Q3 2021 Yext Inc Earnings Call

Good day and welcome to the ex Inc. Third quarter fiscal 2021 financial results call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist for Christmas Starkey, followed by zero.

After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then two please.

Please note. This event is being recorded on.

I'd now like to turn the conference over to you for Broderick head of Investor Relations. Please go ahead.

Thank you Paul and good afternoon, everyone welcome to GAAP fiscal third quarter claim claim on conference call with me today are CEO Howard <unk> CFO, Steve take Brett <unk>, Chief revenue officers day degree Misty and Patrick there before we begin I'd like to remind everyone that this call may contain forward looking statements, including statements that.

<unk> revenue and non-GAAP net income customer upsells and retention sales efficiency hiring targets expense margin market opportunities is this performance capital expenditures and other non historical statements as for their described in our press release.

Forward looking statements are subject to certain risks uncertainties assumptions, including those related to the EPS growth the evolution of our industry, our product development and success, including the dancers and general economic and business conditions, such as the impact of the Cobi 19 pandemic. These statements reflect the company's current expectations based on its beliefs assumptions.

Information currently available to it.

We believe these expectations are reasonable we undertake no obligation to revise any statements to reflect changes that occur. After this call descriptions of these and other risks that could cause actual results to differ materially from these forward looking statements I discussed on our reports filed with the FCC Inc.

I think our most recent quarterly and annual reports and our press release that was issued this afternoon.

During the call. We also refer to non-GAAP financial measures reconciliation for the most comparable GAAP measures are also available on the press release, which is available that investors I guess dot com.

Finally, I'd like you.

To point, you to investors Dot U.S. dot com for a slide deck that we posted on the site, which Howard will be referring to during his remarks today.

With that I will turn the call over to Howard well.

Well. Thank you you cash [laughter], we had a solid third quarter. We closed 86 answers led deals in Q3, driving over 30% of our new and upsell your TV in the quarter and that compares to 20% new and Upselling Your TV in Q2.

It also includes our conversion of the state of New Jersey, and Alabama to paid customers that represents our first customers in the <unk> in the government vertical and we're seeing fast traction in another new vertical higher education, with Brookdale University, Texas Christian University and Delphi.

On the University, adding answers to their website.

No. Its graph continues to grow with over 405 million facts now containing it growing 58% year over year.

Well, we're focused on leisurely on revenue growth driven by our land with answers sales motion we're on.

Also simultaneously focused on greater efficiency, particularly in GAAP sales and marketing as a percentage of sales we dramatically improved GAAP metric this quarter from 81% in the third quarter of fiscal 20% to 64% in the third quarter fiscal 21. This helped drive our Q3 non-GAAP.

Box for chair to two cents well above our guidance of seven cents to nine cent losses. We don't believe these are temporary improvements we are committed to driving sustainable increases in operating margin is and will continue to take action on cost efficiencies in the coming quarters land with answers is officially [laughter] well these numbers show.

That we can effectively manage the business. Despite the continued challenges for the current global economic environment. Our metrics also tell a more exciting story that the world is hungry for a big breakthrough in search.

Search is critical every customer experience starts for the question.

And when it comes to branded search there's really two places where searches can happen either on the Companys website Werent Google.

But billions of times, a day brand websites Bill to answer the most basic questions for their customers at that exact momentum intent bounce over to Google to continue their request for an answer and when website keep feeling you and feeling you over and over again you learn to just start your customer journey on Google.

But the reality is the experience isn't even better for a customer in fact, you could argue it's even worse because in that context, Google isn't really a search engine. It's an odd engine in other words, it's incentivized to deliver a slew of ads not a direct answer to the question and I want to see what I mean by this we posted a slide deck.

Back to the investors section of our website I'm going to refer to that here. If you look at slide three when I type in a simple branded search query on Google for information about a sleep number product I get the results shown on slide for.

There are literally for tier one for 14 at above the fold before and organic result is an option.

Please take a look at slide five for another example, and this was highlighted in technology come calling this Jefferies dollars, Washington Post article last month, where he highlighted how Google search experience has gotten worse over time, if I ask a question about how to check my Krispy Kreme rewards card balance that just by the way it happens to be the most copy.

For a question asked for them Google delivers what appears to be an answer from the Brad.

But if you look carefully it's not you see that on slide six.

It's a random third party and while it's not leave on an AD. The experience is all about selling you something and if you engage on the site you get hit with pop up ads like on slide seven so why would Google reward. This streams site and it's very annoying sales tactics and adds ahead of an answer a direct answer from Krispy kreme itself [noise] interest.

Ironic because even the co founders of Google denounced this on one of the early research papers in 1998 and I quote. They said, we expect that advertising funded search engines will be inherently biased towards the advertisers and away from the needs of the consumers. They were right branded search queries reward the highest bidder.

On your advertiser, so it becomes a numbers game and how much of the brand have to pay to get in front of the customer asking for them and how many ads does the customer have to navigate before getting the answer that they want.

