Q2 2022 Yext Inc Earnings Call
Good afternoon, and welcome to the Yexed second quarter fiscal 2022 earnings conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After today's presentation there'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.
<unk> note. This event is being recorded.
I would now like to turn the conference over to Jeff Houston, Vice President of Investor Relations. Please go ahead.
Thank you Gary and good afternoon, everyone welcome to the <unk> fiscal second quarter of 2022 conference call with US today is CEO, Howard Lerman, President and Chief Revenue Officer Officer, David risky CFO, Steve case bread and Dom personnel.
Senior Vice President before we begin I'd like to remind everyone that this call may contain forward looking statements, including statements about revenue non-GAAP net loss operating cash flows operating margins product roadmap and timing demand for our new products.
Net dollar retention 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.
The evolution of our industry, our product development and success, including 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 descriptor.
Descriptions of these and other risks that could cause actual results to have material difference from these forward looking statements are discussed in our reports filed with the SEC.
Including our most recent earnings quarter and annual reports.
And our press release that was issued this afternoon.
During the call. We also refer to non-GAAP financial measures reconciliations with those most comparable GAAP measures are also available in the press release, which is available at investors <unk> Dot com.
With that I will turn the call over to Howard Howard Thank.
Thank you Jeff.
I'm pleased to report we had a solid second quarter revenue of $98 million exceeded the high end of our guidance by $2 million driven by new customers and Upsells non.
Non-GAAP EPS exceeded our guidance by one cent as we continue to increase operating efficiencies, while maintaining a strong cash position and we continue to build momentum with answers the cornerstone of our AI search platform.
During the second quarter, we closed 70 answers deals compared to 38 in Q2 of last year and we increased the answers average new logo ACB by 19% compared to Q1 of the year.
Last quarter, we expanded our platform into customer support with our support answers offering during.
During the second quarter support answers drove an upsell to first citizens bank and new logo deals with frontier Communications' first National Bank and Revlon support answers continues to drive larger deals and it's helping to expand our relationship with existing customers and unlock opportunities in new industries. In fact support answers has.
Helped our pipeline of digital companies grow beyond our traditional base of customers with many physical locations. We've also won new support answers business over legacy search players I'll Golilla covalent lucid work proving that our continuous innovation is helping distance yexed from the competition.
And to further scale support answers opportunities, we announced an integration with Zen desk. This enables our mutual customers to use the accident Zen desk together to strengthen their overall customer support offerings. Our integration enables businesses to add in AI powered search engine to their existing health side, so that customers can more easily get accurate answers to their <unk>.
<unk> directly from our brand's knowledge graph and by enabling customers to more efficiently self serve support answers helps reduce ticket volume and save on operational costs.
There are issues that require a more hands on approach and support answers helps agents with their customer interactions yet.
AI search directly on our company's internal Zen desk agent help desk with that agents can access relevant answers in real time. This customers are filling out the details of their issue. This means agents are more empowered more efficient reducing friction in the customer experience, which leads to higher customer sat scores.
The Zen desk integration follows our successful collaboration with Adobe, which contributed to the frontier communications with.
Most recently, we announced <unk> AI search for Salesforce service cloud on the Salesforce App exchange our collaboration brings the best of our platforms together as it enables our mutual clients to augment their existing Salesforce service cloud powered help sites agent consoles and support forms with support answers. We're excited about this integration with Salesforce.
As it highlights the large market opportunity that exists for support answers. In addition to scaling our solutions through new product relationships with notable companies like Zen desk in Salesforce, we continue to innovate our platform to unlock more opportunities our summer release introduce many cutting edge features including an updated data connector.
Framework, enabling businesses to extract data from multiple new sources and connected to their knowledge graph. For example, with these connections yes customers can integrate with their Zen desk count in only about 15 minutes, we built multiple connectors and plan to significantly increase that number by the end of next quarter.
In an effort to make our search results even more powerful we updated our search algorithms to enable dynamic re ranking that means search results will be delivered in order of what users had previously engaged with since that is a strong indication of preference. We also added semantic search this surfaces pictures and gifts to the already rich.
Text based results in these key enhancements are just a few examples of how we are helping to move the enterprise away from outdated index based keyword search to more intelligent dynamic way of delivering answers to customer questions using natural language and from a knowledge graph.
