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spk00: Good afternoon, and welcome to the Yext Fiscal Third Quarter 2024 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 Nils Erdmann, Senior Vice President, Investor Relations. Please go ahead.
spk01: Thank you, Operator, and good afternoon, everyone. Welcome to Yext's Fiscal Third Quarter 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 fourth quarter and fiscal year 2024, our strategy, and estimates of financial and operating metrics, capital expenditures, and other indications of future opportunities, as further described in our third 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. 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 10Q for the three months ended October 31, 2023, and our press release 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 gap measures are available in the earnings press release, which is available at investors.yext.com. We also provide definitions of these metrics in the earnings press release. With that, I will now turn the call over to Mike.
spk05: Thanks, Nils, and thanks, everyone, for joining us today. This quarter, we continue to execute our plan to operate Yext efficiently while laying the groundwork for long-term growth. In Q3, we generated revenue of $101.2 million, adjusted EBITDA of $13.5 million, and non-GAAP EPS of $0.09, which reflects our most profitable quarter ever on a non-GAAP EPS basis and a solid, sustainable foundation for us to grow our business. As we continue to improve our operations, we were hopeful this year would be a year of re-acceleration for Yext, but we aren't seeing this in our revenue or ARR growth rates yet. As we discussed on our Q2 call, the selling environment remains quite challenging, with some deals slipping or downsizing during the later stages of deal cycles. This caused softness in Q3 bookings as well as budget pressures on renewals. On top of this, we expect a singular large churn in Q4 attributable to a particular customer. We believe this is due to unusual factors that are unique to this customer. Dara will discuss churn in more detail, but this particular account, a happy customer, seems to be facing budgetary pressures of a magnitude we are not seeing with other accounts. The net result is that fiscal year 24 revenues and ARR will not see the reacceleration we anticipated when we began the fiscal year. We think this is temporary because we see real improvement in underlying trends around pipeline, sales productivity, and profitability, and we remain confident that we'll see a return to high single-digit ARR growth next year. We will share a full outlook on fiscal year 25 in our Q4 earnings discussion in March, but I'd like to take a few moments to share some of the reasons we remain excited for the future of our business. First, profitability has increased significantly. In addition to Q3 being our most profitable quarter ever, we are shaping up to deliver over $51 million in adjusted EBITDA for the full year, up over 200% versus last year. We've achieved this margin expansion the right way with gross margins up over 350 basis points compared to last year. Sales and marketing expense down 7% year-over-year, while still investing in R&D, which was up over 13% year-over-year in Q3. Progress is not just on a non-GAAP basis. Stock-based compensation has declined to just 12% of revenue, and operating cash flow creation for the year will be over 100% of adjusted EBITDA. We are becoming leaner and more efficient. Second, our sales productivity is improving across all categories and geographies. While total bookings are down, bookings per rep is improving even in the face of an increasingly challenging macro environment. We've made these improvements by sharpening our focus on value-based selling, rep performance, and qualified pipeline generation. A renewed marketing engine has been a bright spot for us this year, and our pipeline is strong and growing. It is unfortunate that the challenging macro environment is causing deal slippage and downsizing, as otherwise I think our renewed go-to-markets effort this year would truly be a bright spot for us. With improving productivity, we have laid the groundwork for growth, including the potential to grow sales capacity, which we will look to accelerate once we have confidence in an improving macro environment. Third, our reseller channel also showed some early signs of stabilization in ARR. We are encouraged by the progress and believe in the long-term growth opportunity of the reseller channel. We are focused on driving revenue through our resellers and are evaluating pricing strategies, including more usage-based models to drive growth in this channel as we move forward. We continue to focus on what we can control to put ourselves in the best position to capture growth as the macro environment improves. We are committed to improving customer satisfaction, and we continue to invest in the core products that are the main drivers of value for our customers today. We've aligned our sales motion and sharpened our focus on core product innovations across