Q4 2021 Yext Inc Earnings Call

Good afternoon, and welcome to the Yexed fourth quarter fiscal 2021 financial results Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Youtube Roderick head of Investor Relations. Please go ahead.

Ed.

Thank you Gary and good afternoon, everyone. Welcome to yes fiscal fourth quarter 2021 conference call with me today are CEO, Howard Lerman, President and Chief revenue Officer, David <unk>, and CFO, Steve cake Brad.

Before we begin I'd like to remind everyone that this call may contain forward looking statements, including statements about revenue non-GAAP net income operating cash flow sales efficiency hiring targets expense margin market opportunities business performance, including of our listings and answers products capital expenditures and other non historical statements.

As further described in our press release.

These forward looking statements are subject to certain risks uncertainties and assumptions, including those related to <unk> growth evolution of our industry, our product development and success, including with answers and general economic and business conditions, such as the impact of the COVID-19 pandemic.

We undertake no obligation to revise any statements to reflect changes that occur after this call disc.

Descriptions of these and other risks that could cause actual results to differ materially from these forward looking statements are discussed in our reports filed with the SEC, including our most recent quarterly and annual reports and our press release that was issued this afternoon during.

During the call. We also refer to non-GAAP financial measures reconciliations for the most comparable GAAP measures are also available in the press release, which is available at investors thought, yes, dot com with that I will turn the call over to Howard.

So you get you know.

I couldnt be more proud of what we accomplished.

A challenging year for.

First despite extraordinary headwinds from location lockdowns that disrupted the core value proposition of listings.

Product annually recurring revenue still grew this year.

Next we built a more durable and sustainable business model going forward, we were operating cash flow positive for the year non-GAAP net income positive for Q4, and we showed a tremendous 16 point improvement in non-GAAP operating margin versus the year ago quarter.

Finally, we stood up a new search category disruptive product in the <unk> answers.

As the World comes back we're ready.

But it has not been easy our fiscal year started last February and in a matter of days, we were dealing with the onslaught of a global pandemic like every business, we faced challenges and had to make a number of adjustments are typical event and in person sales approach with severely hampered.

This forced us and let us to focus on efficiency and you can see that quantitatively.

Dramatic seven point improvement in our non-GAAP sales and marketing percentage spend as a percentage of revenue from 61% in the year ago quarter to 54% in Q4.

Listings felt the force of the macroeconomic headwinds that foot traffic to businesses to a halt.

People still search for a lot of important answers that our listing solution provides these include answers on products and doctors at the accused in jobs just to name a few.

This was and still is critical across most industries, but the reality is seeking information about physical locations like driving directions for operating hours has been severely impacted by Covid in fact in queue for Google maps for use for our customers declined.

Over 50% year over year unapproved location. This now recall, we told you early in fiscal 2020, one debt, 25% to 30% of our total air or comes from retail and food services, which are heavily location oriented.

And as we know these industries has still not recovered I recently took a drive around app and share of Florida. The popular mall was pretty empty shopping centers look like they're at 20% capacity parking as always.

Despite all of that for our listings product still managed to grow last year and that is a sign of its resilience and strategic significance for our customers now. Meanwhile.

We saw strong momentum with our answers site search product. We closed 130 answers led deals in Q4 up for 86 in Q3 and answers search queries in Q4 grew 16 times the year ago quarter.

This is just the beginning keyword search hasnt changed in 40 years, it's a subpar customer experience it slows businesses down yet.

Yet it is still ubiquitous companies make huge investments in search site search workplace search E Commerce search App search support search.

Building. These search experiences is expensive you've got to have a team of experts in the end result is never good enough on its keyword search so keyword search is ripe for disruption with your answers we've invented a better faster cheaper search why her team of phds to build a search engine over years that only handles kiwi.

When you can just turn on ours in an hour and have a modern sleek natural language search the search experience that delivers answers not a bunch of links.

We've got extraordinary innovations in search coming out in two weeks, including Extractive Q&A document search a web crawler I can't wait to show you more about all of that and I look forward to telling you more about it and our vision and how we're going to keep disrupting the huge search category at Investor day on a couple of weeks.

We don't no we.

We don't have a specific date when life will return back to value.

But I'm confident that as industries like retail and food services get back to business, we're going to see our listings product rebound and Meanwhile, our answers search platform will help us disrupt the huge surge category and make keyword search a thing of the past.

The founding principle of the act is that every business and organization in the world ought to be in control of their information on line with our answers search platform and its incredible powerful multifaceted solutions all powered by our knowledge graph, we are well positioned to achieve this goal.

Despite a lot of unknowns I believe we've set up our company for an extraordinary future.

