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spk03: Pardon me, this is the conference operator. Thank you for joining us for the Yext Incorporated conference call. We'll be starting the call in just a couple of minutes. We appreciate your patience and please continue to hold for the Yext Incorporated conference call. We'll be starting in just a couple of minutes. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Good afternoon, and welcome to the next second quarter fiscal 2023 earnings 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 Niels Erdmann, Senior Vice President, Investor Relations. Please go ahead.
spk01: Thank you, Operator, and good afternoon, everyone. Welcome to the next Fiscal Second Quarter 2023 conference call. With me today are CEO Mike Walrath, COO and President Mark Farentino, and CFO Daryl Bond. Before we begin, I'd like to remind everyone that this call may contain forward-looking statements, including statements about expectations regarding growth of our business, our management and governance plans, strategy, forward-looking guidance, and estimates of financial and operating metrics, capital expenditures, and other non-historical statements as further described in our second quarter earnings 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, our management performance, and general economic and business conditions, such as the impact of 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 have a material difference 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 GAAP measures are also available in the earnings press release, which is available at investors.yext.com. With that, I will turn the call over to Mike.
spk05: Thanks, Nils, and thanks, everyone, for joining us today. Second quarter was a solid quarter for Yext, and we executed well against our strategy of driving long-term growth through increased operational efficiency, best-in-class product innovation, and improving customer satisfaction. Our revenue for the quarter was 100.9 million, and our non-GAAP net loss per share was 3 cents, beating the high end of our guidance range by 2 cents. Driven by our success in streamlining the business and improving our operating efficiencies. These results highlight the momentum we're generating through a realignment of our sales and customer success organizations while successfully managing costs in order to increase our cash position in the future. As our full year non-GAAP EPS guidance suggests, we expect to achieve profitability in the back half of this year. I'd like to share some observations about our progress toward achieving our strategic objectives and how the rate of this progress factors into our expectations for the second half of the year. First, as we noted in our first quarter call, providing greater clarity around our brand and platform capabilities are key to re-architecting our go-to-market strategy. During the quarter, we made significant progress against this priority and transitioned the name of our Answers product to Search, and our core set of products listings, reviews, pages, search, and knowledge graph together as the Answers platform. We did this to align with what we actually do for customers and our vision to help businesses answer every question from their customers, employees, and partners anytime, anywhere. We made this change with the launch of our summer release that included 60 plus new features and upgrades across every area of the platform, reflecting our continued commitment to innovation and realizing our vision as the answers company. To help us continue to strengthen our brand positioning, we announced our new Chief Marketing Officer, Ran Reese in late August. Ran has more than 20 years of global technology marketing experience at companies like AWS, Juniper Networks, and more recently, Elastic. Ran will oversee YEC's global marketing organization and be responsible for building and strengthening the YEC's brand and increasing demand for YEC solutions globally. Second, we continue to lay the groundwork for future revenue opportunities, landing deals across all of our products, Although it's still early, I'm very encouraged by the breadth and variety of deals we close during the quarter as they demonstrate that our product suite and value are resonating with customers. Mark will discuss our recent product innovations and share customer wins in a moment. I believe these customer stories are leading indicators reflecting that the ongoing re-architecture of our go-to-market is having an impact and we are well-positioned to capture additional opportunities as we continue to improve all elements of our go-to-market motion. to drive product innovation and expand customer use across the platform. In conversations with dozens of customers and prospects this quarter, I've observed firsthand the increasing importance to the C-suite of answering their constituents' questions wherever and whenever those questions are being asked. The individual use cases and priorities of each customer vary from location-based questions on third-party properties to various company-controlled search use cases, such as support search, but this is a clear priority across a diversity of customer use cases. While we remain cautious on our outlook, I am highly encouraged by our prospects to drive tremendous customer value. Third, our third quarter guidance reflects our ability to successfully improve our operating efficiencies. We've demonstrated we can operate more efficiently, and the team is excited about the changes we are making to drive success for our customers. We continue to make organizational changes in the business that lower our operating expenses by reducing layers, increasing spans of controls, and creating more coordination across our teams. I can continue to believe that we will drive better customer outcomes and ultimately sell and service our products more effectively by creating a leaner, more agile organization. As we noted on our last call, ARR is a metric we focus on because it provides insight into the performance of our recurring revenue business model and is less impacted by fluctuations in billing and contract terms. Direct ARR continues to be our primary revenue driver, but we are working to broaden our relationships with third-party resellers and refocus on our shared growth opportunities. As I look at the ARR picture, our total ARR is relatively flat over the last couple of quarters. This is largely driven by significant negative FX in Q1 and Q2 and weakness in third-party reseller ARR. We are seeing growth in direct ARR, which we believe is the most immediate measure of our overall product market fit. Daryl will provide more detail on the specific dynamics around FX and ARR. We will continue to look at the ARR picture conservatively as we work to improve our go-to-market motion and in light of global macroeconomic and FX conditions. We do see a global trend towards more scrutiny on overall spending and longer deal cycles, and this is reflected in our outlook. Our Q2 results and full-year guidance demonstrate that we are executing well against our strategy while making clear progress on our path to profitability. The team and I continue to operate the business based on the principle that long-term, sustainable growth is the result of a more clinical and efficient operating model. And I remain extremely optimistic about our ability to capitalize on our large market opportunity. We have installed a lot of change inside the company in the last six months. Change like this is challenging in any environment, and even more so with the backdrop of uncertainty in the global macro environment. I'd like to take a moment and thank our entire global team for their dedication and commitment to getting to the right answer for our customers and the company. We continue to believe that our stock is a great investment, and this is reflected in our continued share repurchases in Q2. With that, I'd now like to turn the call over to Mark.