listings, reviews, pages, analytics, and search that deliver tangible near-term results to our customer and are increasing our focus on social features and functionality as well. We are hearing from our customers that they want a partner who does more across the entire digital experience, and our product roadmap is designed to concentrate on solutions that deliver tangible, measurable value. These innovations include our ongoing work with AI and large language models, which enhance the functionality of our core products across areas like content generation, review response, and AI chat. Several competitive wins in Boomerang customers during the third quarter underscore how important it is that we continue to innovate to set ourselves apart from our competitors. In Q3, we had several upsells and new logo wins across a variety of business verticals. In healthcare, for example, we signed deals with multiple providers, and in each case, we were able to identify and solve pain points that were unique to these customers. We've established a strong position in healthcare by demonstrating that our platform is cost-effective, efficient, and uniquely suited to managing customer information across our publisher network. One client in particular was an immediate win back from Q2 when they signed with a competitor and almost immediately ran into issues as the competitor failed to deliver on their deadlines. In August, they approached Yext and wanted to move back to our platform as soon as possible. We've similarly seen numerous competitive wins across the technology sector, including Altice and Vodafone, and in retail, restaurants, and hospitality with authentic restaurant brands, Golf Tech, Raising Cane Restaurants, and TJX UK, to name a few. All of our competitive wins in the quarter not only underscore the importance of focusing on innovation, but also signal the healthy demand for our products. We continue to see strong interest from our customers in consolidating functions across our portfolio of products. We're making progress on our cross-platform motion, and customers are seeing the additional value that's possible through leveraging our knowledge graph across more than one of our solutions. During the quarter, we were particularly successful upselling several large financial services customers. One of these customers, a multi-year deal and a new product build-out, was a notable upsell during the quarter. We created a strong value use case based on our success and the positive response we received building their financial advisor experiences for their wealth management businesses. We had similar success with a global investment management services firm, which is launching three search experiences on the home pages of their personal investing, pensions, and financial advisor websites, with a YEC search bar prominently displayed on each. We continue to invest in search and AI content generation products, which we believe will represent large incremental ARR opportunities in the years ahead. One of the world's largest retailers, for example, saw how our AI products could help enhance communications across intranet sites. Our team demonstrated the ease and effectiveness of implementing our knowledge graph and identified how AI-driven search could drive increasing employee satisfaction, which led them to becoming a new client in the quarter. We are committing development resources to deliver what our customers are ready to buy in the current macroeconomic environment. Our core listings, reviews, and pages products continue to be best in class. A top new logo in Q3 was with one of the world's largest tax preparation software services. The customer was looking for a flexible, open API platform to help their developers quickly stand up websites, listings, and reputation management. After seeing how our platform could help their tax professionals become discoverable across all digital channels, they chose Yext Products as their digital experience solution. Shifting to the fall release, we launched over 80 new features with enhancements across every area of our platform based on feedback from our customers, partners, and employees. We will continue to focus our attention on product enhancements to help our clients and partners drive internal efficiencies, boost their online presence, and delight their customers. We feel strongly that Yext remains well positioned to capitalize on the digital transformation taking place across organizations worldwide. We have laid the groundwork for future growth acceleration, and our highest priority is to capitalize on this opportunity when the buying environment has improved. As we complete our sixth full quarter of operations since our leadership transition last year, I feel great about the team we have in place globally, the future opportunity across our broadening set of products, and the leading indicators we are seeing of a return to accelerating growth in the future. I am very grateful for the focused and steady efforts of our entire global team in a very challenging environment. With that, I'd like to now turn the call over to Daryl.