Finally, I'd like to congratulate David renewed ski on his promotion to President and Chief revenue Officer unifying our global go to market under a single leader. It makes the most sense as we gear up to the search to disrupt the search category with our better faster cheaper answers first class.

Thanks, Howard I'm excited to believe in the team as we look to scale yet to much greater levels in the years ahead.

Given the continued challenging environment, we had a solid Q4 we.

We saw renewed strength in EMEA following a tough beginning of the year due to the strict lockdowns and a solid second half for mid market or enterprise team for hard in a tough macroeconomic environment.

The total number of VX direct customers, which excludes SMB and third party resale customers increased 21% year over year to over 2400.

We're introducing a new metric for investors this quarter.

Which we believe is a good indicator for our business and our progress with larger customers.

Our direct customers, excluding SMB and reseller with over $100000 totaled 550 at the end of Q4 up 12% year over year.

This metric is replacing deals closed after this quarter in Q4, Yexed overall close 216, new and renewal deals with at least $100000 of total contract value. This.

This includes 22 deals with more than $1 million of total contract value.

We ended the fiscal year with nearly 250 quota carrying reps roughly in line with our target of 255.

Our new logo signings included the post the French National Postal service endeavor Castillo computer and Popeye's financial services, including insurance showed continued strength for the year with Upsells from JP Morgan Chase Liberty mutual and farmers.

Other upsell deals during the quarter included United Health Care service, and a core hotels as well as Panera.

We're cautiously optimistic about our opportunities with food services companies with businesses begin to reopen.

Renewal deals included AT&T in Luxottica.

We continue to see momentum with answers site search.

As Howard mentioned, we closed a 130 answers led deals in Q4, which included the first quarter for significant contribution from EMEA and Japan. Following the release of the answers in Spanish French Italian and German and Japanese on the summer and fall.

Answer site search continues to open up the door with use cases and significant opportunity with new companies that we haven't sold to previously.

I wanted to tell you a little a little bit about our six figure deal with coin moving this quarter.

Mover runs a network of crypto currency Atms, providing its customers with a simplified and safe experience for buying and selling digital currencies.

They wanted to make sure that customers can find the right information about coin mover across the internet. So they bought answers to answer customer questions on coin movers website and they bought listings to provide information about their network of physical Atms in new England on the Pacific Northwest.

Coin move we're seeing tremendous value from our partnership with us there.

We're seeing a significant boost on their web site engagement and conversion rate by leveraging the answers on the site.

And in the past 90 days <unk> has driven an 83% increase on their Google search impressions and a 41% increase and get directions clicks were pleased to be partnering with a company in this rapidly growing space.

I've never been more optimistic about <unk> long term future than I am right now we have a great team and a platform that drives demand for a diverse group of clients and prospects worldwide. We believe we are well positioned to capture that demand doesn't materialize I couldnt be more excited about the opportunity ahead and the team fuel on our growth.

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

Hey, Thanks, David.

We had a solid quarter revenue above our guided range achieving breakeven for the first time to ever on a non-GAAP EPS basis positive operating cash flow and continued improvement in sales and marketing efficiency I just wanted to thank you for finance and it teams for.

Executing incredibly well in delivering these results in a challenging work environment and setting us up for economies of scale as the economy recovers, we're really well positioned for growth going forward.

Our fourth quarter revenue grew 13% year over year to $92 $2 million.

Fiscal year 'twenty, one revenue grew to $355 million, which is an increase of 19% over last year.

Unearned revenue increased 8% year over year to $192 million.

Annual recurring revenue on a or at the end of Q4 was $354 million and that's up 8% year over year from the year ago quarter.

Our trailing 12 month net dollar based retention, which excludes our small business customers with 102% and our trailing 12 month net dollar net dollar based retention for direct which also excludes small business and our third party reseller customers was 103% our.

Our retention in Q4 was impacted again by muted upsells in this tough macro environment.

Before turning to margins on expenses I, just like to note that I'll be discussing non-GAAP results unless I, otherwise say and we've provided as you guys mentioned a reconciliation of GAAP to non-GAAP financials on our earnings release.

So Q4 gross margins for 78, 4% this quarter.

That compared to 75, 7% in the year ago quarter.

This increase in margin was primarily driven by leverage on employee cost and publisher fees and was partially offset by higher data center costs.

Fiscal year 'twenty, one gross margin was 77, 3% and that compares to 75, 6% a year ago.

Q4, operating expenses were $73 million or 79 percentage of revenues and that's down from $75 $3 million or 93% in the year ago quarter.

We continue to execute on cost management and efficiencies this quarter and drove year over year margin leverage in each of our Opex line items sales.