And that is what has inspired our answers not adds campaign that we launched last month more than just on me answer is not at pose it's an important question to every company.

When your customers have questions about you do.

Do you want to give answers or do you want to give her assets.

The on the answer is obvious.

But the reality is that the only way a brand can compete with Google is to offer a Google like experience think of it like their own Google on their own site and that is not easy.

Yeah, they source exists, but it's not that modern its index be needing it functions to deliver links since any new another page on our website that search 1.0, and its how Google used to work for Google modernized and they built the knowledge graph contains all the fact that they know about the world. There are relationships that combines with natural language understanding to present.

Their users with answers and that's where we come in where you ex comes into our answers search engine is the breakthrough that give us brands in modern search experience. So they can take back that customer journey to deliver answers non ads to every customer question.

Modern search has three layers on the first is the knowledge graph. That's a brand like database contains all the facts represented his entities and their relationships. This provides the foundation for answers to be derived from an understanding of national language and that's the second layer of modern search.

The third layer is a dynamic interface that allows users to transact with the answer itself. This is essentially how Google has won in consumer search and we believe there's an opportunity for the millions of businesses and organizations around the world to win in credit search this is happening in real time.

Every time you ex answers. The question we've won back branded search on behalf of the customer you look at slide nine you will see how you ex dancers addresses the same question about Krispy kreme gift cards, but instead of receiving a poor customer experience from a third party website, because the customer just gets the correct answer they can click straight through.

For what piece, where they can check the gift balance online, which you see on slide 10.

And as for the sleep number question about hypoallergenic pillows.

On slide 11, JAKKS answers directs the customer to exactly the products that match their requested attributes including called to action buttons, that's part of that dynamic interface, which lead to a conversion on slide 12 [noise].

We know that delivery official answers makes a big difference not only because more and more brands are adding answers to their website, but also from their own experience almost immediately after launching ex the answers on our own website branded searches for JAKKS declined. This is astounding three for.

For sat on Google now you might think that the negative but the beauty is at the same time the number of searches on our own site increased by the same amount as the decline on Google. This shows that branded searches on Google and searches on a brand new own site are intricately linked it's kind of an obvious point.

But when you give people a great site search experience a great search experience on your site they come back they get trained they come back again and again.

Transforming the broken world of search it's a long game, we are only in the top half for the first inning and we're generating tremendous interest closing deals of all sizes across all sectors.

Finally, I want to take a minute to highlight and welcome Hillary Smith to our board of Directors Hillary is a highly experienced tech executive. She played a key role on the success of several companies including square. She is currently on operating partner craft ventures. We are proud Hillary decided to join our board of directors and comp Committee.

And we really look for to working with her.

And now ill tell you more about our progress in the last quarter I'm going to turn it over to David Rodnitzky, Our co Chief revenue Officer, Dave Thanks, Howard and hour for a review of Q3, the sales forecast solid Q3, new customer activity continues to improve in grocery tension within our historical range.

Q3, ex overall flow was 107, new and renewal deals with at least $100000 of total contract value.

This includes 10 deals with more than $1 million of total contract value.

The total number of JAKKS, Midmarket and enterprise customers increased 28% year over year to nearly 2300. This excludes our SMB and third party reseller customers our quota carrying sales rep count at the end of Q3 was nearly 240.

We're on track to reach our target of 255 quota carrying sales reps by the end of the fiscal year consistent with our original plan.

In enterprise, we had many new logo signings powered in part by new opportunities driven by answers new.

New logo deals included a multiyear and multimillion dollar ACB answers deal at a top three U.S. financial institution, and a multi product deal with online pet food and products direct to consumer company, Chile, you recall that we told you about how were power on the COVID-19 sites for the states for New Jersey in Alabama on a pro Bono.

Basis as a pandemic began.

We have now converted them to paying customers Upsale deals included Humana five guys Cole Haan and Wells Fargo, and we had significant upsells with common spirit health in Cox Communications.

In mid market New deals included leading Big point network Liberty ex and direct to consumer mattress company Purple innovation.

Up sell on renewal deals, including Stanford health and oral enterprises, a leading restaurant brand group, which includes planet Hollywood and book into value among others and in international while conditions in EMEA remained challenging due to covert related economic lockdown.

New deals for signed with Kosmos pharmaceutical on Rolex upsell deals with hospice in Threeg, UK and Super dry and renewal deals with J., TB and Austin stores well.

For the answer is we're unlocking a huge opportunity with new companies that we haven't been able to reach before and we loved it opens up new use cases for us.

I want to highlight a new logo win we had with Sinclair oil this quarter.

They signed up with us for answers because people on the road wanted on whats available what the Cobot protocol is for when you get there and other important information and.

We believe we will have opportunities to expand what Sinclair with answers and all the ex products in the future.

