Q1 2021 Yext Inc Earnings Call
Good day and welcome to the yet the first quarter fiscal 2021 financial results Conference call.
All participants will be in listen only mode.
You need assistance, please take the helicopter, especially by pressing the star <unk> followed by zero.
After today's presentation, there will be an opportunity to ask question.
Please note that the best is being recorded.
I would now like to turn the conference over to you got Broderick head of Investor Relations. Please go ahead.
Thank you Sarah and good afternoon, everyone. Welcome to guess fiscal first quarter 2021 conference call.
Today, our CEO, how retirement see I suppose you take that president and Chief revenue Officer, Jim Steel and SVP Finance Dominic Michelle.
Before we begin I'd like to remind everyone that this call may contain forward looking statements, including statements about revenue and non-GAAP net income guidance.
So timing inside the capital expenditures retention rates market opportunities business performance and other non historical statements as further described in our press release.
These forward looking statements are subject to certain risks uncertainties assumptions, including those related to yet square the evolution of our industry, a product development and success, including with actors.
Timing of the exit of our New York headquarters and general economic and business conditions, such as the impact of the Kobin likely pandemic.
These statements reflect the company's current expectations based on its beliefs assumptions and information currently available to it.
Although we believe these expectations are reasonable we undertake no obligation to revise any statements to reflect changes that occur after the call.
Descriptions of these and other risks that could cause actual results could differ materially from these forward looking statements are discussed in our reports filed with the atrophy, including our most recent quarterly and annual reports and our press release that was issued this afternoon.
During the call. We will also refer to non-GAAP financial measures reconciliations with the most comparable GAAP measures are also available in the press release, which is available at investors bought JAKKS dotcom.
With that I will turn the call over to Howard.
Thank you you good welcome aboard.
First of all.
Thank you and all your family.
Our staying healthy and see.
After a record rate in Q4, we had the strongest pipeline we've ever seen heading into Q1.
Well, we saw headwinds in bookings in retention in March and April with customers delayed purchasing decisions due to the pandemic and I'd characterize what we saw as a tale of two cities.
And one city, we thought challenge industries like retail and food services.
The pipeline.
These businesses typically didnt disappeared instead, it just with the later quarters.
Meanwhile, and the other interest in the other city, we saw industries like health care in financial services performed strongly showing signs of accelerated digital transformation. We're yuk. Please rule.
Approximately 25% to 30% of our air or at the end of Q1 within these challenge industries.
But now the divide is less severe and we are seeing signs of recovery and we're growing faster in the other industries.
The pipeline is strong for Q2 and retention levels and they have already improved.
Needless to say the last few months had been unprecedent for everyone, but despite these challenges our first quarter was incredibly productive.
Q1 revenue of $85.4 million growing 24% year over year, the number of structured facts reached over 295 million of 43% year over year increase we saw a huge increase in fact activity either updates with 84% increase in the number of upbeat meat on the.
Your next platform in the first month after the Koby 19 shutdown started.
Diffuse group tells us that is a critical part of a customers digital transformation.
In fact, we believe now more than ever that the world Maeve official answers straight from the source.
There's been an explosion of questions asked on the web over the past few months website visits from people seeking information from brands have increased by an average of 65% and by as much as 700% and some industries.
The pandemic has accelerated digital transformation and JAKKS answers fits squarely into this trend.
As evidence of this we launched answers powered websites with the state Department of United States. The States of New Jersey in Alabama.
In the World Health organization within a record 60 day period. Each website was launched within a matter of weeks. After the first conversation with key stakeholders showing just tell swiftly we can put their official answers online.
There's no better validation than the fact, the world needs JAKKS, then to have international agencies in the United States Federal and state government bodies choose answers as the best way to ensure citizens in people get access to key information during a global pandemic.
Our work with government organizations. It's just one example of a rapidly expanding total addressable market simply put answers takes us into new verticals that we never were able to address before we see nearly 4000 enterprises in North America with 500 million of annual revenue that we can address with listings and pages, but.
When we book at the broader opportunity to include those addressable by answers that number doubles to nearly 8000 enterprises.
With answers, we can work with any type of organization because virtually every company has a digital presence and needs to provide official answers about their business. That's why we positioned JAKKS is the official answers company, we branded or search bar with the official answer steel because we want to signal.
The consumers that a search for powered by JAKKS means they're going to get the official answers to their questions.
So now for example, when you go and look at the World Health organizations website.
On a search you can see the JAKKS answers feel the official answers feel right in their search bar and for user of that website. This means they're going to getting the official answer.
To the covert related question.
So going forward, we're going to drive sales efficiency with our new land would answers sales approach.
The tip of the spear for land with the answers is the answers free trial any qualifying company can set up answers they search on their site and see improved revenue generation lower customer support costs and insightful analytics on what customers want to know what they're asking about their business.
We made it easier than ever for companies to see how their website is addressing questions with our no wrong answers challenge at no wrong answers dotcom anyone can go there you can see easily it automatically our company's website answers. The most common questions about it on the web and then reach out to us for an answers free trial to improve site surgeon experience.
Also last week, we announced strategic relationship with Adobe there the behemoths in the digital experience base.