spk06: Thanks, Mike. I'll start with a review of our third quarter results before moving on to our guidance for Q4 and fiscal year 24. Revenue for our third quarter grew to $101.2 million, up 2% on an as-reported basis, or up slightly in constant currency. Our growth in Q3 was driven by demand in our direct business, as we continue to see good sales productivity and qualified demand across verticals, both domestically and internationally. Our Q3 revenue was slightly below our guidance range of $101.5 million to $102.5 million. This was primarily due to foreign exchange rate fluctuations. The drop in foreign exchange rates that occurred from the time we provided our guidance in early September through the close of our quarter resulted in a revenue impact of over half a million dollars. Annual recurring revenue, or ARR, was $396.8 million at the end of Q3, up 2% year-over-year or 1% in constant currency. Direct customers represented 82% of total ARR, and direct ARR totaled $326.6 million, an increase of 3% year-over-year or 2% in constant currency. As of the end of Q3, our customer count for direct, excluding SMB, was approximately 2,908. Third-party resellers, which represented 18% of total ARR at the end of Q3, delivered ARR of $70.2 million, a decrease of 3% year-over-year, or down 4% in constant currency. As Mike mentioned earlier, we are encouraged by the improvement relative to last quarter and believe that our reseller channel will return to growth over time. As of the end of Q3, our net retention rate, which is calculated on the basis of ARR, was 97% for our direct customers and 95% for our third-party resellers. Turning to non-GAAP results, which are reconciled to GAAP in our earnings press release, Q3 gross profit was $79.8 million, representing gross margin of 78.9%, compared to 75.3% in the year-ago quarter. As we've mentioned previously, the improvement relative to last year was largely attributable to the organizational changes within our services organization, which was a process we kicked off in Q4 of last year. We expect our gross margins for the remainder of this fiscal year to remain at the high end of our 75% to 80% range. Our operating expenses in Q3 were $69.9 million, or 69% of revenue, compared to $72.1 million, or 73% of revenue in the year-ago quarter. A key part of our operating expense discipline has been the realignment of our sales and marketing team, and our sales and marketing costs as a percentage of revenue were 41% in Q3, compared to 44% in the third quarter last year. Our Q3 net income was $11.3 million, compared to net income of $2.5 million in the year-ago quarter. Q3 net income per basic share was $0.09 compared to net income of $0.02 per basic share in the third quarter last year. Cash and cash equivalents were $182 million at the end of Q3 compared to $201 million at the end of Q2. The decrease in our cash balance was driven in part by continued share repurchases in Q3 which totaled $11.9 million or 1.8 million shares. Since the commencement of the program, our share repurchases have totaled $100 million or 16.8 million shares. Net cash used in operating activities for Q3 was $1.6 million compared to $10.8 million cash used in the year-ago quarter. And our CapEx was $800,000 compared to $1.5 million in Q3 last year. In summary, our third quarter results highlight the continued progress we've made in improving sales productivity and operating efficiency. To have achieved record non-gap profitability despite the persistence of unfavorable macroeconomic conditions is a testament to the discipline and hard work of our team. When these pressures ease, we are confident that the improvements we made will allow us to drive growth in our ARR followed by our top line. Turning to our outlook for the fourth quarter, and full fiscal year 24, our guidance factors in the outsized impact of the large customer churn Mike mentioned earlier. We calculate the impact of this customer churn alone to be approximately $11 million in ARR, and our Q4 revenue guidance factors this in. Our outlook also includes our assumptions for the continuing effects of a challenging macroeconomic environment. As of today, for the fourth quarter, we expect revenue in the range of $100 million to $100.5 million, adjusted EBITDA in the range of $12 million to $13 million, and non-GAAP EPS in the range of 7 cents to 8 cents, which assumes a weighted average basic share count of approximately 124.4 million shares. For the full year of fiscal 24, We expect revenue in the range of $403.2 million to $403.7 million, adjusted EBITDA in the range of $51.7 million to $52.7 million, and non-GAAP EPS in the range of 31 cents to 32 cents, which assumes a weighted average basic share count of approximately 124.1 million shares. We will provide more detail about our plans for ARR growth in fiscal 25 as well as the rest of our financial outlook for fiscal 25 during our Q4 earnings call in March. Before we open up the call for questions, we wanted to provide an update on our plans for future quarterly earnings calls. Beginning next quarter, we plan to publish quarterly commentary on our website at investors.yaks.com shortly after the market closed and begin Q&A directly at the beginning of the call rather than read prepared remarks. We believe this is a more efficient way to share this information with you and to make the most of our Q&A sessions going forward. Now we would like to open up the line for questions.