This is an example of how answers led the way it's a new sales motion that is successfully getting us into use cases that we wouldn't have had a year ago.

As we look out over the next several quarters, we see many opportunities like this on our pipeline.

To conclude we have developed a successful sales motion, we're gaining experience leading with answers on the sales process and we know how to take a customer and up sell them.

Our opportunities are driven by the platform not buy a product and the unique ability to address search as a modern platform.

We feel good about our Q3 progress and we're excited about what's happening with the new opportunities with that.

With that I'll turn the call over to Steve. Thank.

Thank you, David Hey, our third quarter revenue grew 17% year over year to $89.1 million and on your revenue increased 20% year over year to $129 million.

Annual recurring revenue on a our metric at the end of Q3 was $346 million, that's up 18% year over year from the 293, we reported a year ago quarter.

Our trailing 12 month net dollar based retention, which excludes our SMB customers was 103%.

And our trailing 12 month net dollar based retention for direct enterprise, which also excludes our SMB and third party resellers was 104%.

While our growth retention was solid within historical levels. What we saw was muted upsells, particularly in our customers with retail footprint and in EMEA, where there is another round of lockouts in the near term, we continue to see customers be conservative with expansions given the volatility macroeconomic environment, but in the long run we expect.

For ups celebrate to return to historical levels as we continue to grow answers on existing customer base and expand with other products and services as well.

One note before turning to margin for an expenses I'll just point out that would be discussing both GAAP and non-GAAP results and we reported provided that reconciliation of GAAP and non-GAAP in our earnings reported.

Q3, GAAP gross margin was 75.7% this quarter and that compares to 73.3% in the year ago quarter.

Q3, non-GAAP gross margin was 74 point, 77.4% compared to 74.9% in the year ago quarter.

Change in gross margin, primarily driven by leverage on higher revenue yes.

Good day, non-GAAP gross margin was 76.99% compared to 75.6% a year ago.

Q3, GAAP operating expenses were $89.2 million and that's down 10% from the $98.8 million in the year ago quarter.

Q3, non-GAAP operating expenses were $71.4 million or 80% of revenue compared to 78.9 million were 103% of revenue in the year ago quarter, and we made significant progress in managing costs. This quarter non-GAAP sales and marketing expense declined 11%.

Year over year, and non-GAAP DNA expense declined 14% year over year compared to the year ago quarter. The primary drivers of this decrease were onward user conference, which is typically hosted in the fall, but didnt happen. This year, we reduced spend on travel and events and significantly improved overall on.

Durational efficiencies.

Year to date, non-GAAP operating expenses were $223 million or 85% of revenue and that compares to $206 million or 95% of revenue a year ago.

We continue as David said to drive lower sales and marketing and general TNT spend as a percent of cells. Many of these efforts are sustainable changes and will drive our operating margins higher over time.

Given on certain business conditions, we're remaining conservative with our hiring but we're keeping our goal of 255 quota carrying sales reps by the end of the fiscal year and we're continuing to invest in product innovation and revenue generating opportunities at the end of Q3, we had nearly 240 quota carrying sales people on board.

Q3, GAAP net loss was $22 million compared to 42.7 million loss a year ago quarter, that's up 48% improvement over last year on the basis of 120.7 million weighted average basic shares outstanding net loss per share of 18.

Since this quarter compares to 38 cents loss a year ago on the basis of 113.5 million weighted average basic shares outstanding.

Q3, non-GAAP net loss, that's excluding stock based comp was $2.8 million.

That's a dramatic improvement compared to the $21.6 million losses in the year ago quarter, and our non-GAAP net loss per share of two cents compares to 19 cents loss in new year ago quarter.

Cash and cash equivalents were $209 million, we continue to believe our balance sheet is strong and positions us well to weather this current economic environment.

Net cash flow from operations for Q3 was negative 7.4 million.

That compares to a negative 31.8 million in the year ago quarter.

Capex was $13.9 million compared to 2.9 million in New York on corridor, and we continue to make progress with our building projects in New York, Washington, DC, Tokyo, and Paris, and we expect remaining capex related to these projects to be about $19 million and based on current schedules expect most of this.

[music] occur in Q4.

Now, let's turn to our outlook, we expect Q4 revenue to be between 87 million at $89 million, we anticipate non-GAAP net loss per share to be between eight and 10 cents. We expect weighted average basic share count of approximately 123.3 million shares in Q4.

Q4, EPS is impacted by two to three cents of onetime nonrecurring expenses.

We continue to drive answers enterprise market opportunity and as Howard described we have the opportunity to help our customers drive value and deliver answers not cats Q4 is typically where we get a large amount of our business. We have a significant pipeline of opportunities that we're executing against however.

For our guidance is being realistic that global business conditions remain difficult due to the pandemic, including recent shutdowns, both in Europe, and the United States.