This opens up an entirely new Avenue to drive answers customers alongside our inbound and outbound channels now every adobe rep in the world can bring JAKKS dancers to their customers.
<unk> is our first go to market partner with answers and opening up a partner channel will drive even greater sales efficiency.
We expect land with answers to drive higher sales efficiency, because it will lead to faster sales cycles is the time to show value to the customers much shorter in just a few days being like we're able to automatically should cost savings in revenue generation metrics, demonstrating the compelling ROI return on investment of JAKKS dancers.
And finally, we're focused on land with the answers, but we're going to also expand with the rest of our platform. So we land with answers and expand with everything else based on the knowledge graph our products put our customers in control of placing official answers everywhere starting on their own website, then across hundreds of platforms where people search.
And to talk more about all this here's Jim.
Well. Thanks, Howard we are very excited about the opportunity answers presents for our customers and for JAKKS Howard talked about how the pandemic has accelerated the need for digital transformation for every business.
For example, we talked to one of the leading U.S. financial institutions.
And they told US it's all about digital transformation and they're looking closely at their entire customer digital experience.
They came to yet because they know that's what we do we deliver a great client experience.
We are having conversations like that's across a broad set of industry <unk> companies recognize the need to provide accurate.
Finally answers and understand the JAKKS can deliver those official answers.
And we see that with a better customer experience.
The result is higher conversion rates and lower customer support costs.
Let me review, our first quarter sales metric.
In Q1, we closed 73 yields without leased $100000 in total contract value.
This includes the reveals that resulted not least $1 million, a total contract value, including new logos in renewals of existing customers.
The total number of customers increased 36% year over year to nearly 2100 customers.
This excludes our SMB and third party reseller customers.
As Howard described in Q1, we saw the tale of two sit.
With verticals highly impacted by the pandemic such as retail and foodservice is and other verticals, which are less impacted like financial services in health care.
For customers in retail and foodservice is verticals in some instances we sell teams, we worked with getting furloughed and many understandably began to cut budget.
We also had some instances where customers were not able to meet their typical renewal windows and fell into a great period.
And majority of those renewal opportunities associated with Grace accounts have now been renewed.
Despite these challenges we saw continued deal flow in foodservice is.
Particularly in pharmacy, and grocery we had renewals with Safeway Albertsons wit and Rite aid.
The new logos signings included a deal with sainsbury, they leading grocer in the UK.
In other verticals like financial services in professional services, we saw strong performance proof that more brands are increasingly finding our platform mission critical.
Retention rates in financial services and professional services were exceptionally strong large renewals included the U.S. postal service Allstate insurance and Centura help.
We continued to close large new deals, including Lloyds bank and dry been financial.
The first quarter, our sales team focused on or land with answers sales motion to drive sales efficiency, while addressing an enormous business opportunity.
We're starting to see entirely new verticals open up to it we're now seeing interest from technology CPG and data digitally native companies you can see great ROI from increased conversion and lower customer support costs.
Regarding our sales force, we had nearly 240 quota carrying sales reps at the end of Q1 compared to nearly 250 at the end of last year last quarter.
This decline is due to normal seasonal attrition and a challenging hiring environment.
Our goal is to end the fiscal year 255 quota carrying sales reps, which was our original plan.
In summary, I'm very excited about our future as the official answer is company and expanded opportunity set an increase sales efficiencies there will come with our land and answered sales motion.
So now I'll turn the call over to Steve.
<unk>.
Hey, Thanks, Tim.
First quarter revenues grew 24% year over year <unk> $85.4 million.
Good results under the circumstances other revenue increased 22% year over year $253 million.
As you know, we're focused on and he'll be calling Rob anymore.
Which we believe reflects the health of our primarily recurring revenue business model.
Today Huh.
End of Q1 was $826 million growing 24% year over year from the $262 million under a year ago quarter.
Q1, they are was flat with Q pool, that's because a normal seasonality of the business in Q1, Yeah of course, the pandemic impacts we saw bookings on renewals in March and April.
Our next dollar based retrenching, which excludes our SMB customers was 106% that was the same as Q4.
That's all that based retention for July enterprise, which excludes our SMB and third party reseller customers so 170%.
Just remind you this is a trailing 12 month number.
Yeah gross margins were 75.2% this quarter, how that compared to 70, 74.3% last quarter, and 76% and a year ago quarter.
Change in gross margin was driven primarily by higher lease expenses and higher than our services organization over the past year.
Other publisher cost remained stable.
Total GAAP operating expenses were $93.4 million.
There's a $71.5 billion a year ago corridor.
Compared with a year ago. The primary drivers of this increase where again, the overall growth and headcount as well as higher real estate costs.
Given current business conditions were managing operating expenses carefully while continuing to make investments to support all the answers, let sales motion, which we think will drive higher self-sufficiency.
We've got to replacement only hiring for the company there were still own quota carrying headcount.
In addition to the continued savings on travel related expenses were rethinking our approach to marketing costs and other op amps or is that directly tied to driving revenue growth and we're looking for improved efficiencies in these areas.
Q1, GAAP net loss was $29.2 million compared to $19 million of a year ago quarter.
On the basis of 116.6 million weighted average basic shares outstanding net loss per share of 25 cents. This quarter comparison 18 cents loss a year ago on the basis of 106.5 million weighted average basic shares outstanding.