And marketing expenses decreased as a percentage of revenues from 61% in Q4 fiscal year 'twenty to 54% in Q4 fiscal 'twenty one.

G&A expense decreased as a percentage of revenues from 19% in Q4 last year to 15% in Q4 this year.

Compared to the year ago quarter. The primary drivers of operating expense decreases for leverage unemployed class reduced spend on travel and events and increased productivity.

Full year 'twenty, one operating expenses were $296 million for 83 percentage of revenue that compares to $281 million or 94% of revenue a year ago.

We see many of our cost efficiency efforts are sustainable changes that will drive our operating margins higher over time.

These efforts include reduced selling cycles productivity enhancements through system and process improvements will continue to invest in innovation and revenue generating opportunities and we will accelerate these investments as we see the demand environment improves.

Regarding investments in our sales efforts, we're targeting our quota carrying sales rep head count of 255 at the end of fiscal year 'twenty two.

That said as we balance our prior investments in revenue generating opportunities I guess driving productivity in this area. We call that we've maintained our sales force hiring plans last fiscal year. Despite the pandemic impact this fiscal year, we plan to take advantage of that capacity and as we see the macroeconomic environment.

In Peru, we will begin to accelerate our investments in quota carrying head count.

Q4, net income was $94000 and as a result, we have recorded our first ever quarterly net profit. This.

This compares to a loss of $13 $7 million on a year ago quarter.

Our Q4 net profit per share of breakeven compares to 12 net loss a year ago quarter as well.

In Q4 fiscal year 'twenty, one our net loss on a GAAP basis was $18 $3 million in Q4 fiscal year 'twenty, one GAAP loss per share of <unk> 15 cents.

Cash and cash equivalents were $230 million at the end of the fiscal year 'twenty, one compared to $256 million at the end of fiscal year. 'twenty. This is a strong result, given the $61 million in facilities Capex, we incurred in fiscal year 'twenty. One we continue to believe our balance sheet.

Strong and positions us well to weather the current economic environment and provide resources for investment in future growth.

Net cash flow from operations for Q4 was a positive $24 9 million as compared to a positive $11 7 billion in the year ago quarter.

For fiscal year 'twenty, one net cash flow from operations was a positive $1 2 billion GAAP compared to a negative 38 million new year year ago.

We believe we will continue to run at least breakeven operating cash flow on a full year basis going forward from here on out.

Capex was $11 2 million, that's compared to $4 5 billion, a year ago and Capex for fiscal year 'twenty, one was $65 $1 billion of which $60 6 million was related to or building projects in New York, Washington D. C. Tokyo on Paris. These projects are now nearly complete.

And we expect remaining capex related to these projects to be about $8 million with most of that to occur in Q1.

Once these building projects are completed we expect to return to our more modest levels of capex debt deemed as a percentage of revenue more similar to our historical levels.

Now, let's turn to our outlook, we expect Q1 revenue to be between $87 million on $89 million.

And we expect non-GAAP net loss per share to be between five and seven.

We will have and expect a weighted average basic share count of approximately $125 4 million shares in Q1.

As we came through Q4, we saw continuing softness with a new and existing customers given pandemic related business pressures until we see positive changes in the economy, we will manage the business as we did this past year, we will focus on driving cost efficiencies and sales productivity. However.

Once we see positive improvements in the economy, we will invest into the available growth opportunities are for.

Us for.

Full year fiscal 'twenty, two we expect revenue of between $375 million and $380 million or.

Our non-GAAP loss per share range is expected to be between 17 and 22 cents.

This assumes a basic weighted average share count of approximately $128 4 million shares.

As we consider the demand environment for fiscal year 'twenty, two we're confident that our listings product will rebound as businesses reopen but the visibility on the timing of the reopening remains limited and as such we are not including improvements in the demand environment in our fiscal year guidance.

We are basing our guidance on the business conditions, we see for ourselves and our customers currently.

Tobacco economy, which remains sluggish and customers who remain cautious.

We are well positioned for when the business environment improves and especially for the long term.

We're excited to push forward with our expansion into various areas of search with expanded products and features driving a broad new set of solutions, we can sell on our answers search platform.

Yes.

To wrap things up we are pleased with our resilience in Q4 and overall for fiscal year 'twenty, one given the challenging environment of our products.

Nimbly took action to support our employees.

Purpose, our sales efforts.

Accelerate our search innovation and drive efficiencies, we're poised to grow in the macro environment improves with that I'll turn it over to UK.

Thanks, Steve before I move along to Q&A, we'd like to invite you to register for our Investor Day on Wednesday March 17th 2021. Please go to investors <unk> Dot com for Mike accounts.