To wrap things up I am pleased with the performance this quarter in a challenging and uncertain macroeconomic environment. We are pleased to have the answer is leading the way for our business and we continue to be laser focused on efficiency, while investing in growth opportunities with that I'll turn the call back over to you guys.

Thank you Steve before we move along the today, we would like to invite you to our analyst day, which we plan to build on Wednesday March 17 2021, joining.

Joining the Q and a session.

Our German CFO, Steve take bread and Chief revenue Officer, Steve degree net Blair.

Blair Paul can we please open for questions.

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

If you're using for speakerphone, please pick up your head for for pressing the keys.

This is Joe Your question. Please press Star then too.

On the side, we will pause momentarily to assemble the roster.

And our first question today will come from emerging Battersea with William Blair. Please go ahead.

Great. Thank you, Steve you're talking maybe to start off with with you on the on the guidance for Q4, we typically see that being a seasonally strong quarter for new well.

I think the guidance implies for.

Any meaningful site on growth and a step down in revenue can you just maybe dig into those dynamics, a little bit more and the assumptions on you have baked in there because that is on an uptick in churn or new logos.

Yes on down in Q4, just maybe help us understand those dynamics, a little but yes. That's a great question I mean as I said in this day scripted comments were trying to be realistic here, we're looking at lockdowns coming and going and we think this quarter is probably going to be more challenging than what we saw on Q1 and part of Q2. So we're just being realistic like I said on the.

Call.

Our growth retention is doing quite well, but we need upsells as well from our customers on I think just given the uncertainty around the world that we're seeing we're going to sit and say look we're going to deliver these results were still focused on improving operational activities as well, but I think on the revenue side. We just really Q4 is a big quarter.

It doesn't necessarily add to revenue in the quarter. It will set us up for next year, but I just think the uncertainty on the global macroeconomics right now, we're just going to be realistic about what we can do and deliver those results.

Got it thank you and.

And Howard I thought I saw on announced for that you guys made that.

You had on new what price integration with answers there is obviously a pretty big.

Price footprint out there can you just help us understand the opportunity what it means for for answers adoption when should we think of that as be similar to the Adobe partnership that you have or is there a different.

Dynamic at play there.

The word press on differs on thanks for the question. The word press integration addresses a little bit of a different segment the bigger enterprises tend to using Adobe. These new doobie experience cloud the word press.

Integration really is targeting more on some of our CBU customers. The biggest bottleneck for us is often getting that answers integration live on it on a website and so there were price integration makes it so that anybody using wordpress can do it without code. They can just easily plug it in turn it on so that has been a new.

Nice little way to get faster with a bunch of sort of mid sized customers that want to use answers.

Perfect. Thank you.

And our next question will come from standard Slutzky with Morgan Stanley. Please go ahead.

Hi, this is on.

Let's move on.

Wondering if you could give us from just some more context on that.

Ask you've had with answers versus other.

Other areas for the business and kind of when we can start to think about uptake in their office.

Offsetting some of the uncertainty that you're seeing and this isn't just kind of the timing of when we can.

Moving the needle thank you.

Yes. Thanks for the question first off you know in Q3, we closed 86 answers deals and I just want to be clear that's not free trials. This debt closed business in the quarter and debt represented 30% of our new HCV, new and upsell globally and by the way that compares to 20%.

Is what we saw in Q2 so.

We're seeing tremendous momentum in answers in addition to that land with answers. It is clear is a more efficient sales motion I think we've been talking about this for past couple of quarters of landing late with answers and it's on a new strategy. It's a new sales motion to land with the product that addresses one.

100% of the world that every client needs every business needs on their web site, we can get out there we can land with this product.

And and we can we can up sell it and so you've seen us be able to penetrate new markets like government new markets like higher education go check it out on Bucknell Dot Edu or TC you Dot Edu, you can or even the world Health organization. If you go to who dot I ante that their website and click to their koby 19 say, you'll see we're answering.

Tons and tons of questions. There. This is a this is a really big opportunity we're completely focused on both.

Revenue growth through acceleration of answers, but also.

At the same time, we're focused on operational efficiency and that's what you saw on Q3 like we pointed out on the on the script to basically suggests we went from you know.

Minus I think we were at minus two cents on our EPS.

Showing day in the in the increase in the decrease from 81% of revenue and sales and marketing to 64% year over year. So we are seeing huge efficiencies in addition to.

Our ability to acquire logos with 86 closed in the quarter.

Got it thank.

Thank you very much.

Thanks.

And our next question will come from the Cohn with true.

True Securities. Please go ahead.

Yeah, Thanks, a lot.

Two questions.

So on the last call on on the second quarter on quarter, I think you guys thats on the balance.

Sort of a BARDA lag on us.

Two as demand for answers in the stake taken on uptime on board customers any price.

Congrats and and kind of the moving that I can use for the spoke about itself. So.

As potentially a solution getting maybe touch on that day, but and then secondarily can.

Can you also talk about the Adobe partnership and any new to those from from that channel that you might.

Good day.