Q1, non-GAAP loss, excluding stock based comp was 11.9 million compared to $5.7 million loss a year ago.
Our Q1 non-GAAP loss per share a 10 cents compares to five cents loss a year ago.
Cash cash equivalents for $249 million I talked about April thirtyth.
We believe our balance sheet is strong and position us well to weather many current economic environment.
As you know in March or 2020, we replaced our prior revolving credit facility, but they do $50 million credit facility, leaving this auction house fortified our balance sheet as well.
Net cash flow from operations for Q1 was a negative 700, K as compared to a cloud sort of 810 year ago period.
This reflects the spread of many tools put in place during the quarter to counter or more challenging revenue environment. The Q1.
Capex was $21.3 million compared to 800 catering to a year ago quarter.
We continue to make progress with our building projects of New York, Washington, DC, Tokyo in Paris. So we expect the remaining capex related to these projects to be about $49 million and the remaining clos to occur within fiscal year 21.
Although schedules could be impacted again by totaled 19 pandemic.
Once these projects are completed we do not have any further major facility expansions planned future, excluding the facility build out which that capex to return to the normalized mid single digit millions.
Clearly the facility build out it's a meaningful use of cash interest for 21 at a time, it's unfortunate it with a global pandemic occurring this year, but it's been part of our long term play on it with our increased focus on efficiencies, we're comfortable with how we're managing our cash.
As part of our efforts to manage costs in the face of the business disruption music celebrated the exit data by at least for one Madison Avenue to August Thirtyth for this year.
How much earlier than our previous stayed at December 31st So we'll save on Lucent sense for those workloads and that cash savings will be about $2 million.
Turning to our outlook, we expect Q2 revenue to be between 84 and $86 million.
We anticipate non-GAAP loss per share of between 11 cents.
And 13 cents.
This reflects the impact of a loss of two cents due to the charges during Q2 related to our expected out of exit of one Allison.
We expect weighted average basic share count of approximately 118.5 million shares in Q2.
Oh your perspective, Unfortunately, we're withdrawing our guidance for fiscal year 21, due to the limited visibility of future periods at this time.
So to wrap things up I'm optimistic about JAKKS future because of what you heard today you have a strong answer solution a strong pipeline a focus on improving our operating costs and a great new partnership.
And finally I just wanted to welcome you got Broderick as our head of Investor relations falling to more than 15 year career on Wall Street, Tom Obviously, we'll continue to be part of our IR efforts, but it's also going to get involved some operational goals.
Uh huh.
With that let me turn the call back over to Howard.
Well, Thank you, Steve and welcome again you got.
I'm excited about our progress in delivering officially answers and our improved land with answers sales focus we're thrilled about the initial response were answers free trial in her new role. He answers campaign, we've a strategic partnership with Adobe and with it the ability to reach so many more 10.
So answers customers and above all we are driving for revenue growth, while focusing on greater sales efficiency.
Thank you Howard there I can we please open to questions.
Thank you we will now begin my question and answer session.
Yes. Good question you May Press Star then one on your Touchtone phone.
If you're using its speakerphone, please pick up your hands that before passing the key.
So let's try your question. Please press Star then Tim.
At this time, we'll pause momentarily to assemble era.
My first question will come from the mid Con with Suntrust. Please go ahead.
Hi, Thanks, a lot and Hello, everybody, Oh, I had a couple of questions.
Touch pause just on the.
On the pre trial answers what person Theres, a few enterprise basis.
It is offered into it and I'm not trying get activity and what kind of interest have you seen so far from Bose.
I've tried it out and the other question just kind of religion, and just hit on the international launches have Oh Oh.
Getting started just bring you up on rich countries, you only hallador without and more stuff because you don't like for the rest of the wrong.
Great and if that I'll take I'll go ahead and take that one this is Howard speaking.
We've seen really strong response from enterprise and mid enterprises and.
Mid market customers from around the world in.
Taking advantage of the answers free trial, it's particularly easy the beautiful customer with answers when they're already using the ex knowledge graph. So if you're on the existing customer.
As a strong interest, but we also are usually answers to expand into entirely new segments that weve never sold into before and that's an equally exciting area. Because we were able to land with answers in industries like technology and industries like CPG that don't have the ability to purchase our tradition.
<unk> listings and pages products. So we're really fired up about the ability to use answers to felt any company as I think we noted more than 8000 enterprises that do more than $500 million revenue more than doubling to potential accounts, we can land into a we're working hard to get answers lives in every language.
Without promising any specific dates or what I can say is that in Q2. It is our intention to launch answers and the romance languages, Italian French and Spanish and then get there hopefully and Teutonic languages, like Germany, as well, but we have on our roadmap French Spanish.
Italian German Japanese and Mandarin.
Great and then maybe just a quick clarification, so off the customers I'm not trying it out.
What are what does the convergence arnaud into them, becoming paying customers crown sounds as though.
Well, it's pretty early to give you exact number but the value is very compelling remember JAKKS dancers delivers three things first customer intelligence second increase revenue and then third lowered support costs and the coolest thing about it is that once you put the answers box up there with the official answers.