Joining the Q&A session will be CEO, Howard Lerman, President and Chief revenue Officer, David Green, Netsuke, and CFO, Steve Kickback, Gary can we please open the questions.

We will now begin the question and answer session.

To ask a question you May press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.

Our first question is from David Kahn with <unk> Securities. Please go ahead.

Yeah, I think for that.

Just a couple of questions. So I'm trying to understand the.

On the outlook for Q1 on the sequential decline versus the fourth quarter.

And one of the components on that might be and then.

Maybe a related question just on the.

Can you give us some credit on the type of wins or customer wins, you might be getting out of the smaller deal sizes.

And maybe talk about pipeline on little bit any color there would be helpful. Thank you.

Yes, why don't I start with the quarter.

We recognized on our revenue daily so the fourth quarter has three more days in the first quarter does because of February so that accounts for a couple of million dollars of the sequential decline.

Predominantly most of it.

So I don't see any real problems with the decline in terms of dollars. It's more of a math exercise clearly we didn't have up sells.

As much as in Q4, as we publish so that contributes to it as well, but it's mostly a day count for us.

Customer wins, David or how would you want to take that.

Yes, we are.

I think we've talked about some of our customer wins in Q4, one other places you can always follow for what's going on in followers on Twitter.

Our social media team is very active in almost every day.

We tweet a new Dx to answers experience that has gone live I think a couple of days ago, we treated northern trust for Ryan sitting in a building right now.

It's kind of neat to just watch all these great site search experiences come up where customers can get answers, we talking about some of the Dr talked about some of the Rs, Dave by the way not doctor talking about some of the logos we want in queue for the French post office for post endeavor Casio computer popeye's.

And then you know I retreat all of the stuff that we're treating so you can follow me at Howard on Twitter to see each day, the new answers experiences going live Q1 pipe looks solid and we continue to be.

Conservative with our outlook with regard to the current macroeconomic pressures that are happening in the world. We are in the business, primarily our had been primarily in the business of serving location based businesses as locations are closed that is a bit more challenging in certain location based verticals as the world.

It comes back.

Invest and continue to get back into those industries as things open up as those companies get back to business.

Thank you.

Your next question is from Mark Murphy with J P. Morgan. Please go ahead.

Hi, Good afternoon. This is Matt Coss on behalf of Mark Murphy I. Thank you for taking my questions.

Steve on the continued improvement in sales and marketing efficiency.

Can you quantify what that improvement was this year and then sort of what you expect that improvement to be.

Going forward as you leverage all these new sales hires.

Yes, so I think the.

The quantitative part you can just look at if you look at our year over year dollar spend from last year for this year and then the percentage of revenue have been pretty significant a lot of that is coming from obviously as Dave talked about more tenured sales reps.

More effective selling and marketing processes I think going forward. We've always said that we're going to continue to drive our sales and marketing as a percentage of revenue back down in line with what Youll see from other SaaS companies. How quick that goes is obviously a function of revenue and on efficiencies I don't really have a timeframe there, but I think you'll see it continue to decline.

Over the next couple of years until we get them lined with companies in our same size space.

Very helpful. Thank you and.

No the way you're guiding you'll make sense based on what you're able to see in some of the challenges that you're still seeing in.

Retail.

Businesses, but are you, making any other changes in the way that your guide.

Perhaps assuming lower close rates or any other.

Big differences versus the way you've looked at guidance historically.

If you go back and look at how we guided Q3 or it was it's a similar stance.

We've got this quarter coming up in February March April is still a lot of countries on a lot of states are closed and so we took the position that we're only going to be realistic like we were before as I said in the prepared comments, we're not looking or anticipating any openings at this point in time, I think customers as David talked about you've seen as debt.

A lot of interest and a lot of opportunity, but as we said in our retention upsells are happening to the extent that we think they should and we think that's a lot to do with macroeconomics and while Theres a lot of people interested there's still people being very conservative with how they spend their money until we see.

Not just the light at the end of the tunnel, but they're at the end of the tunnel. So yeah, I think I'd stay tuned I think all of us feel more optimistic about the future with vaccines et cetera, but the world economy has got to start to come back and that's certainly going to be timing is something we just can't predict right now.

Very fair Thank you very much.

The next question is from Stan <unk> with Morgan Stanley. Please go ahead.

Mr. <unk>. Your line is open on our end, perhaps its muted on yours.

Moving on our next question is from Arjun Bhatia with William Blair. Please go ahead.

Hi, Thank you.

Steve I, maybe wanted to just follow up on that last point that you made about.

For the light of that and somehow it seems like were new.