New bad tower and I'll take the first part of your question ill kick it over to Dave for day for the Adobe update.

We're very focused on removing friction to be able to be a self serve product. The two main things that we did in the Q that made that accelerate were first we went general availability with our hitchhiker program and Hitchhiker program, that's our brand for ex admin for that.

For the Super experts in our platform and.

Historically, its been pretty hard you've had to be an expert to set up and use JAKKS youve really had to new your way around you didn't have to be an engineer, but you had to be.

I have a lot of institutional knowledge to be able to configure things and.

We've been working really hard to simplify that into put better training in place and we've seen a great pickup in people, becoming hitchhikers and now if you go to our site. It's funny because you can almost track what's happening in the flows and stuff because if you just go to our website and new quick free trial, you go through that various.

On the self serve experienced there and there's quite a lot of people coming through that every day and then what happens is we still have to get people said on manually helping them get their knowledge graph set up except.

If you really know and you've become a hitchhiker you can start to do this yourself. So we've seen some pickup there and then once you have the data and what we need you to do is put it up on your site and that's where things like the word press integration and that's the second Big thing. We did this quarter to remove the friction from that flow to become more self serve with a few clicks you can set up.

Answers on your Wordpress site, if your word press user and have set up your data in your knowledge graph. We continue to make progress there. We continue to see quite a lot of free trial requests every day you can almost go through and monitor the flow you'll see every time you log in and try to do something you're going to see an update there.

This is a process, it's not going to happen overnight to become a self serve.

Landing, but that is the sort of Northstar here and we're excited about the progress we've made.

And now that it's David for Netscout and just to answer your question about Adobe we've.

We've got a really good motion going on with them now and I feel really good about it have had success building a partner price.

Program in the past and we've got to have solid bottom up top down engagement, we started to get our field A's engaged on account base together pursuits, we started to engage at the highest levels with our executives I feel like the collaboration is going really well and we've had a few deals that were completely influenced by our relationship with Adobe This path.

Last quarter and as I look at the excitement of going into the Q4, we've got a number of engagements, where we're partnering with them together on joint pursuits, and a very bespoke way and we found a couple of great use case for to work together, so I feel really good about it.

Thank you maybe a quick clarification, if I may on the first part the items. So if I add income on the backlog.

For those answers are on.

The core.

Operating.

How does that look like from back to the prior quarter.

We continue to drive great demand for answers. It's clear every company needs. It is clear that a free trial is a compelling offer particularly for mid market companies and the hope is that with integrations with companies like Wordpress that are large CMS companies in power tons is.

Our business in mid size business websites will accelerate that for the big companies they come through and that's still requires.

A real JAKKS dad meant to be with you and that's more on the company Thats using experience cloud or a company that's using a bigger CMS that wants to use our platform and so they'll end up in Dave's hands.

Thank you Howard Thank you David Thank you.

And our next question will come from Matt costs with JP Morgan. Please go ahead.

Hi, Good afternoon. Thank you for taking my question.

On for David was there any uncertainty into the into the quarter as we were leading up to the us election.

And then.

Steve can you talk about the mix.

Anvil for.

For durable opex improvements versus one time.

Savings from now based on what conference and must travel this year.

Hey, Matt as far as the election surprisingly no immediate was appointed interest when you engage with the customer to talk about it was on top of mind, but it didnt influence any of our deal cycles whatsoever that I know of.

I'd like a non issue actually yeah, I'd like to just add to that I mean, we had a we had a really solid Q3, especially in the United States, especially in United States.

Okay.

Yes, and then with regard to sustainable yes, obviously.

Third of the spend was around on word we're rethinking that a little bit we'll see what happens next year, depending on how the world opens up.

The other there obviously the travelers at close to zero, if not zero, but we're also making huge progress in infrastructure as Howard said the sales motions with answers has changed dramatically and we think a majority of that savings is going to be sustainable we're still working on processes and infrastructure self service is going to help.

So I feel fairly comfortable we're on a good trajectory to continue to improve our opex as a percentage of revenues and drive those down in on.

We'll see how how things go next year as well, but were really got our teams looking at changing processes. The sales motion is changing with both self serve and answers and feel good that will be on a sustainable path to our non-GAAP breakeven at some point.

Okay. That's helpful. Thank you and then maybe one last one.

So I know that you are being prudent with the Q4 guide, yes, especially mid for Cobiz resurgence in new locked down.

On.

It's hard to predict the future, but do you think Q for Mike the low watermark in terms of growth for.

There are.

Additional on.

We don't know, we don't know, but yes, that's a great question and to be fair. It Howard and I have that conversation almost daily as to where is the bottom and all of this I will say that we're being realistic on our growth and it's not because we think we know we're not losing customers, but we also know that they're not stepping in yet the renewals like I said on.

Gross basis for historically, good and we feel good about that so as people start not just us for this other companies start to see day light at the end of the tunnel.