Feel and people start asking questions, we're able to instantly and automatically classify queries as either cost savings or revenue generating. So for example, if someone goes to a financial services website and searches for advisor we know what that's worked to them because they told us that using our conversion tracking so we're able to quantify.
The exact value that's being delivered out of the search by U.S. dancers and <unk> initial results are very promising theres very strong action on site search and the kinds of questions people were asking we see very high engagement rates and very high click through rates, which are in a indication of the high service.
Quality and every time someone asked to support question you know one other thing that's going on in the World right. Now is that support has been crust customer support in many companies during the koby 19, pandemic or receiving huge volumes of calls and tickets and on average I think a support call. We produced a a paper on.
This cost $4.90. So every time with an answer a great strategy for a company is to put up our answers bar to catch people before they call. Because if you can answer a question, it's going to save you $5 and we can show the company within the analytics. The exact questions people are asking and the answers were giving in order to deflect a bunch of this calls and we can estimate the.
Savings and then we can estimate that revenue and we had that together to compute a value, which they can then compared to their annualized cost to get a sense of what their ROI will be.
[noise], that's a that's great color thank God.
Thank you.
Our next question comes from Mark first few with JP Morgan. Please go ahead.
Yes. Thank you Howard I was interested in answers and just how it performs sequentially. I think you had said it had done I want to say a million in the house.
Last quarter and is there any way to compare that and could you estimate.
The influence it answers has had on other deals.
The answer is a huge influence and other deals I think last quarter, we talked about a company Vanguard, which is a new type of company, we never could unfold <unk> sold two before it's answers led and then you know we dragon knowledge graph in pages and expand with that so.
It's our strategy going forward to to land lately with answers and then expand from there and that's what you see from you know many of our very successful south peers is a lightweight ended been expanding with platform and other features answers the perfect product and land lightly, especially right now because there's more questions than ever and a and b.
Well to deflect a lot of those questions with site search is a powerful technique to reduce cost and drive revenue, which we can immediately quantify and we're willing to do it for free and so that's a pretty compelling offer especially when.
We the implementation for free and if you for example, like a company like JP Morgan already have a bunch of data in the knowledge graph a bunch of facts there and then quickly as we see what people are asking you can continue to build out your knowledge graph to be able to provide them question.
So it's a very exciting time and I'm you know, we're really focused on supporting the vast quantities of questions. There's been an explosion of digital questions I'm used to be you could walk into a bank branch in Africa Teller question, but you can't.
You can't ask questions in the physical world anymore. So what do people do they turned online and they search online and when they have a question for a cable company or a bank or financial services company. They can do want to free things. They can pick up the phone and call. They can visit the website and either live chat or they can run a site search and the site search of those two others.
Three options is by far the cheapest the first two cost between three and six bucks each per session. So it's a very compelling.
Kind of way to get folks started especially as there's been a transition from physical questions to digital questions.
Okay. So first thinking there that they see the bookings from answers maybe is down sequentially in Q1 from the big Q4, but it's kind of having that halo effect on some of the other deals is that a fair way to think about it.
Yes.
I don't think we're characterizing any of the exact D.C.V. from answers.
But what I can't say is that this is the <unk>, which we're leading or deals now.
Okay, Okay, great I wanted to ask as well I think you've commented on adverse impact in the month of March and in the month of April did you not sense any kind of improvement in the sort of bookings cadence in April <unk>, maybe it's a question for Jim and also could you just comment on maybe what kinda.
The differences in tone, you're you're seeing during may enter and maybe how long it or how long that might take to get back to pre covidien kinds of levels.
Jim you want to take that.
Sure, Yes, Hey, Mark I definitely in March things slowed down smaller customers, you're trying to figure out how to work from home. How you know same time, we're all trying to do the same thing to there certainly lot of adjustments. We all made in in March in particular and.
And the activity level, I'd say really shot up in April and May.
And.
As our teams figured out how to communicate better and more directly with the customers. How we got more comfortable talking to our to our customers you know digitally and so I wouldn't say.
I would be super impressive the level of engagement.
Obviously, we had some deals slipped you know I don't I haven't seen.
Deal to just totally went away.
Customers, we're still very interested still want to pursue but they their budgets lot of then got cut as I mentioned and some of the teams that were talking to actually got got furloughed, but we did see tremendous activity financial services mortgage and yeah.
Any weve the services related businesses.
Did very well, obviously hospitality and retail took a took a big yet.
One of the things would be solved I real spikes in the customer using our services I think in the month. After the Kobin 19 kind of locked down in mid March we had some like an 84%.
Increase just the activity level from our customers using the knowledge graph to update things like hours of operation and just information about their their sites and their businesses.
You know terms about what was being offered so he.
So the real change that we saw two was just how our customers are telling us how mission critical how essential our service wise with all of the.
Chaos going on in the World in March and April in particular, they used our services in their time and prices and also it presented a lot of new opportunities for is that we talked about with the government and in particular I stayed in New Jersey, and Alabama, both put up Kobin 19.
Information hubs using JAKKS within weeks, they had their hubs up and running the same with U.S. Department of state.
From the day that we sent.
The under Secretary of state and email to the time that they actually went live with 17 days and he told me directly that was probably a record performance for any technology. They ever deployed in a in the state Department now that was pretty pretty impressive and they're using it now for.