In summary, we navigated the quarter well I'm proud of our team for their focus and execution, while full global reopening remains difficult to predict I am confident that <unk> will continue to play a critical role in helping businesses accelerate their growth with AI search now I'm going to turn the call over to David <unk> Our president.
And chief revenue officer to share more quarterly information on the second quarter.
Thanks Howard.
Thanks, Howard we had a solid second quarter as we continued to win new logos and upsell customers.
Our answers platform is leaving the competition.
Our expansion into customer support was support answers combined with our Zen desk and Salesforce strategic partnerships have given us even more opportunities our product team continues to innovate at a remarkable speed and our messaging around how AI search can immediately transform a business is really starting to resonate I'm pleased.
With what we've achieved and I couldnt be more excited for the road ahead.
I'll take you through the details.
Sure some of the highlights of the last quarter.
The total number of Bx direct customers, excluding SMB and third party reseller customers increased 23% year over year to over 26 Andre.
Our direct excluding SMB and resell our customers what they are over $100000 totaled 592 at the end of Q2 up 17% year over year, reflecting continued success with larger customers such as mainline health Frontier Communications and Wells Fargo.
We continue to see momentum with the answers search platform with 70 answers led deals closed in the second quarter up from 38 deals in the second quarter last year.
I'm also happy to share the average answers new logo deal size increased 19% quarter over quarter as we continued to build momentum with answers.
New logo signings included World class brands, such as UNC Health, Jackson Hewitt, Georgia, Armani, Prisma health attack our.
We continue to make solid progress selling support answers, which has only been in the market since the first quarter.
As I noted back then enterprise support is a big ticket item and we're starting to see larger rfps for support answers in the second quarter first citizens Frontier Communications first National Bank of Revlon, All science support answers deals.
Notably we are quickly evolving from a product driven sale to a platform focused sale as we expand our offerings across multiple solutions to sign new customers as well as renew existing ones and up sell others.
Notable renewals included Fedex Liberty Mutual insurance Company Marriott International Mount Sinai Hospital, Tiffany <unk> company rental company Enterprise Holdings.
And mortgage service provider guaranteed rate, we also renewed a number of technology companies such as cellular yourself for tusa and Vodafone as we continue to expand in the sector.
Upsells during the quarter included well known luxury brand Christian Dior Couture health care providers, such as Miracle ear Medical University of South Carolina, and United Health Care Services. In addition to financial services companies, such as Broadridge goes head insurance and the Toronto Dominion Bank, we did.
Faced some challenges in parts of the world with the resurgence of Covid due to the Delta variant.
Our international markets became challenging July, particularly at the end of the month.
This delayed some contracts in Europe, and we experienced similar obstacles in Japan. However, we focused on what we could control during the quarter and delivered results that beat our guidance. This is because what we offer solve big problems and delivers big ROI, which has led to high activity levels and in many instances.
Engaging in C level conversations.
Overall, I'm happy with our navigation in Q2 looking ahead, we have a solid pipeline entering the second half of the fiscal year and I look forward to delivering our best in class AI search platform to new customers with that I'll turn the call over to Steve Steve.
Steve you might be on mute, yes, sorry, thanks, Dave Hey, we had a good quarter revenue above guidance strong cash position and continued operating efficiencies, we're making meaningful progress building the answers platform and increasing awareness.
While reopening has been inconsistent around the world as Dave described particularly with sudden setbacks in Europe. We're in a good position to help our customers when they start reopening are.
Our second quarter revenue grew 11% year over year to $98 million unearned revenue increased 12% year over year to $165 million.
With $378 million, and that's up 12% year over year.
Our total trailing 12 month net dollar based retention, which excludes SMB customers was 98% and our trailing 12 month net dollar based retention for direct which excludes SMB and third party resellers was 100%.
As we mentioned last quarter net retention is a trailing 12 months number and similar to Q1 Q2 comparisons include the ongoing impact of the pandemic from Q2 last year with the reopening being elongated and even now.
Turning to non-GAAP results, which are reconciled to GAAP in our press release Q2 gross margins were 75, 2% this quarter and that's compared to 76, 5% in the year ago quarter.
The decrease in gross margin was primarily driven by higher employee costs are.
Our Q2 operating expenses were $87.0 million or <unk>, 81% of revenue and this is down from 84% in the year ago quarter.
We remain focused on cost management and efficiencies and once again drove margin leverage in sales and marketing and G&A with sales and marketing expense.