Vaccinations are going.

Better than expected I would say and it seems like there is some light at the end of the tunnel that's visible.

What are your conversations like with customers that have may be stopped.

Expanding.

Next year, but as they see that.

We might.

Things might start to come back to normal over the summer or later on.

On this year are they starting to think about expansion I mean are they having conversations about listening or cross sell with the answers just help us understand what you're hearing from from from customers as you're talking about that later.

That's helpful.

Yeah. That's a great question, I think David or Howard you might be there on the surface.

Arjun I'll take that question the key stat that we talked about on the call just a minute ago was that Google maps views have declined 50% more than 50% year over year for our customers on a per location basis that is a.

Primary value proposition of using the product to drive foot traffic into physical locations.

So as that happens and has been happening.

That has presented challenges for upsell and retention now.

Don't believe like I don't think anybody believes in a year that.

People are going to not be using map services to use driving directions or phone calls too.

Go outside to drive the places to go to stores to go to restaurants and events travel and go to hotels.

Fact is in Q4, it was more than 50% lower than it was in the previous year.

In Q and looking forward, we don't we have not seen quantitative evidence.

Of a recovery, though like you we remain optimistic when you read the news that it could happen.

But we're just not going to put it into our outlook until we can quantitatively see it.

That said, while we are.

Continuing to see.

Headwind of.

In the location related industries, you've seen in our financials, we've really focused on getting efficient new sales.

We have which like Steve said on a 7% year over year improvement.

With our operating margins, a 17% swapping improvement.

We broke even cash flow positive for the year, we focus on building a sustainable durable approach going forward and we stood up a whole new category with search and leveraged our wonderful knowledge graph technology, which is filled with authoritative primary information to take to get to the next level on build to NAV.

Actual language search on top of it which we closed more than 130 transactions in Q4.

Up from quite a bit in previous quarters that we had disclosed so all in for the year.

We don't know when these things will return yet we haven't seen it.

Because people are still not going outside.

But things are starting to open up I read the news like you do we can't call a specific date when that day comes this company is going to be ready with a more sustainable business model with a product that we hope will be a tailwind for any recovery.

And a new <unk>, a new category of product with extraordinarily large opportunities in a number of categories for site search to workplace search to support search.

More about that at Investor day, and wash for our spring release with breakthrough extracted Q&A technology.

I've never been more excited to lead this company the opportunities have never been bigger in the long run.

You have to wait and see what happens with regard to the lockdowns have shutdowns for locations.

Got it that's helpful and then on the answers side of the business you know last quarter, we touched on some large deals that came through some of our hands on slides on somewhat lower.

Mostly answers, but what can you share with us about deal sizes on answers as you've seen.

This quarter relative to what we were what we were talking about last quarter early on the year.

So ours on its David risky so a couple of things on answers what we're seeing.

As Howard talked about the number that we did we did 130 answers led deals.

We've got a good motion in terms of how to.

Identify those qualify them and close them.

It's shown that we are a little bit of a quicker sales cycle with answers. We've had now demonstrable success, we know how to measure it we know how we have customers that we can reference we have experience under our belt for and.

And not only are we seeing a quicker sales cycle on it we've seen a couple of things that are interesting. One the answers led deals answers is getting us into companies that we necessarily would not have sold too. When we were talking to you for a year ago. There's verticals that we've now penetrated as a result of leaning with answers when you look at higher Ed Youll look at technology look at seat CPG.

If you look at direct to consumer you look at public sector, you'll get NGO. These are customers. We've acquired many of which in Q4. We are answers is the opportunity that opened the door for us there.

Thank you for taking my questions.

The next question is from Rohit Kulkarni with M. K M partners. Please go ahead.

Okay. Thank you for being for questions. Some couple of in terms of guidance, Steve is and any more color you can give on what other you're assuming in terms of.

D on first quarter contribution from listings versus answers.

And any backward looking data you can share in terms of how the mix of listings, which is answers.

Really changed as the year progressed, and how do you think that would.

I was as you'd think as Youre modeling and the guidance and then I have one follow up on that.

A lot of questions.

First off again like I.

Said, we kind of looked at Q1 as if we looked at Q4 and trying to be realistic about the macro economy clearly listening just a dominant part of our business for the answers is up and coming all but still relatively young and so growth rates of numbers look big are still small relative to on installed base. So when we look at that.

Said numerous times, we think those things will come back, but we don't see them. Soon so I can't really give you a mix issues.

Keep in mind, we sell a solution. So a customer may come in to talk to David about answers, but start with listings or vice versa. So it's not really.

It's not really we're not really able to give you information about mix at this point, we can look at installed base. After the fact.