To support 100 different countries around the world and all their direct patch that we're trying to get dead repatriated. During this crisis same with the World Health organization. So we found that.
We were able to spin up.
Answers.
Say very quickly for our customers and we learned that through this crisis and we we deployed it like Howard said we.
We land lately with answers and then we expand from there we might come in with an answer is a focus on a particular set up that they queues and then as they start start to see success quickly. They can add other kinds of answers to I answered the question that their customers and their constituent.
There are asking so.
We obviously had some some renewals that got pushed out the large majority of those renewals have already been renewed with us early in the second quarter. So we feel good about that so from a sales perspective I feel like the sales team has really.
Adjusted well after the initial shock and in the second half of March and I feel like with the.
The record pipeline that we continue to have the tenure the salesforce.
The new enablement tools that we have with this answers free trial and then no wrong answer is a campaign and challenge we're actually in very good shape going into.
The second quarter here, obviously, you know notwithstanding that.
The the more that health crisis, and some of the financial issues that we're dealing with the customers but.
And also be the new Tam that Howard talked about we re segmented our.
Our whole organization to go after pretty much a two x. opportunity in terms of the Tam. So we're all excited about that as well.
So.
And we're continuing to focus on hiring and hitting our original hiring program. So I think.
With all that said.
We weren't as good a position we can possibly be in given the challenges that all of this are facing right now.
Okay. That's that's great to hear Jim I appreciate all that Oh that detail one last one Howard just on the Adobe relationship is there a chance you could you give a little more color on that in terms of is there any contractual commitment there and maybe.
Maybe you can just talk about how you think the.
Adobe reps can can kind of broadly retire quota out there in the field by selling answers.
Well part of our strategy is to add we've got our inbound outbound channels striving beginning to drive answers free trials and part of our strategy is to fire up a partner channel as well that can refer as partners and that's really the Genesis of our hitchhiker program and Adobe is the.
First company that we're working with to refer answers free trials to us where there are only site search partner and they are our first answers site search partner and so what better company to do it in from a product fit perspective, you know many.
Most of our customers many of our customers use adobes experienced cloud in some way.
The power pieces of their websites and Adobe exited the site search business a couple of years ago with search and promote the sunset their product and so it's a great opportunity for us to you know bring an amazing new type of site search to their customers and their reps are able to refer.
Companies to your next and retire quota.
By any deal we get when we pay them a commission out.
Excellent. Thank you very much.
Our next question will come from Koji I cannot with Oppenheimer. Please go ahead.
Yes. Thank you for taking my questions that I actually just wanted to build on that last question on the Adobe partnership I guess could you talk a little bit about.
The Genesis for expanding that relationship with Adobe was an extra then was the Dolby shouldn't that problem Dx standpoint, how should we be thinking about any changes to.
Yeah go to market strategy, just what the new partnership.
Well, we're really focused on sales efficiency.
We believe that first off our new answers product is a is it is the best tip of the spirit we've ever had.
And it can land at any company of any size around the world. When we support that geography in language every company that has a digital presence needs to have official answers on their site.
And we validated very early on.
That people like the site search feature it gets a ton of usage and for our customers drives a ton of value in the form of intelligence revenue generation and cost savings and you can quantify this because we can actually see the physical queries that are coming in you can see when someone says hey, I Uh huh.
Want to upgrade my account how do we upgrade my count online or you can see a query that's like I need to find new Dr and make an appointment and we can quantify those assignment value and actually track the real conversions to that revenue can be seen all driven through answers and so when you look at this gigantic Tam which is every company out there that is.
Digital presence you think about well how can we activate this tam generate awareness of what we can do and how can you do that especially right now in an era, where.
Travel is limited and events are live live events are limited, so what better opportunity to.
Sort of reboot, if you will your ability to go out and target customers with a with a new approach that is lighter touch lighter landing and then upsell from there and a free trial offer fits that perfectly because it generates in down demand our reps can go out bound with a free trial offer to new prospects and you can.
Customers and then thirdly, good that school is partnerships and what better partner to have bringing a.
Free trial offer for ASE, a website product to Dan Dan Adobe.
They exited the site search business and are we just happened to have a sensors product that's amazing so let's let's.
Leverage all that and I think there's a ton of excitement.
So I look forward to kind of thing where that goes.
Howard This is Jim maybe a huge I can add to that a couple of years ago. When our team I'm Mark guarantee you know who's our chief strategy Officer, and his team went to the Adobe summit.
And we didn't really participate other than just to to be at the conference. We didnt have a booth or anything but we saw so many of our customers there and so many of them. We're asking US Wow you guys have this great solution. Adobe has this great solution why can't you guys work together so last year we were.
Big Adobe Summit and had I think the second part just booth nextera like Accenture at the entrance to that.
Big Exhibition Center, and we had so much traffic all of the Adobe customers and partners.
And Adobe employees were coming by and you probably know we have a number of it actually adobe employees at a JAKKS that and everyone got excited about working together in answers was really what brought it all together when we announced the answer is at the same time Adobe was exiting with there so.
Search product, we just group presented at such an amazing complimentary relationship because adobe with their experience manager. They are the basket, creating content with there for their customers on their web site and we are the best add bringing traffic to their web site and now with the answers with our.