Creased three percentage points as a percent of revenue from 55% in Q2 of fiscal year 'twenty, 1% to 52% Q2 fiscal year 'twenty, two and G&A expenses decreased as a percent of revenue from 18% in Q2 fiscal year 'twenty, 1% to 16% in Q2 of this year.
We continue to focus on improving selling cycles productivity with systems and processes improvements, while investing in revenue generating opportunities in the second half of this year, such as marketing events and product launches.
Our Q2 net loss was $8.0 million compared to $16.0 million loss in the year ago quarter, and our Q2 net loss per share of <unk> <unk> compares to a seven cent loss last year.
Cash and cash equivalents were $240 million at the end of the second quarter. We continue to have a strong balance sheet and it positions us well to invest in growth, we expect going forward.
Net cash flow from operations for the three months ended July was a negative $38.0 million and that compares to a negative $21.0 million for the three months ended July 2020.
On a six month basis, we generated $6.0 million of net positive cash flow from operations and that's up from a negative $19.0 million for six months ended July 20.
Capex was $4.0 million in the three months ended July 21, and that compares to $26.0 million in the three months ended July $2022.0 million of that three was for facilities build out.
For fiscal year 'twenty, two we continue to expect total capital expense to be about $15 million as a percent of revenue. We expect it to return to more normalized annual run rates closer to historical levels going into next year.
Turning to our outlook, we expect Q3 revenue to be between $102.0 million and $103.0 million and we expect non-GAAP net loss per share between six and eight cents.
That has a weighted average basic share count of approximately $134.0 million shares in Q3.
For full year fiscal year 'twenty, two we expect revenue of between 386 million to $388 million. Our non-GAAP loss per share is expected to be between 44.
And this assumes a basic weighted average share count of approximately $136.0 million shares.
I'm excited about our continued innovation across the answers platform and the potential our solutions offer we're encouraged by the uptake the demand and conversations we're having in the marketplace. While the macro picture continues to develop and remains difficult to predict.
We are investing into the opportunity to best position ourselves for when reopening occurs and.
In summary things are good we're just waiting for things to get better with the reopening going slower due to delta variant employment supply and demand alignment issues persisting, we are well positioned as macroeconomic continued conditions continue to improve.
We're improving our products diversifying our customer base as you heard from Dave improving our processes.
Working on the things that are under our control with that I'll turn it back to Howard with some closing remarks before Q&A Howard.
Thanks.
In closing instead of our annual onward event.
Classically, we've decided to host 40 events for our customers and prospects across the globe over the next.
Several months, we're referring to these as reunions. Our recent brand campaign was deemed around a reunion for the class of $118.0, and it also feels like it's been about 20 years since we got together with our professional colleagues in France. So we will be activating these experiences in local markets over the coming weeks.
Forward to seeing our customers there.
Also join US on September 14th we're hosting a webinar with one of our first support answers customers technology provider Samsung for customers and prospects to learn about how Samsung is preparing its support solution for the holiday season.
Operator, we're ready to open up for Q&A.
We will now begin the question and answer session to.
To ask a question you May press Star then one on your telephone keypad. If you were 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 comes from Matt Coss with J P. Morgan. Please go ahead.
Hey, good afternoon, and thank you for taking my question quick.
Quick question on answers I know, it's very early but are you seeing any NPS scores or other success metrics improve at your customers who have implemented support answers I know you might not have that data quite yet, but I'm just trying to get a feel for the tangible ROI customers might be sharing with you after Dave.
Then using answers for a little bit.
Matt Thanks for the question cusp.
Customers, usually implement <unk> support answers for three parts of their our ROI. The first is increased transactions as you know with natural language search when a customer runs a question.
And ask the question theyre going to be getting maps back and customers.
Or other types of transactions and customers can.
Create whatever transaction button they want some trends increased transactions as the first second is reduced support tickets and.
Finally, with a number of the large support platforms Ceos and executives and they tell me that right now their customers are being crushed with a number of support tickets.
Really want to help them with with our support answers solution is reducing the number of tickets that come through and there is a different in a number of different ways. You can do that but one of them for case deflection is the ability for UX to answers to scan a ticket is it's being written.
And as a customer as one of their customers types and a ticket. If we can find the potential answer we will surface that using <unk> will also show that that same answer to the help desk agent within the agents Helpdesk and Zen desk, our service cloud and and that reduces support tickets and then you know as you said, obviously better customer satisfaction, there's two places.