spk02: Thanks, Mike. As Mike noted earlier, we reached an important milestone in our brand cleanup this quarter and added new features across the entire platform with the early access launch of the summer release. I'll begin by discussing how we are rolling out our updated branding and highlight the product innovations included in our summer release, followed by a few customer success stories. Last quarter, we discussed how we would be working to clean up our messaging and simplify our brand. I am proud to report that we have made major progress on this front. We have revised and simplified our brand positioning, cleaned up our usage of the term answers by updating the product name to search, and establishing answers as the name of our platform. We've updated our website, products, solutions, and marketing materials to reflect this updated messaging and brand positioning. We believe that every CEO has an answers problem. Every day, customers, employees, and partners are asking questions about your business in an attempt to find information. Answering these questions is hard for any business since the answers are scattered across different content silos and digital channels are managed separately. With the Answers platform, Yext solves this problem by collecting and organizing your content, then answering these questions through seamless multi-channel digital experiences. This updated messaging and branding is being rolled out to the organization throughout Q3. The rollout of our new branding coincided with the early access of our summer release. With this release, we have added Google Business Profile listings analytics and more detailed listing statuses, which offers never-before-seen insights into user, performance, and operating data. We believe these insights will further strengthen the value of our flagship listings product. We also enhanced our connector framework to allow us to connect to a larger range of internal systems in order to populate the knowledge graph. We continue to make great strides with our developer experience with major enhancements to our pages offering and allowing a greater set of development options to create search experiences. Overall, we have launched 60 plus new features across our listings, pages, reviews, search, and knowledge graph products. These features significantly upgrade the ability of the Answers platform to create multi-channel experiences that are more efficient, cost effective, and gratifying for the end user. General availability will kick off tomorrow, September 8th. As Mike noted, we believe the diversity of our customer wins across listings only, listings upsell, search, and multi-product solutions are a good indicator that we have the opportunity to expand these partner relationships over time, particularly as we continue to strengthen our go-to-market and customer support teams. Here are a few examples. Texas Children's Hospital was a listings renewal and upsell this quarter. Originally, they used listings for several hundred of their healthcare providers. After we were able to... And by showing value, we were able to expand our relationship over time, and we see future potential opportunities to expand with other products. Piedmont Health is another good example of a healthcare client that started with listings over three years ago, and seeing that Yext could deliver on both scale and speed, invested in additional products. This quarter, we expanded our agreement with Piedmont Health to include additional providers. In retail, we expanded our listings and pages relationship with the Spark Group to include additional brands that we haven't worked with before, including Aeropostale, Eddie Bauer, and Nautica. We also transformed Nationwide Support Hub by adding Yext Search. After Yext was able to successfully deliver on listings and pages over the past two years, Nationwide decided to expand our relationship to include Support Search. Internationally, HCA UK was a great win for us, as they are one of the largest private healthcare companies in the UK. We landed with Search this quarter, helped them solve a support pain point, but with over 3,000 consultants and 240 facilities, we see future opportunities to expand with this customer. In Japan, we signed Tsuruha Holdings, one of the leading companies in the drugstore industry in Japan, which will be using our listing solution. After a competitive evaluation process, Box, the content cloud, selected Yext to transform the search experience of their Zendesk support site. The support search deal is their initial high priority use case, and we see additional room for growth across the business. We have been working with L'Oreal's salon-centric brand as a listings client for over a year. This quarter, we expanded across three additional brands that sell their products through salons. Our search product was able to provide a centralized platform for managing data, integrate with other technologies like Salesforce, and handle non-location related data to provide additional accurate information about the salons that sell these products. On the partnership front, our partnership with Acquia helped provide a solution for Pegasystems where we will power their search on their support and community sites. And our partnership with Adobe helped us win a site search deal at Booz Allen. On the competitive front, win rates for our search product were very high. Notably, we beat several of our competitors in new business wins, including the largest global insurance provider based in Europe, Community Health Network, Exponent, and Echo Shoes. In closing, we're excited about the pace of our product innovation and the diversity of use cases as demonstrated by our customer wins. Now, I'll turn the call over to Daryl.