With the with the goal of 255 sales reps with good growth retention.

New products, we feel that we're going to be in great position to start to benefit from that uptick your questions. The million dollar question. Those when does that start and I just think with the uncertainties coming into Q4 for everybody. It's hard to call that bottom at the moment, but we'll see as the you know the next couple of much progress what happens here.

Thanks very much.

And our next question will come from Rohit Kulkarni with MKM partners. Please go ahead.

Thank you Rob.

Yes.

On.

So moving.

Hey.

Bye bye.

Thanks.

Go ahead, we can hear you. Please please try asking your question again cutting in and out.

For those.

For that.

Yes.

Okay.

Eric and price.

Great one more time please.

Income coldness, let's go on to the next person will get revenue back in the M&A. Please.

Certainly and our next question will come from Mark Mahaney with RBC. Please go ahead.

Okay. Two questions. Please I'm trying to figure out the materiality of answers TDX business that 30% of new TCV is useful to.

Total TCV now does that mean, it's probably high single digits low double digits and then you just talked about other products and solutions and you mentioned it earlier in the script can you spend a little bit of time on what those.

What those are thanks a lot.

Hey, Mark.

Most of our deals most of our deals that were starting to be debt. We started to see are really being answers led which means that answers a huge part of our deal and a huge part of the deal and often is the deal you know if you look at higher Ed for example, that's a 100% answers led deal and 100% answers deals at Bucknell.

University, Texas Christian University, if you look at the states that we sold into in government. Those are primarily answers deals almost entirely answers deals. That's the main use case that debt being soft for there. So it's material.

And if you look at the biggest deal that Dave talked about close to the top three financial institution debt was the biggest deal on the quarter I think we said how big it was it was about $2 million of ACB that was an answers deal and that was the main use case there their head of digital came and sat down with David I right before the pandemic started and he.

He said Oh Gosh, you know what I love is a Google for my own website and boy. We are like do we have something for you and that is where answer.

Answers materialize from that deal so answers isn't material part of our of our business and go on for Mark The best way I think to think about us as Weve retained our company a little bit this year.

We're search company.

And if you look at the biggest companies out there every customer journey starts for the search when you think about our new products, where we might go there are extraordinary applications for search across every company.

And that doesn't mean, just on a website that could mean search internally that could mean search for a product that could mean search for content that means all sorts of technologies around search and we think that with landing with answers. We are setting ourselves up to be able to be a search partner for every company for every couple.

Hey, I need that starting with their own customer journey, but expanding into all the areas across their enterprise or they need search all by the way I should mention founded on that original principal debt. If you read our S. One the very first sentences you ex is a knowledge engine. It's all about the knowledge graph on the breakthrough JAKKS his knowledge.

Based search no other search company out there does knowledge based search based on MLP. It's all index based on its all keyword based on our unique angle. Our differentiator is knowledge based search based on the knowledge graph, we're going to do that for every company that we can in every area that we can and all.

On to new markets as we build what we think what I think could be the second biggest search company on the planet.

Okay. Thank you Howard.

And our next question will come from Koji Ikeda with Oppenheimer. Please go ahead.

Hi, guys. This is Chad changing on for Koji, Thanks for taking the questions.

Two questions here, if I may 1st on free trials I know you haven't given it.

An exact number on the conversion rate there in the past, but can you share any incremental details there on how that's kind of trended throughout the quarter.

And what your expectations are there kind of into the new year, and then I have one follow up thanks.

Yes, a free trial is one way were getting customers to come in at the marketing offer. It's a limited time offer we started in March we may keep it we may not its going pretty great. It's been very successful on generating interest has been very successful in generating leads for our sellers, it's not the only way we land.

For example, I think we mentioned that top three bank the top three financial institution.

We often land without a free trial and that's okay too the free trial is more compelling for mid market or CBU customers or prospects than it is for enterprise.

We look closely at the conversion rates. It typically its classic SaaS. If you look at day Classic software as a service company you will see conversion rates between 20 and 50% depending on the industry in the segment and were right in line with that.

Great. That's Super helpful. And then my second one is actually on the technology side.

On the thanks again for that demo at the onset of the call. There that was helpful. On I'm just thinking about the.

Kind of increasing prevalence of chat bots, and AI and curious how you're leveraging increased velocity of search data on.

From other customer queries on your platform to kind of improve that that value proposition to your customers and is that on finding its way into kind of your R&D roadmap. Thanks.

It's funny, it's a really great question, Chad because as we all know with AI and machine learning data is oil data is gold the more data you have the more questions you have the better your models get the more tests you can run the better answers you can give.

So the more queries, we handle and we're beginning to handle lots and lots and lots of queries every day and I think I told you. It's our objective to be the second biggest search company on the planet.

For the better and better our search results get which is happening continuously we just put on a search for lease.