spk00: 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 Tom White with DA Davidson. Please go ahead.
spk08: Hey, this is Wyatt Swanson on for Tom. Thanks for taking our questions. So my first one is just around next fiscal year. It's probably a bit too early for you guys to comment on it, but can you maybe share how you're thinking about you know, the kind of growth versus profitability trade-off. I presume the macro and rates will play a key role in whether you guys sort of lean in on the growth side or don't and maybe make further cost cuts. But anything you can kind of share on that front would be great.
spk05: Yeah, sure. Thanks for the question. I'm happy to weigh in on that. One of the things we're very happy about is the increase in sales productivity that we're seeing, the ability to generate pipeline, and even in a tough environment where it's obviously difficult right now to get enterprise businesses to commit to long-term subscription software agreements. We feel good about the fact that we have levers in any environment to play with, and I think we've shown that we can move the levers when it comes to getting more efficiency and productivity from our team. So it's impossible to predict what the environment might be like next year. One of the things I think we've demonstrated is that we will be able to turn the dials on either increasing capacity in the event that there's more qualified demand and that the market is improving. But also, I think we've shown we can get efficiency from the business in tougher environments. So I wish I could tell you what it's going to be like. I can't. But I feel really good about our ability to react, whatever the environment's like.
spk08: Got it. That's helpful. And then secondly, could you maybe talk a bit about how you expect Mark Tarantino's departure, how it's going to change your organizational structure and how decisions are made, any significant changes in your strategy that result from his departure?
spk05: No, I think Mark did a great job here during a time of great change in the organization of bringing in leaders. When I took over, we didn't have a chief revenue officer, a chief marketing officer, or a chief product officer in the business, and Mark bridged a very big gap for us. In a lot of ways, he was successful bringing in great functional leaders in those roles, and based on that success, the role that he was in became a layer that we agreed was unnecessary. And I think it was a natural time for Mark to take the next step. The way we're going to do strategy here is we're going to listen to our customers, and we're going to hear what our customers have to say and what they want. and we're going to react to that. And so, you know, as the market continues to shift, you know, there's a lot more focus from the customer base right now on how do I drive value with the existing customers, how do I drive value with our existing platforms and services, and where are the natural add-ons. And so I think the emphasis around here is on delivering value to customers and then listening to our customers as they tell us where we should go next. Got it, that's helpful.
spk00: The next question is from Rohit Kulkarni with Roth MKM. Please go ahead.
spk03: Hey, thanks. Perhaps first is to Mike. On this high single digits ERR growth potential, perhaps if you could provide a bridge into what is under your control to get there from where we are right now, perhaps by channel or by organization, or anything that you're seeing right now through the sales channel that gives you that confidence that Yext could grow high single digits ARR in next fiscal year?
spk05: Yeah, so we wanted to talk about this. So here's how I would frame it. Obviously, entering this year, I think we and most expected that there would be some level of improvement in the macro environment as the year went on. I don't think we've seen that. I think we were pretty clear last quarter, and we continue to see an environment where there's optimization of cost and challenges with budgets and deal cycles, and I don't think that's a different situation. story than others are telling in the space. In addition to that, as we talked about all year, we made decisions at the end of last year that were going to create headwinds for us this year. So we talked about low single digits impacts of the changes that we made in our SMB group, our strategy in Japan, as well as our managed services group. And so when we Take those assumptions, right, which we've seen those low single-digit headwinds have appeared as expected, and as we talked about, those are going to happen during, you know, going to be more weighted to the second half of the year. We've also now seen, you know, this isolated large customer churn in Q4, which is going to create an additional headwind next year. we don't expect those headwinds to continue in a meaningful way next year. And so as we see our execution improve on things like sales productivity, pipeline, and efficiency, we feel confident that those things will allow us to grow next year with some of these, you know, let's call it chosen headwinds this year.
