk10: This concludes our question and answer session. I would like to turn the conference back over to Yuka Broderick for any closing remarks.
spk00: Thanks for your time today, everybody, and we're looking forward to seeing you in a couple weeks at the Investor Day on March 17th, so please go register on our website. Talk to you all later. Thank you.
spk10: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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