Paid search product answers, we are the best at helping.
Customers visitors to a website.
At the right answers. So we can convert them on the website. So they don't bounce back to the Internet and it's the perfect complimentary relationship and we're so excited we.
Now have the entire Adobe.
Sales team that will get compensated for referring.
Your next answers to their customers. So this is a very exciting partnership that we believe will generate great returns.
Thanks, Thanks, Howard as Jan just one follow up from <unk>.
Customer metric going on at 2100 I was wondering if you give a sense from a from a high level of how much they are those 21.
100 customers are generating right now thanks for taking my question.
Yeah.
At the moment, we haven't broken all that alcohol, we're working on that one well some investor day, we'll give you some better information but.
So far that's that's been an enterprise those are enterprise accounts for driving that growth.
Most of our quota carrying sales reps are down as well.
But for later date, but we'll get to that information.
Fair enough. Thank you. Thank you for taking my questions.
Our next question will come from Stan Zlotsky with Morgan Stanley. Please go ahead.
Hi, guys. This is hamza Fodderwala burston blocky thinking for taking my question <unk>, where you Jim I'm wondering how are you guys shifted to a remote selling motion in the past couple months and.
Within that you know how you guys feel you.
Warm in a more low touch sales model.
As well as onboard new hires does that change sort of the typical time to ramp to book productivity at all in and how are you guys are sort of thinking about all that.
Yeah. Thanks for that question this is Jim.
So.
The good news is and we we hired.
A lot in the past year, plus so we we came into this year with a plan to get to 255 sales reps at the end of the year and we're at about 240 right. Now so we don't expect to higher dramatically for the balance of the year.
And so that means that a lot of the.
Folks that we hired in the last fall between months there already at that point, where we see the 10 years looking good they they've been they're getting closer to the being fully ramped of course it didn't help to have the co bid crisis in Q1, but we.
Our still hiring we still have Onboarding. Obviously, you know we're doing is remotely so that presents a different challenges, but I have to say after the end of March in beginning of April the teams really got into a group working remotely we found that customer.
As where a lot easier to connect with then or by the say the middle of April and through May and.
Just like us with customers were looking for.
Tangible projects that they could get their arms around and actually make a difference for their companies and you know once we got through that initial shock wave. The first three or four weeks. After the crisis I'd say, we really saw a tremendous increase in the engagement level and our.
Team I I'm, a perfect example, jeez I I.
I've spent my my 40 year career.
Flying around the world nonstop like I've I've never been home in one place over that period in time for more than a week at a time and now it's been three months and.
And yeah, we all get a little Oh deed on zoom calls every day, but it's really so important just to keep the engagement level high b.
The communication with each of our sales teams were spending a lot of time, making sure checking in on people and the first few weeks and of course, we continue to do this focus was always on everyone's health and their families health and and people got into their comfort zone and now I feel like we're making proud.
Maybe more outbound calls than we've ever had in in our history and there's just a lot of engagement obviously over email so I.
I'm actually shock because I've been a face the pace relationship selling cells exact my entire career and.
You.
Have to.
Worked hard data window, when its digital and and over you know over the phone so I.
I'd say, we've been very fortunate the luckily through.
Some of the answers engagements that I mentioned in like the government ones that are very urgent to deal with the crisis, we've actually demonstrated the value of JAKKS in a way that.
Might have taken a you know different turn that are taking longer if.
If we didnt have this urgent crisis on her hand.
That's great and I'll echo the sentiment on the on the Doom called.
<unk> for a b if I may Steve you talked about savings from lower traveling and event expense and then you also spoke about sort of read thinking some of your marketing initiatives to the ones that are driving revenue. So my question is how much of those savings do you think are more temporary.
Nature Reichenberg academic versus you know efficiencies that you think are going to be sustainable coming out of that.
Well I think there's a couple things and Howard can probably speaks of the marketing as well, but I mean, it this whole opportunity for us to rethink how we conduct with everybody Jim talked about soldiers. The same thing with market he need Benson and other things as you know we counseled onward. This year, Yeah, I think we've had more engagement with our customers we've driven.
More leads than we've ever driven so it's going back and looking at that that's being more sophisticated with the data that we how yeah systems that we have to give everybody not just the sales organization, but all of those higher productivity levels and better information. So it doesn't work we're using there's obviously change how we go to market.
Introduce our new solutions have developed relationships with Adobe, but we're also rethinking and how we do business to make sure that we get efficiencies as we come out of its called Cold. So everything is up for grabs lead Gen has the most important then I think we've done a great shopping that.
Great. Thank you.
Our next question will come from Mark Mahaney with RBC. Please go ahead.
Thanks, I Wonder if I get asked three questions. Please first in terms of us. The Salesforce now are there still <unk> is everything zoom perfect or are there execution challenges in winning over in closing deals. So I guess, that's just a simple operational question.
Are there still coated related operational challenges, but I guess this is for Jim or do you feel like you've really been able to work through all those and your efficiency is kinda back at norm Secondly, Steve could you just comment on gross margins they've been down modestly, but they have been down four quarters in a row is there something to think about the gross margins going forward. So is this kind of the new normal steady.
Up down or anything like that maybe the last question is this and just Jim's commentary about shifting from face to face meetings to work from home. It does seem like that so it's kinda hard not to conclude from the last two months that.