spk03: Okay, I'll make sense. I guess when it comes to leading indicators, you mentioned kind of bookings per rep is improving. You also mentioned pipeline is growing. Any additional color you can give, Mike, in terms of where are you seeing those kind of signs of growth, silver lining perhaps in specific geographies or vertical size of customers? That would be helpful.
spk05: Yeah, I think from a productivity standpoint, you know, one of the most encouraging things is we're seeing it everywhere. So we're seeing it across all geographies. Look, this is a testament to the amazing amount of hard work that's gone into installing a much better sales and marketing machine this year and the leadership that we've brought into those groups. And so, you know, that's not an isolated – the productivity increases are not an isolated thing that are only happening in one or two verticals or one or two geographies. And so it feels much more systematic, especially when you factor in the fact that it's just been a very difficult year to get deals done and to get, you know, sort of fuller value deals done. You know, often we're seeing customers who want to do more but only have budget to do a certain amount. And so – You know, I think that that's probably the most exciting thing that we're seeing is that the machines that we're building are working even in a difficult environment.
spk03: Okay, fantastic. And one last one, and then I'll go back to the queue, is with this isolated customer churn, any learnings or anything that you can do to mitigate that or reduce the likelihood of something like this happening? Anything? more color to the action you can provide about the context of this, Jordan?
spk05: Yeah, so this one's disappointing, obviously. It's a large customer. What's most disappointing about it, I mean, I've talked a lot over the last, you know, six quarters about the customer discussions that I've had with customers who early on who felt that, you know, we had let them down in some way. And, you know, we've discussed a lot of that. This particular instance doesn't have any of that. What we've heard from What we heard from this customer was this is a happy customer who saw value in the products that they were using and wanted to continue to use the products. The problem was a budget problem. They were in an extreme cost-cutting situation. There were layoffs. There were just really significant cost-cutting things happening inside the business. And, frankly, we chose – there was a scenario where we could have – you know, probably held on to some amount of ARR from this customer, but there's no way we could have done it profitably. And, you know, we're talking about budget reductions in the magnitude of 80%. So to deliver, you know, that would have been a highly unprofitable deal for us. And so, unfortunately, there was really no specific learning from this other than, you know, customers, you know, sometimes have to do things that don't – don't necessarily make sense um in terms of uh in terms of value um and so we're disappointed about it we hope that you know in the future we can uh we can win this customer back when things are better but that's the that's the color okay thanks mike thank you the next question is from naved khan with b riley please go ahead yeah thanks a lot um a couple of questions for me so
spk02: Mike, maybe you can give us some color in terms of what you might be seeing by category. Are you seeing more weakness or more challenges in some categories versus others? That's one. And then the other thing you mentioned is some opportunities in the reseller channel, potentially through usage-based pricing. Maybe you can elaborate on that a little bit, too.
spk05: Yeah, so let me take the first one first, and then you can remind me what the second one is because I'll forget. So it's really interesting what we're seeing across category. I wouldn't describe this as one particular industry or category. Within categories, we're seeing different customer behaviors. We will see within a category that there are customers who were more conservative last year and probably, you know, cut budgets last year who are now in the, you know, and this is where we're seeing more success with deal cycles. Some of the customers who we're seeing have more challenges in this environment are the ones who were more actively buying or less focused on cost-cutting last year. And so I don't have a specific industry or a specific category where we're seeing pressure. It's more intercategory, and it really depends on decisions that the management teams have made over the course of, I would say, the last kind of six to eight quarters, which is, I think, probably normal in this environment. And so I think that's what I would say about the first one. The second one you were asking about, reseller usage, I mention this because I think there are two things here. So one is that as a company, we've been striving to get better at meeting our customers where they are. We've talked about customer centricity a lot. We've talked about the need to respond to our customer needs at least as much as our own. And so when it comes to resellers in particular, the way that they sell primarily to SMBs, doesn't always line up with a long-term, multi-year committed contract. Sometimes it does and sometimes it doesn't. And so, you know, we're seeing an appetite there for potentially opportunities that would grow revenue but might not grow the committed ARR of those businesses. So what we're going to do, and this is what I wanted to make clear, we'll do our best to provide opportunities color on this on a quarterly basis, but we're going to respond to the revenue opportunities here. And if that means that the committed ARR there could be muted even in the event of revenue growth, we'll do our best to show you those trends and disclose them.