In the quarter I think we actually put this out into general availability. This week or last week from that had a multi algorithm improvement where users can of our system hitchhikers can pick which types. Its algorithms they want to apply to which types of entities, which is super cool that means hey, if you're using maps I might want to use.

A direct answer if someone asked for a phone number but I might want to use extractive queuing day, which is a different algorithm for someone that asked a question which is contained in it for Q. These are all the parts that make up.

A modern search engine and so to your point the more data you have to better answers you're going to give and then you also asked about chat bots and chat bots, let's be clear when we talk about chat bots.

There really are a lot of different kinds of chat bots out there most of them.

Most of them aren't really chat bots at all but are just chat windows. They try to get you to put your phone number in which become a lead gen form and then someone's texting you that you Didnt want to talk to you may have your phone number. So that's what most chat quote chat bots look like and that's not really a chat, but that's really just a form to get you to get your phone on.

We think embolic chat bots for chat or live chat turns out it's actually kind of expenses.

It costs money every time someone chat with you on the other end if there's someone even if there is an outsourced center in the Philippines or.

For in India for wherever they're chatting with you. That's still costs you know dollars per session sort of like a customer support call. So we think Thats search has a place where it will always be wishes to deflect is many shots or is many.

Customer success or service cost as possible.

Krispy Kreme for example in that in that.

Example, we gave earlier they've seen a reduction in call volume to their call center, a 42% since putting answers up.

It's an astounding savings and so simply by being able to ask a question on search on the site and get a quick answer that will deflect a lot of people that would have otherwise tried to chat tried to call, thereby saving the company money. So chatting is really getting pretty deep into your personal accounts situation and that's it.

Pretty different than hey, what's the routing number for a bank or hey, how do I check my Krispy Kreme reward card balance or hey, what's the phone number of Dr and Penske.

Okay.

Great. Thank you.

And our next question will come from Ryan Macdonald with Needham. Please go ahead.

Hi, Thanks for taking my questions Howard I guess, expanding upon sort of your previous answer you've talked a lot about with answers that are the really the value propositions are one driving increased conversions and driving more sales.

By E Commerce on peoples websites, but then also customer service to flexion just curious as you're going out there on sort of trying to demonstrate the ROI of answers, which use case seems to be resonating more on has that shifted at all given sort of the strong trends. We've seen early in the holiday season in terms of ecommerce trends.

Well as sort of customer service interactions are for digital channels.

Well first off Brian I'd Love to you did a great job with the pitch here with those first few value props, we are hiring quota carrying reps still in North America, and we look forward to your application. If you go to the ex website and search for jobs you can search for that index. The answers you will see a list of jobs because of our MLP so great job with the first.

[music] value props, but there was a third to which you which you also sort of hit on which is the ROI. So the three value price. If you ex the answers when we sell we run.

In our in our selling program in our magic pick your number one that every customer journey starts with the question and there's two places for that could happen on Google or your own site and when you have.

When someone's on Google they are going to see ads when they're on your own site, you keep control and they're going to get answers from new directly I think by the way. We also showed from our blog post and we talked about this on the script that branded search in searches on Google for intricately linked overnight after putting up our own ex dancers box on our own site branded searches for JAKKS went down 30.

4% and the corresponding we went up on our own site, we saw roughly the equivalent searches happen yes.

We were able to handle so it really depends on the industry, what the particular value prop is to the business and so in the case of.

<unk> retail or it might be about call deflection, but in the case for the health care Company Boy you know it might be all about.

Offering virtual appointments, we've seen certain cases of companies that begin to offer the ability to book a COVID-19 test within their search experience on their site and you see a rocket in search volume across and we're talking big numbers here people searching on their web site for Cobi 19 test and booking.

Virtual sorry booking a real appointment to show up in a physical time at a later day.

Really just depends on the industry, but the third value prop.

Is the intelligence is the fact that you can see where people were asking and you get real time insight into those questions and can in exactly see how many phone calls you've got how many driving directions, you got off that modern dynamic search interface, which looks a heck of a lot like Google except it's on your own site, where you can capture your own customers and keep.

All those conversions for yourself as opposed to sending to your competitor.

So I look forward to your operational yes.

Yes as Super helpful. On that Yeah, we'll look for that on line I suppose.

I guess my second question is is I've seen that the recent expansion.

For the Japanese language and it looks like maybe you are starting to have some really good success. There can you talk about sort of the Atlas resources, you're now looking to allocate to that Asia Pac region as as a growth opportunity, maybe maybe I'll start selling there for you.

Patrick you want to take that question, yes, I can take that question. Thank you very much for the question, we had a great launch of answers in Japan.

As it sounds like you've probably seen we have our sales team. They're trained up we're trying to collaborate globally across sales to make sure that the magic pitch. Howard just mentioned on is obviously translated the right way into Japanese and that team is all out they're trained and ready to go. So that team is ready to go on rocket in terms of allocation of resource.

We have a marketing team in Japan, we have a sales organization in Japan, we have hitchhikers and Japan. So we're ready to go with answers there.