<unk> can happen it can happen in your own site can happen on Google and Google doesn't answers support questions about your brand as well as you can and every time you can answer a question you are keeping that customer journey engaged with you and not letting them go back to Google.
Okay. That's helpful. Howard Thank you.
And Steve I know, you've been enjoying year over year gains in sales and marketing leverage and.
The sales marketing as a percent of revenue has been fairly steady recently.
I know at some point Youll get back to traveling and doing a lot more in person.
Customer visits among your sales force is there a chance to see some of that sales and marketing leverage erode or or should we sort of look to.
Gradual leverage there, yes, I think you'll look too.
A little bit slower obviously improvements in the sales and marketing number but our goal is to continue to improve that year over year and quarter over quarter. So.
Yes.
It flattened out a little bit as we get back in and get our peak zone here, which is really important as Howard said to get out in front and meet our customers again, but I don't see us going backwards.
I. Thank you very much.
The next question is from Ryan Macdonald with Needham. Please go ahead.
Hi, Thanks for taking my questions and congrats on a nice quarter.
Just be curious to hear.
An update on the listings offering in <unk> and what Youre seeing with customers in terms of you know.
We're starting to see foot traffic back again domestically, obviously delta is creating some uncertainty, but but how how your customers are starting to think about expansion opportunity and what that could mean for listings billings as we look into the back half of this year.
Thanks, Brian we had a pretty good quarter in North America in particular, I think as Dave said, we encountered some challenges in the last month of the quarter in Europe.
With regard to listings, we continue to see.
Maps transactions still on their way back to 2019 levels and they're.
The reality is that listings is the fuel for answers and so we sell a solution to our customers and many customers that have purchased listings are able to.
They are able to get going with the answers because all the data is sitting there in their knowledge graph.
And we continue to believe that listings can be a good business for us going forward.
North America was pretty good this quarter and you know <unk>.
Europe got challenged by the Delta in July.
Thanks, Alright, and maybe a follow up for Steve you called out on gross margin the gross margin impact from sort of higher.
Costs.
For Labour just curious this is a trend we're starting to hear from more and more organizations.
Should we think about that that continued impact of higher labor costs as we think about the back half of this year as it relates to gross margins. Yes. That's a good question I think most of our increases yes, we did do some wage and salary increases this past quarter, but it's also we're hiring more professional services people and that of course impacts our margin.
A little bit until they get up to speed and get Colin So I expect our margins to continue to be in the mid seventies as we've talked about and I think this is more of us.
Ramping up our professional services group, a little bit than it is necessarily seen wage inflation at this point no doubt, though theres competition for workforce in the marketplace.
Thanks, very much I'll hop back in the queue.
The next question is from <unk> Khan with <unk> Securities. Please go ahead.
Yeah, Hi, this is Nick <unk> on for into that Thank you for taking my question.
I know you said re openings have been inconsistent across geographies, but maybe can you give us sense of how sales trends changed in August versus second quarter and maybe also.
In August versus July.
Dave do you want to take that.
Sure.
So hey, Nick it's taper Netsuke, we did see things got a little challenging towards the end of July and all of a sudden things start picking up again in August.
And we've got Ah.
Fair amount of activity going on some of those deals that we thought were a little bit more challenging towards the end so.
We can't declare victory in terms of what's happening right now, but it's certainly look promising coming into August.
Yes.
Got it and then maybe just a follow up.
How much of a driver to growth do you think that the sales force integration can be.
And well you know it's brand new but when I look at it if you think about how big that service cloud is in the footprint. They have I think it could be significant.
Got it that's helpful. Thank you.
The next question is from Arjun Bhatia with William Blair. Please go ahead.
Perfect. Thank you very much.
I wanted to touch on maybe the Delta variant impact again, I know you mentioned that.
Most of the impact was in Europe, and in Japan, but obviously, we're seeing that impact in North America as well with.
Since reopening was delayed back to work delayed a little bit.
Mass mandates et cetera, I'm wondering if that's coming up in your customer conversations at all here in the U S. As you look at your domestic customers or if it's.
More.
Just an international issue at this point.
Dave do you want to take that yeah. So.
Here's what we're seeing you know we still have a very high level of activity. We have a lot of interest we have a lot of customer engagement.
Folks are talking about it but if you think about if we rewind a year ago.