But is that I'll just tell you it's still predominantly listings business because that's what we started with and have been selling those things for over five years now. So can't help you on those particular numbers, we'll have a little bit more information at the analyst day, but again the answer is it's a new product that you typically get to sell those new products as you'd get.

Into this I think its been muted only because of the macroeconomics and so we'll look and see as the economy starts to turn around the uptake on answers, but clearly listening so should start to come back as well and anticipating that mix shift is going to be pretty hard.

Okay.

Just on the sales and self service free Upselling as well as our partner led the selling boot adobe on like for like that any new any updates any anything.

Noteworthy I know you've mentioned both of them as new channels.

That could help drive leverage going forward.

I think you can quantitatively you can see seven point improvement year over year on sales and marketing and remember all of our reps for grounded this year and so on over zoom and we've classically held events and dinners and we.

We didn't do any of that this year. So I think you are seeing leverage from partner partners, bringing us into deals and from <unk>.

Bottom up self serve and we will continue to lean into debt going forward.

Okay. Thank you. Thank you guys.

The next question is from Brett Knoblauch with bear on Bird capital markets. Please go ahead.

Hi, guys. Thanks for taking my question, maybe just curious as you look to some of the customers do you have maybe down south.

Florida, or Texas or are you seeing anything different given those dates are a bit more open compared to I guess other way yeah. We feel that we still have a $1 billion of listings in Texas. After the announced the mass come on I'm just kidding.

Yeah.

It's very hard to make geographical.

Kind of quantification.

Quantification like that because companies are headquartered.

Large enterprises are headquartered all over the world.

And so you do see a mix.

Around the world, but it generally typically mirrors the country not at this stage.

That makes sense and then maybe just one more you know as you know hopefully the economy reopens sooner than faster I guess, what gives you confidence that you ask is going on do you one of the first solution that they they turned back on I would imagine a lot of these retailers are.

I'm gonna be fighting for every single dollar given they've kind of been on a business for it for so long and you know.

Could there be a delayed turn on cycle you know as it does happen.

Hey, Brad it's David.

Here's the thing they never turned it off.

So they still use us and what Steve referred to in his comments, we're the muted upsell on that typically we would expect a greater up sell for them as they expand their own business, but for the most part we've kept them on I think what's exciting about the opportunities as they open it's not turning it off it's actually accelerating.

What they have and so my teams look forward to the seasonal upsell or they continued historical upsell that we had but they've never turned it off because if you think about it if you're a business. That's closed people still want to know about what places are open what safety protocols. You have what are the revised hours do you have in store.

Jeff Curbside pickup none of that stuff, everyone away and they never dropped their footprint with <unk>.

Okay understood. Thanks.

And Brett that's how kind of debt to Steve to Steve's point earlier that is a bit how we grow with customers they become on <unk> and oftentimes they'll start using our listings product where they put the data into the knowledge graph. We structure that then take the bitcoin company to that Dave mentioned earlier on the call then they want to turn on anthem.

And so they turn on answers and we start answering questions. These international language search for the knowledge graph and then go on board, we're going to be able to take that knowledge graph into more places support search other types of search solutions that they want to solve this all comes down to search and the number of opportunities we have now with the answer.

<unk> to go into any client, whether they're retail or food.

Is is much larger than it was 12 months ago, given our new product cycle, given our new set of products, where we can go in and we can sell them a site search solution and then once they're on our service platform with natural with knowledge graph, we can sell on the support search solution, we can sell them.

Type of search solution that they want we can expand within the client base off the knowledge gap for past us.

Understood I appreciate it.

The next question is from Ryan Macdonald with Needham. Please go ahead.

Yes, thanks for taking my questions first on on answers great to see the continued progress on success, you're having there going from 86 led deals last quarter to 130. This quarter. Just curious as you as you look at the pipeline and as you're closing deal I think Steve you mentioned at our conference in January that Youre seeing.

On an increasing mix of customers that are buying the solution off of a demo versus doing the full 90 day free trial can you can you talk about what sort of mix shifts you're seeing there on how that's if at all compressing sales cycles.

Yes.

I think Ryan it's David I can grab because I see that the point of sale every day.

The reason that we've shifted away from that and going right to a close is that we learned over the last year how to sell it we learned what's important for the customer and having that.

Historical background on those deals like what's driving it we have a bunch of references for customers now most customers would prefer to do an evaluation spend a little time with them and talked to a reference and understand that versus having to go through an entire trial period themselves. They want to go to market with a quicker and we've demonstrated that we're able to do that we've seen.

Compressed sales cycles, particularly with answers because we've had that under our belt now in terms of demonstrable success.