spk00: Thanks, Mark. Our second quarter revenue grew 3% year over year to $100.9 million, which was above the high end of our guidance range. As a result of the stronger dollar relative to countries where we transact in local currencies, Second quarter revenue included a negative year-over-year impact of approximately $2.8 million, or 3%, using a constant currency basis. Excluding the FX impact, our second quarter year-over-year growth was approximately 6%. Unearned revenue was $165.9 million at the end of the quarter, up slightly from a year ago. Annual recurring revenue, or ARR, was $387 million at the end of Q2, up 2% year-over-year. ARR at the end of Q2 experienced an approximate $10.8 million negative impact from FX year-over-year on a constant currency basis. Excluding the FX impact, our Q2 year-over-year ARR growth was approximately 5% and has grown sequentially since the first quarter of this year. Our trailing 12-month net dollar-based retention, which excludes our small business customers, was 98%. Our trailing 12-month net dollar base retention for direct, which also excludes small business customers, as well as our third-party reseller customers, was 98%. Our customer count, which excludes small business customers and third-party reseller customers, increased 8% year-over-year to over 2,870. Last quarter, we began providing a more detailed look at ARR across our direct customers and third-party reseller customers to help investors measure our future opportunity as well as progress across new customer adoption, renewals, and upsells. In the second quarter, direct customers represented 81% of total ARR. Direct ARR at the end of Q2 totaled 312 million, representing 5% year-over-year growth. Excluding the impact of FX, the direct ARR growth relative to last year was 8% on a constant currency basis. The direct sales team is primarily focused on enterprise and mid-market accounts where ARR growth is a good measure of adoption and satisfaction. Third-party resellers represent 19% of total ARR. Third-party reseller ARR totaled $74.9 million at the end of Q2, representing a decline of 6% over prior year. Excluding the impact of FX, third-party reseller ARR declined 4% relative to last year on a constant currency basis. Turning to non-GAAP results, which are reconciled to GAAP in our press release, Q2 gross margin was 74.5% compared to 75.2% in the year-ago quarter, generally consistent with our second quarter seasonality, and we expect to be in the range of our long-term non-GAAP gross margin target of 75% to 80% for the remainder of the year. Q2 operating expenses were $78.6 million, or 78% of revenue. compared to 79.8 million or 81% of revenue in the year-ago quarter. We continue to improve operating efficiencies, particularly in sales and marketing. Sales and marketing as a percentage of revenue declined to 48% in Q2 from 52% in the second quarter last year, and we expect this metric to continue to improve on an annual basis. Our Q2 net loss was 3.9 million, compared to a net loss of $7.2 million in the year-ago quarter. Our Q2 net loss per share was $0.03 compared to a net loss of $0.06 per share in the second quarter last year. Cash and cash equivalents were $188 million at the end of Q2 compared to $248 million at the end of the first quarter. The decline in our cash balances was driven largely by continued share repurchases executed during Q2 which totaled $31.6 million. Year-to-date, our share repurchases totaled $59 million. We intend to continue to maintain a strong balance sheet and cash position going forward and will remain open to buying back our stock at attractive prices. Net cash used in operating activities for Q2 was $25.2 million compared to $32.6 million cash used in the year-ago quarter. CapEx was $2.2 million in the second quarter compared to $3.1 million in the second quarter of last year, as we have returned to a normalized annual CapEx run rate following the completion of our real estate expansions. Turning to our outlook, the US dollar has strengthened even further versus the currencies in which we transact our international business, resulting in a larger than expected FX headwind to both Q3 and the full year of our fiscal 23. Our guidance assumes present foreign currency rates and we expect Q3 revenue to be between $99 and $100 million. Our Q3 guidance includes the negative impact of $1 million as a result of FX. While this indicates a sequential decline in revenue, when adjusting for FX on a constant currency basis, our business continues to grow. For example, Total ARR grew modestly quarter over quarter this year when adjusting for the impact of FX on a constant currency basis. We expect our Q3 non-GAAP EPS to be between negative one cent and positive one cent, assuming a weighted average basic share count of approximately 124.4 million shares. For the full year fiscal 23, we expect revenue of 399.4 million to 401.4 million. The total year-over-year FX impact is now estimated to be $8 million, an incremental $2 million since our last earnings call, which is based on present foreign currency rates. Our non-GAAP net loss per share is expected to range from $0.06 to $0.08, a $0.04 improvement from the midpoint of our previous guidance, as we expect continued improvement across operating expenses, particularly sales and marketing. Full year EPS assumes a basic weighted average share count of approximately 126.3 million shares. Operator, we are ready to open it up for Q&A.
spk03: 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're 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. Pardon me, this is the conference operator. We seem to have lost the connection with the main speakers. We'll be joining them in a moment. Hello? Yes, Neil, can you hear me? We can hear you now. Okay. Let me just try the other line real quick here. Hang on one second, please. Okay, we're going to proceed on this line, gentlemen. Our first question is going to come from Naved Khan with Truist. Please go ahead.
spk00: Thanks a lot. Just a few questions for me. First, on the sales and marketing concept,
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