spk02: Okay. And then maybe a quick follow-up. So some of the commentary that, you know, you're reading from the likes of IDC and those, you know, forecasts for 2024, It looks like budgets might be growing for IT services and the like. So can you just talk about the budget that you go after with your set of solutions and what are you hearing so far from your customers?
spk05: Yeah, so I think, as is clear, the majority of our ARR today lives largely within the marketing department as you would expect with things like listings and reviews and pages for the most part. There's obviously, you know, in some organizations there's more IT involvement in those discussions than others. And I think that's one of the things that we do see in the future with more of the search and content generation opportunities and the kind of what I would call the AI-led opportunities around those things, that that crosses over a bit more into the IT sector. I think my comments last quarter were a little bit unpopular about the length of time that we expect before we really see material bookings from the AI wave. But I stand by it. I think we're four to six to eight quarters away from companies really getting serious about deploying AI in ways that talks to the customer because of the legal regulatory and compliance risk there. And so, obviously, in a scenario where the market has been challenging, marketing budgets, the resources available to marketers, you know, they've had the same headwinds that we've seen. in terms of the amount of staff they have, and so they're all looking at how do I optimize the budget and how do I do more with fewer resources inside the marketing department, and we're very focused on being a good partner on that side.
spk00: Thank you, Mike. The next question is from Ryan McDonald with Needham. Please go ahead.
spk04: Hey, this is Matt Shea on for Ryan. Thanks for taking the question. I wanted to just double click on the churned customer coming up next quarter. Could you maybe just walk us through, and I appreciate the quantification around it, but maybe could you just walk us through the timing of when this client is expected to churn and ultimately how we should layer kind of that ARR impact into our go-forward numbers?
spk06: Thanks for your question, Darrell. The customer churns on December 31st, so we'll have you know, one month of revenue impact in this Q4, and then obviously a full quarter of impact in Q1 of next year. And it will be, you know, the full $11 million will be out of ARR when we report Q4.
spk04: Okay, got it. That's helpful. And then I wanted to touch on, and Mike, I appreciate your comments that you're focusing on innovation that your customers want to buy. And based on some of the recent reports we've seen from peers, we're starting to see generative AI application interest translate into purchases, especially later in the year and deal cycles. Are you seeing any similar dynamic in in your end market, and if not, do you see that as more of an end market education issue or more of a sales productivity or education challenge?
spk05: Yeah, so the distinction I draw here, and I think it's a really important one, is that the question I think enterprises are asking when they're looking at different AI solutions is what's the level of risk of deploying AI different AI solutions, right? So to the extent that I'm utilizing a generative AI solution as an internal tool to create content or something like that that has human intervention, then I think there's an appetite there because the risk is limited. To the extent that we're talking about letting the AI deliver the customer experience, I think there's a lot more reticence, especially from larger enterprises and regulated industries, about kind of setting the AI free in talking to the customer directly. And so we have, we believe, huge advantages over the long run because of the nature of our content system and our knowledge graph. storing authoritative information, which makes the, allowing the generative AI to, you know, generate the customer experience. But, you know, and, you know, I think the but is important here. When the AI is talking to the customer, there's going to be more scrutiny. There's going to be more legal and regulatory and compliance review on those solutions. And so, you know, I think the real core question here is at what level is the AI being set free to interface with the customer and are you relying on the safety mechanism versus, you know, using tools internally? And our tools just tend to lean more to the customer experience because that's what we do. Does that make sense? Yeah, I think that makes sense.