Excellent and I guess as a follow up for you David now sort of isn't the sole CRO structure.

Just curious what should we expect any sort of changes in terms of org structure cost structure on.

Or perhaps plans for international and CPU sort of now that it's all sort of under your umbrella.

Yeah. So that's been you know Ryan that's been underway over the last couple of weeks and what I will what I can share with you is that what I took a look at is unifying all of those so when you talk about international you talked about North America can you talk about CPU. They have come together now under this idea of one <unk> in terms of really having as many common thanks for cash.

On the scale of the business I ever Friday I have all the leaders every Friday on the call with me and what we're looking at is developing a playbook. That's the best of the best there are nuances in the different theaters, there's nuances in the different lines of business, but theres a lot of things that I want our teams to do collectively to scale the best practices across the universe.

And it's something that I personally am extremely focused on because that's the way we scale. This thing.

Excellent and then maybe just last one for Steve I just wanted to clarify did you say that from an operating cash flow perspective that you're focused on a breakeven op cash flow on a quarterly basis moving forward until you start to see some improvements in the economy.

So what I, what I meant what I said was we will be operating cash flow breakeven.

Or on an annual basis going forward.

Every quarter is different as you know because of our seasonality so operating cash flow.

Positive or breakeven quarterly is a little bit tough depending on when we have events and do other things, but on a full year basis, we've modeled out and believe that will be operating cash flow positive or breakeven every year on a full year basis, not a quarterly basis.

Excellent. Thanks again.

The next question is from Stan <unk> with Morgan Stanley. Please go ahead.

Oh perfect. Thank you so much.

For taking my question my apologies about the technical issues, we had before.

Pretty embarrassing for technical issues for software analyst.

But it was a couple of questions for my end maybe just.

On the on the answers product.

Clearly you guys are seeing momentum with an with answers on the 130 answers led deals.

In the current quarter.

When do you think you would get to a point where answers.

<unk> to be material enough as a portion of your overall business to kind of take over the growth per tonne from.

From some of the some of the other products that you have.

And in the market today.

Dan I'll take that.

Yeah.

Let's talk about what we're trying to do with answers first and then I'll, let Steve comment on on the materiality.

Everything we do at Yexed stems from the technology that we went out with on our roadshow.

Three and a half years ago, which was our knowledge graph knowledge graph is a brain like database with structured information in order to give.

Google and Apple and Facebook and Amazon.

Information about our companies for our listings product. They don't just accept flat files that data has to be structured.

It turned out that accidentally we built a bunch of structured information for.

For each of our clients in a structure or a technology, which we call our knowledge graph and our knowledge graph is what.

A knowledge graph is what makes natural language search possible every other search engine out there.

Except Google by the way, but every other search technology company out there using index based search to crawl sites and assemble an index and then has a single algorithm that gives you a set of links back.

That is how search work.

For a long time and Thats how.

Search engines worked for a long time.

And Google took things for the next level by building natural language search on top of a knowledge graph, but in order to give an answer back you have to have a database to contain the answer and so we build the database first.

For knowledge first whereas every other search engine is algorithm first because we are searching for trying to find a ton of content and you want to find a spot on kind of content you need to find the place among a number of links.

And ranked those results. So that was all about the algorithm. So every other search engine out there with keyword base or keyword searches algorithm first whereas the <unk> is knowledge first.

And as a consequence of that we can employ multiple algorithms kind of like a Google search engine results page debt. When you search for anything now you have if you search for Morgan Stanley 658 different snippets on a page and those are all coming back from different types of algorithms executing simultaneously many of them from a knowledge graph and so I give you. This.

A backstory just because of the fact that when we look at our opportunity with answers.

It's not like listings and answers, yes, theres product skus for it but it's all still in this search solution. It all starts with the data listings as all that structured data the non.

Average scrap as the database that holds that structured data and answers is the natural language search layer on top of it and every magnifying glass out there and every app and every site and every support site.

Internally externally, we intend to compete in those markets and we intend to have a search platform that's different than every other company. That's out there because we're going to have a natural we have a natural language search platform built on a knowledge graph with multiple algorithms now.

No I can't.

Look forward and tell you exactly how fast it's going to go or exactly how fast listings is going to go because quite frankly, we don't we're sitting here and things, even though they feel different and they felt in Q4, we still havent seen people going outside yet I think you are probably still at home, maybe you or I certainly am on zoom.

But when that happens it seems like it might happen then.

Im bullish on.

Where this company is going to go because you can think about a return of listings and growth in answers.

On top of this knowledge graph platform and it's hard to kind of pick them apart.