We as an economy, it's a culture are moving towards partial total somewhat but it's at least somewhat work from home does that have any big broad implications for your next either positive or negative that at an increasing amount of work will be done a remotely at least thanks.
I I can just why don't you go ahead.
Sure I'll start we just did an employee survey that ER, our chief people officer conducted and found that.
Something like 80, some odd percent I think it was it I'm not sure was 80 or 84% of our employees I said that they feel like they're being productive and as productive at home.
As a they were before so I think.
I really believe that in this.
This environment that we're dealing with these challenges people want to have a sense of purpose and feel engage and.
And have something tangible and so we have worked so hard as a company to have those reach out to make sure that we're checking in with everybody in where we are holding ourselves accountable like of course, we have you know mental health. These and other other breaks we need it for sure but people really want.
To be part of something its fuel that that sense of purpose. So I I feel like.
I mean this is hard for me to say because I've I've been on the road my entire life.
I really feel like we we've kinda cracked the code that we know how to deal with with customers when when were remote and.
We have a compelling solution, it's a lot easier with answers then maybe or some of our legacy products and that's why Howard described this land with answers kind of this light light approach get get in there. It's so easy to explain is such a compelling.
Business case with no increase you can see what your customers are asking for it with the intelligence that we get back on under searches and we can immediately.
See the impact on lower lower cost because they're not waiting on some support line waiting to talk to the somebody to answer their questions were off loading those costs and then the revenue generation, we're helping them get discovered digitally versus you know face to face.
Jason that that's an important transition that or customers that we talked about all the time digital transformation that I think is accelerated so I think.
If somebody would tell me we had to do this for the next.
Six months to a year without a face to face meeting. They told me that three months ago, I would say Gee, there's absolutely no way like that's not the Hey, I've sold in my career now I actually believe we could do it yeah. There's there's challenges and there's adjustments we have to make and there's no real substitute to face.
The pace, but.
I think people tend to be more efficient, we get right I'm, probably not making yeah I was going to say, we get to the point faster, which way I'm answering this question might not [laughter] speak volumes about that but it does get to the point a lot faster with these zumiez, you're not just hanging around you're not going.
For drinks or dinners are sitting on a plane or a subway or a bus you're you're you're talking when you're working you're working and it's a very it can be very effective. So yeah. I think we've learned a lot and I actually believe that we could conduct business like this for a long time it.
We had two.
<unk>.
Yeah, Yeah, yeah, the gross margins Mark I mean, they do ball they do very simply because of the the revenue seasonality than we have but it's also true we've been boosting our professional services and customer support organization. So you're seeing that reflected in somewhat of a on average uptick this past.
12 months or so.
I still feel comfortable we've said that the gross margins hanging in the mid Seventys and I think we've been in that range for a while ago kinda oscillate around that I don't see any systemic changes to that at the moment.
Because proserv another Saar people driven they've also for the little bit of the brought this year Oh, our facilities expansion, but there's that'll start to normalize over the next year too but.
We kinda guided mid Seventys I don't see that changing fundamentally in the near term.
Hey, Mark this Howard I'll take the last question about the sort of macro trend as the world moves towards I don't want to say permanent work from home, but probably a fundamental change and how people are working and where they're working and maybe as you know Tobias from Shopify said the end of off.
Syntricity.
[music].
I think this benefits us into primary ways. The first is our own internal adopted sales and marketing process, what we call land with answers.
Critical component of that is I think we said, 25% to 30% of our air Arby's isn't industries that are fundamentally challenged with answers we can target all kinds of new industries. So we're focused on an entirely new set of verticals and then and in doing got to break into these new verticals, we're doing said with a free.
Offer which is very compelling because.
Most companies right now are being crushed with customer support questions and the more we can deflect them, where they're going to save every time someone.
It gets an answer from the official answers bar and their website. They don't call into support they don't do a live chat that company can say three four or $5, a and so we've got a very compelling free trial offer which removes the friction of a heavy sales approach and instead as a light land approach, where we can then expand and ups. So our platform from there.
So that's the first the first week this remote world benefits JAKKS is a in our new and improved sales and marketing process internally ourselves, which we believe it's going to increase our sales efficiency, but the other way, but this increase is or.
This improves the criticality of JAKKS is simply that without people going into the physical world as much a there is just an absolute explosion in digital services in particular digital questions. Because you can't walk into a place anymore at the same way and ask questions you have to do so through a math.
And you have to rotate through and what this is doing is it's accelerating digital transformation from from every company and being able to provide an official answer to a question is a foundational component of that and that all stems from the knowledge graph.
Ever since our IPO the foundation of everything we've done is structured content in a knowledge graph and whether that ports to listings ports to a web site. We're now ports to a search bar on a website.
This is a foundational component for every company, we see ourselves we see the huge volumes coming in for a company for our customers, we see a huge volume coming in from the government agencies, which we support like New Jersey, or the World Health organization and the kinds of questions people were asking when you see them. It makes this real it's not.
Questions that you might think its questions like which businesses are a proven work and I find it could be 19 testing center and how can I file for unemployment. These are real questions that bode for real answers and the volumes are simply staggering air there beyond our expectations and they without doubt proof that.