spk00: Thank you. Again, if you have a question, please press star, then 1. The next question is from Arjun Bhatia with William Blair. Please go ahead.
spk07: Hi, this is Chris on for Arjun. Thanks for taking our questions. I just wanted to unpack a bit what you're seeing in terms of the go-to-market. I know you mentioned some deals slipping, kind of falling out. are their deals getting stuck in a certain part of the funnel, or are deals kind of progressing the way you would expect based on everything you've seen so far this year, but then dropping out towards the end? And is this getting better or worse in the third quarter?
spk05: Yeah, so I think generally speaking, right, and this is, you know, it's hard to be generally descriptive when you're talking about, you know, hundreds of deals or even thousands of deal opportunities. There are trends that we see. So one trend is that there is generalized budgetary pressure. And so what we're, you know, and this is where one of the things I think you're hearing, and I hear it from other software CEOs as well, is there's a lot of pipeline. There's a lot of opportunity, and there are a lot of customers saying, you know, I want to do X and I want to do Y. And sometimes what they're saying is, look, I want to do X, Y, and Z, right? But there's more budget pressure inside the enterprise than there has been previously. And so what's happening to deals sometimes is that, you know, the buyers are saying, I want to do X, Y, and Z, and then, you know, once, you know, you get it later in the deal cycle and you get procurement and finance involved in the deal, it turns out that there's not budget for X, Y, and Z. And so, you know, the X, Y, Z deal turns into just the X deal or just the X, Y deal. And so what that causes is that causes, you know, slippage in terms of deals late in the cycle where they get smaller, right? I think you see the same trends in subscription software renewals where budgets are, you know, where budgets are pressured. I mean, the extreme version is this isolated churn we're talking about where budgets were pressured to the tune of 80% plus. And so when you layer all of this stuff on together, what you get is you get this picture of really robust pipeline that actually on a dollar basis closes at a lower percentage than we've seen historically. And the signal here can be really confusing because you can go into quarters with very robust pipeline and then find that your model that you've relied on for the last, let's call it 10 or 11 years since the last software, anything like a software recession that we've seen in terms of projected close rates is just not as reliable as it once was. And I think that's kind of what we're seeing. I would describe the environment Typically, you know, I think part of the problem is that the expectation is that this environment usually gets better in Q4 because of the natural, you know, sort of, you know, upwelling of the financial planning process. And we all know this is the case in software. And so if you've expected things to get better in Q4 and they've really just, you know, let's say stayed the same pressures that we've seen throughout the year, then that's going to introduce softness that, you know, that may not be in the models. Hopefully that makes some sense.
spk07: No, it does, yeah, and that's a really helpful color. The other thing I want to touch on, I think you kind of hit on this a little bit with your last answer, but, you know, aside from the singular large logo term that we've obviously talked about quite a bit, is there any other increase in logo term that you would call out, or is a lot of the NRR pressure still kind of coming through down sales at this point?
spk05: I wouldn't call it any other singular large turns or anything like that. We don't see that. In fact, I think in our larger customer base, we see stronger retention trends. We haven't seen anything. We talked about in March, our trailing 12-month gross retention rates were in the high 80s. We were going to call out if that changed. We haven't seen that change. We'll update that number in Q4, and it may be affected by this singular customer churn. But, no, there's steadiness there. It just, you know, like everything, it is pressured in the environment just as our new bookings are.
spk00: Got it. Thank you.
spk05: That's all from me.
spk00: This concludes our question and answer session. I would like to turn the conference back over to Mike Walrath for any closing remarks.
spk05: Thanks, everybody, for joining.
spk00: I look forward to talking to you next quarter, if not sooner. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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