Excellent. Thanks.

Okay.

And our next question will come from Tom White with D.A. Davidson. Please go ahead.

Okay, great. Thanks for taking my question.

Howard in the beginning the for prepared remarks, you talked a at length about Google and your answers not add.

Not adds kind of messaging.

Any early data for kind of thoughts on on how that message that kind of go to market message is resonating with your customers and I guess googles, obviously, an important partner for you guys for the locations product and presumably for your customers as well so maybe.

Maybe just comment on I guess, how you how you guys kind of envision yourself kind of balancing those dynamics I mean is that an issue or is that not something that I should be thinking about thanks.

Thanks for the question not an issue.

On the marketing campaign for our search product very different than a data partnership with with the maps team.

Look we are working really hard to get the word out there about ex as a search company I told this to just a second ago to Mark when when we were talking.

That.

When you look at.

The biggest companies every customer journey every customer experience starts with a question starts with the search.

And we.

We've been for the last decade building up enough structured knowledge and enough technology on the MLP side to become us to to become a fully formed a search company and what you are seeing a site search as the first sort of a portion of that on top of the knowledge graph. This isn't a change in strategy. This is a change in what you've seen this year.

There's a change in sales motion with our land with the answers motion, which by the way is clearly more efficient because you've seen quantitatively the improvements in sales and marketing over revenue quarter over quarter at 64%. This time versus 81% last time and so everything we've been doing is all about repositioning and positioning this company.

As a search company, becoming a fully form search company of which site search and answers is the first part.

Got it thank you.

Hold on expansion from.

Yes.

We have our final question comes from Rohit Kulkarni with.

MKM partners. Please go ahead.

Hey, Thank you. Thank you for on screen insignia and hopeful.

Fine I guess.

A question on mode.

Do you see income, but if I look into two ex answers coming from different buckets in the company as it now it seems to me that debt historically, probably came from a more the more of a.

People, managing the website and likes like that on.

He is going to be put buckets like you.

30 for fortunate to flow.

But on did so it deserves it came back to the ex than probably that's a very big potential ROI for.

For a large company and spending a lot of for money on Google. So any anecdotes that you can shed on.

But you.

You are seeing.

From budgets do you ex coming from.

The other means for the Didnt on large organization.

Hey, Rohit, Dave or Netscape.

Yes, what's interesting is were seeing budgets come from multiple.

Sets of executives it could be from the Chief Digital officer, it could be from the Chief marketing officer, it could be from the CIO it could be from the chief experience officer.

What we're hearing from all of our customers on the reason I feel so good about what we did this past quarter is we're in the middle of there probably the most important initiative right now which is digital transformation. We just concluded our client advisory board.

Late yesterday afternoon, we had 20 of the biggest brands not just the JAKKS, but 20 the biggest in brick NAV name brands on the world and they laid out for us they're top initiatives and interestingly enough. The for BAAM oral focus around digital transformation. It was the acceleration of it they know they need to change quickly just like sales companies have changed there.

Sales motion they need to change the way they do business so for the acceleration of the digital transformation.

It's the ability to make a pervasive so not just go after a silo. We'll go after the entire corporation and change the way that new business. They have to have a strategy of balancing both potential go back to work.

You know fiscal with digital and the other thing they really want and Howard alluded to this before they want actionable insights they want to understand what's going on on the business and how to react and our platform puts us right in the middle of and that's why we're starting to see.

All of these different sought lines of business or the lives of executives come in and actually put money on the table and its exciting because whether it's coming from the CTO has got an issue of the CIO. The CEO. The CX. So weve been interacting with all of our most of our sales cycles on its exciting to see so we're not decide load from where the budgets are coming from.

Okay, great and if I could ask one follow up for.

Different topic on the proportion of kind of.

And Oh budgets coming from bets on some details how is that trending.

On do you think.

The new ones as well as new wins in that in those two categories on kind of bottomed boat.

Well you know we talked I think at our earnings call I for Q1 about a tale of a tale of two cities, where you know there are certain types of industries, which are clearly very affected by Toby 19, and there is no question that a number of those industries.

That you transact for example off of Google maps with to go there physically whether it's a hotel whether it's a restaurant whether it's a new on airline wherever you are interacting on the real world even health care.

Those industries have been.

Really hurt by the pandemic they've been slowed our growth retention levels have been solid they've been historical we're around historical levels in the past couple of quarters.

You know like Steve said, what they haven't done it's been willing to expand so what we've seen is they've kind of held their holding.

They have been slower to drive expansion, particularly in Europe, and that's where you've seen the net retention number come down a little bit but the growth retention number that we look at has been has been solid.

Okay.

[noise] well bring the call back to you guys.

All right everybody. Thanks, so much for your time, well look for debt package, you again next quarter and we'll look forward to seeing you at our analyst day in March have a good night. Thank you all bye. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.

[music] does everyone.