I would say most every software vendor was better prepared for work from home our customers weren't most of them didn't have set up to at home might have had to navigate the challenges of having children at home.
How to get themselves set up weren't accustomed to working remote.
The world's changed they are used to it and I think what's happening now is that the reason, we're having a high level of engagement a lot of it is in person they want to get together.
And I will tell you that we have this gorgeous brand new building, we opened up and work with our headquarters in we've got.
Several really really important meetings that we've been having there we have this executive briefing center, we've had a number of customers come in.
They can't wait to get in there the level of enthusiasm has been terrific and so we've seen this engagement quite a bit are they talking about it yeah, but.
But I haven't seen them hesitate in terms of engaging with us wanting to meet and quite frankly, using our headquarters as the venue to get together and have some have some of these conversations so it's been pretty encouraging but yeah. They do talk about it.
Not out of the woods, yet in terms of what the world is faced with.
But I certainly have seen a lot of momentum building up in terms of engagement.
Okay, perfect and is there any kind of.
The bifurcation that you you can do between answers deals and <unk>.
Listings deals because obviously.
The answers deals you know someone can make an argument that there might be a little bit of a tailwind.
And as additional.
As a digital project product for possibly digital only.
Just all in the company for that physical footprint.
Well I can tell you that.
And I spoke about this on prior earnings calls we've oriented ourselves around being a platform company.
And so more than 50% of our pipeline is answers led now so answers is an integral part of how we position ourselves it's an integral part of the platform.
So it's very much part of what we you know as part of our normal course of business.
To look at it as a solution a platform oriented sale versus a product sale.
Alright, perfect very helpful. Thank you.
Thank you.
Again, if you have a question. Please press Star then one.
The next question is from Rohit Kulkarni with MK M Partners. Please go ahead.
Oh, Hey, thanks for taking my questions.
Nice quarter, guys, I guess, you talked about support on storage, but historically, you've talked about a couple of good verticals.
Marketing and envelope for answers and.
E Commerce answer any more color on how other verticals all of our solutions to specific verticals are progressing any.
New deal so all the amounts I mean could you can check.
Rohit. Thanks, the customer journey starts with a question and that question can either happen on your own.
Site your own help set your own website, one of your own App store can happen on Google and our marketing answers and support answers solutions are designed to help companies engage with their customers, regardless of where they might be and so.
The support answers solution is uniquely tailored to be sold to the head of support that is it solves a little bit of a different use case and that we can integrate with Zen desk or now Salesforce service cloud to pulling that help site to put all the help articles into a knowledge graph to make sure that they are <unk> and <unk>.
<unk> be able to put a true AI search box on top of the the.
The company's helped site in order to meet that customer at their exact moment when they might have a question in the results of that is is reduced tickets increased CCI scores.
And one single knowledge graph to power answers on the company's health site on their own.
Marketing site and even in Google one single knowledge graph to do all of that as opposed to keyword based index search, which simply look for literal string equivalency matching and documents and don't help really truly answer customers' questions.
The E Commerce solution.
We have technology to be able to help companies get their products in and do that but really our main focus right now and where we're seeing momentum deals are in marketing and support answers as those are fully focused on the customer journey. We also are working on workplace answers workplace to answers enable our company to index.
Have a knowledge graph of facts across their enterprise and bring in.
Data from various systems connected and be able to offer employees and experience, but we're not quite ready for that yet and we're totally focused on.
Our answers platform, serving the chief digital officer, and helping companies manage their customer journey with our answers today.
Oh, Okay, Great and then maybe a question for Steve on this comment around the delayed contracts with Europe and Japan.
And you made that you can quantify or even quantify how you thought about GQ in second half with a better I mean, what you've seen recently.
Did.
As David said, we saw some pretty significant slowdowns at the end of July It's August where people are on vacation. So chasing people around my particular view is that sometimes pull ups and sometimes push outs net out. So we don't really see any major bumps going forward right now either up or down but.
It is with everybody.
Working from home on zoom and others. It is a bit challenging sometimes to chase down the stuff, but I think as customers get more experienced we're dealing with that and im pretty sure as we get our sales teams back in front of customers and live person. If you will that's going to help it out, but theres no real up or down here that youre seeing in terms of that right now.
Okay. Thanks, Thanks, guys.
This concludes our question and answer session and the conference is also now concluded. Thank you for attending today's presentation. You may now disconnect.
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