Yeah, I'd agree Howard I mean, it is a platform, we sell or try to sell to customers all of our services on the platform. Obviously as you've described in a week or two we're going to announce additional search capabilities. So it's Dan I don't think answers per se dominate search capability over time will obviously be.

Come on a larger part of our business, but that's going to take a while.

And I am also very optimistic like Howard I think the listings business as people turn around and as Dave described businesses. They don't want to make sure. They get found and provide even more information because it's going to be competitive to get your customer back so on.

Don't know what the material transition isn't as previous question, what's the mix well, we sell we sell a search solution.

I'm going to sell or we are going to solve whatever solution youre looking for here, but I do think central dominate over time, but that timing is uncertain right now given the macro economics, but I think clearly the future of this company is in search of Hawaii for IV have legs.

Got it got it that makes sense.

Steve maybe.

Maybe a question for you.

Looking at the.

The guidance for fiscal 'twenty, two 6% growth at the midpoint.

The little over a little bit on growth year on year.

And I do appreciate the.

The focus on cash flow on an annual basis staying.

Staying on breakeven or better moving forward.

But what about on the on the on the operating income side.

And on the operating margins.

Given the growth of the business.

Should we be looking for more profitability.

Out of all.

The income statement and just to really help to balance the growth versus margin equation, just a little bit better.

Yes, I mean, clearly stand on we've talked about this before you know our goal is to get to breakeven operating cash flow and breakeven non-GAAP EPS.

Clearly we've made.

Not surprising right youre going to hit cash flow before you can get non-GAAP EPS. The timeframe. So we'll talk about in the future partly because this year. So still fickle I think as we get back on track Youre going to see this business getting into breakeven operating as well, but right now I just wanted to get through Q1 and see how the business starts to Cabo.

I would say if you looked at our trends were really really close those are two principles that we've had and I think we've demonstrated we can get to one as you know we've been operating cash flow for full year two out of the lab or two out of the last three years. So we're clearly on track and I would say the trajectory is that youre seeing with improved sales and marketing spend.

Improved efficiencies and G&A habits on course to get to non-GAAP breakeven, but the timing still TBD.

Got it. Thank you so much guys.

The next question is from Tom White with D. A Davidson. Please go ahead.

Oh, great. Thanks for taking my questions.

Just to sort of double click on the kind of gross retention versus upsell dynamics that you guys talked about I guess can you just clarify is the softness the softness that you're calling out there is it is it restricted the kind of retail and restaurants, and and and maybe a M.

Yeah.

Or are you are you starting to just kind.

See.

You know, maybe a broadening of that dynamic across your customer base and then just a follow up on the answers.

For folks that don't convert from the free trial, what's kind of on the main kind of pushback that you get in.

I'm curious, whether you think there's a chance for conversion rates from the free trial to kind of meaningfully improve maybe once the macro backdrop, it looks a little bit more stable for our company.

Right.

Steve do you want to take the.

Retention and up sell dynamic.

Free trial dynamic.

I think in Q4, I mean clearly.

Our upsells across the board have been challenged primarily on location businesses as David described EMEA spin Charles because its been locked down we don't anticipate much of that change right now I think in the other businesses. So the ones that we started to address with the answers are too new to even start to talk about ourselves we have seen a few customers and a very limited basis.

Hit or exceed their capacity. So they were upgraded there, but not enough to change our up sell model at the moment, that's where we're looking for and I think one could suggest that as the macro economy comes back we will see our our net retention returned to more normal levels, but it's just a little too early to do that but the clear.

Restaurants are not expanding.

Hotels are not expanding and thats the major driver right now of our impact.

Yeah, and with regard to answers Tom we felt we saw pretty good conversion rates from our free trial industry standard for ending the free trial at the end of the month in fact, we're so confident in our ability to sell answers. We are now just showing up in closing answers deals. We will do pilots for enterprises that want to validate that our technology works and you will.

Also continue to see on our website as we target developers that want to kick the tires on the technology there'll be able to build accounts and get sand boxes and used parts of the natural language search and knowledge graph for some period of time with some capacity limits, but it's for the free trial.

Offer that was a great way to get the product going we're excited with where we got we clearly not just got a lot of free trials, but closed a lot of real transactions with some amazing logos and traction.

We're very confident in our ability to continue to sell this going forward without the free trial as we build up awareness that we can offer a better and faster and cheaper searched any other search technology out there.

Thank you.

This concludes our question and answer session I would like to turn on the conference back over to you go broader it for any closing remarks.

Thanks for your time today, everybody and we're looking forward to seeing you in a couple of weeks at the Investor Day on March 17th. So Please go register on our website hockey all day.

Thank you.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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