People have questions more than ever the world has questions more than ever and the demand answers and not just answers from the internet, but answers from a website. That's the official answer and you know every organization every company they put out their official information on a website and it follows logically that that same.
Company ought to be able to answer a question from that website and their own search and they just haven't had the ability to do that with traditional index de stocking in search and that's my answer is it just so new so different and they can try it out for free and see the value that we think it's a super compelling offer and we're seeing that.
As companies are coming to you access even the world Health organization during the midst of the biggest pandemic in 100 years puts up you extend a record few weeks I mean, the ability to get attention from these kinds of organizations underscores the criticality of this feature they're not screwing around with stuff they don't need right now and.
Were there for them, we're gonna be there for a lot of other companies and division here is to emerge from this a totally different company with a new and improved sales efficiency.
Internally, but also being able to provide these answers these official answers to the world because one thing I hope you'll note note is that when you look at the answers bar that's up there you'll see the yet feel in every single one of them. The exit official answers bar you can see in the girl Scouts website. For example, you can see in the World Health organization. There. So this is up on so many coming.
These websites that's our Intel inside that's our integrated marketing campaign, and we don't pay a dime for that that's all that's all our own free marketing that we hope to use to convey to consumer that when they run it when they have a question when they see that feel they can get the official answer.
Our next question will come from Tom White with da Davidson. Please go ahead.
Okay, great. Thanks for taking my question just a couple of follow ups on the comments around renewals.
Oh, good customers that Miss the renewals I think and fell into the Grace period. I think you said the majority are back I'm. Just curious you can give us any color or are those that have come back kind of specifically tied to you know parts of the country or geography is opening up or they are they tied to a the kind of the underlying industry rebounding and and then also want to know.
Can you just remind us if there's any kind of lumpiness or seasonality of renewals I guess I'm. Just wondering you know if the economy kinda is more or less fully opened by the end of the summer because then they need bode well for renewals you know maybe presuming that they're kind of weighted towards the end ended the year. Thanks.
Hey, Tom It's it's Howard I'll take that question.
What we have seen with renewals is is a tale of two cities, where you know we saw pretty much normal retention rates with that the industries. The city that is strong. These industries that are performing and then we saw a weaker than normal retention rates and those that are challenged I didn't think I do think we say we.
Solve retention levels return and improve I'm in the month of May.
Yeah, and I. This is Jim Carey and Steve losses line, he's calling back in two so that's why be the silence there for a minute but.
The.
Yeah. The renewals are definitely seasonal second half is much much bigger in terms of our renewals I'm, especially fourth quarter I said first quarter tend to be a little lighter.
And yeah like Howard said some of the renewals, especially in the most affected industries like retail hospitality really got.
Put on hold and passengers you had.
They were dealing with their own business crisis, and they hold off on.
Renewing and we finally got them and it was it was not because they didn't want to renew they saw the value. They just had a backlog of other priorities that they're dealing with and budget challenges. So we took a little longer to get through but they have since for the most part of have come through in the beginning of the SEC.
Quarter, so that that's really the Nisource renewals I you know financial services I think we had a record performance and first quarter, probably the best quarter, we ever had been terms renewals.
So it really is industry dependent and customer by customer, but we're feeling like second quarter is off to a great start with renewals and we've got such great customer relationships that you feel very confident that we'll be back on track your with that with renewals.
And Tom One quick final point when you look at theme the industries that were affected eventually they will go back to business and so you know very proud of ROE who came over from Salesforce is customer success organization leads ours organization was inundated with request even from these troubled industry.
He's on either modification the hours of in store operations. What have you. So there's still a need there and we stand to serve those verticals to as they start to regain their strength.
I'm, sorry, I think our final question will come from Brett with Berenberg capital markets.
Odds to for me. Please go ahead.
So hi, guys. If we compare your new go to market strategy, where you need was answers to say your previous go to market strategies well. This result in a lower initial contract value, which could potentially lead to a revenue headwind over the medium term. If you were I guess historically landing as a larger contract value.
No.
So yes answers has a similar contract value.
Right, Yeah, it'll have a slightly right, we're trying to land with lower contract value, but you can make up for that in volume and faster sales cycles.
Okay and then maybe this one first theater, Jim you guys have any Argus what percentage of contracts are on annual plan for what percentage are on quarterly plans and customers that had asked for maybe paying accommodations have you seen a decline in the number of those requests.
Since maybe the peak in March or April.
So I'll take that predominantly we get annual contract, but we have found over the last.
60 days 90 days people that I've seen for somebody annual and quarterly so that's picked up a little bit not significantly and you know our t. reaches out to the to our customers when they're looking for accommodation to make sure both of us are winning so.
There has been I don't think that slowed down that much particularly.
You've got European renewals, because it's been hard good over there, but we've been able to accommodate all our customers we feel comfortable that it's not impacting our business in anyway, but its access than Gemini his experience in the past when you do this the customers come back louder and stronger and work with you because they know you're trying to take the so yes little.
No more quarterly, but not anything dramatic change our business model.
That concludes today's earnings call. Thank everyone for joining us we look forward to meetings throughout the quarter.
Thank you.
[laughter] Pentothal concluded.
Thank you for attending today's presentation you may now disconnect.