Q3 2022 Yext Inc Earnings Call
Good day and welcome to the <unk> third quarter fiscal 2022 earnings conference call.
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I would now like to turn the conference over to Jeff Houston Head of Investor Relations. Please go ahead.
Thank you Sarah and good afternoon, everyone welcome to the <unk> fiscal third quarter 2022 conference call with me today are CEO, Howard Lerman, President and Chief revenue Officer, David <unk>, and CFO, Steve kick Brian.
Before we begin I'd like to remind everyone that this call may contain forward looking statements, including statements about revenue non-GAAP loss growth of our business.
Including with listings and answers as well as geographies such as Europe.
Gross margins operating margins net dollar based retention capital expenditures and other non historic or 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 answers and general economic and business conditions, such as the impact of COVID-19 pandemic.
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 have a material difference from these forward looking statements are discussed in our reports filed with the SEC.
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.
Reconciliations with the most comparable GAAP measures are also available in the press release, which is available at investors <unk> com with that I will turn the call over to Howard.
Thank you, Jeff Hi, everyone welcome to our third quarter earnings call, we had a solid quarter revenue of $99 $5 million exceeded the high end of our guidance by $1 million, reflecting strong execution against our growth plan, including renewals.
This quarter makes us optimistic about the future we're seeing positive signs that our listings business is beginning to recover answers is growing our land and expand sales strategy is coming together Europe's growth is re accelerating and we still have yet many new growth vectors to tap let me start with listings.
Listings, a RR bottomed out at 1% growth year over year in Q4 of last year and his since re accelerated to 5% year over year growth. Most recently in Q3.
While listings is showing signs of recovery answers is growing quickly answers is sustained triple digit AOR growth exceeding 130% on a year over year basis for the past 12 months and is now a significant portion of our incremental air our mix.
And we're landing and successfully expanding several leading global brands all of whom landed with a small footprint in listings or answers now have an ear our base with millions of dollars of Bayer are as they expanded with a deeper foothold across the platform and so for example, a large telco we landed in Q1 fiscal 2016.
<unk> for just a couple of hundred thousand dollars in IRR has increased over 11 ax to an <unk> base of more than $3 million as of the third quarter. This year by expanding across our <unk>, our search platform with more products and solutions.
With more products and solutions to sell in demand from our clients recovering sales productivity of ramped reps in our direct channels has increased over 50% year to date compared to last year.
Europe Europe grew air are in excess of 30% year over year during the third quarter.
Renewals renewals in financial services and health care were strong this quarter and we're starting to see some industries impacted by the pandemic return such as retail restaurants and luxury brands. This quarter's renewals included Dolce and Gabbana Krispy Kreme P F Chang's top golf and fashion brand y itself.
The data from the third quarter suggests that we reached the bottom in Q4 last year and we are on the road to resuming our pre pandemic state.
We're optimistic about the future growth opportunity of our business because of these trends and also because of new growth factors as we continue to innovate.
We've built a robust platform that enables us to innovate quickly launched new search products and adjacent categories for cross sell and layer on solutions specific to an industry. Your business based on their knowledge graph. This quarter, we launched new AI search industry solutions in health care, and denser and announced a strategic partnership.
The Aqua following partnerships with other technology platforms that expand our market opportunity like the collaboration with Salesforce. We discussed last quarter, we will continue to innovate and create unique solutions for our customers and partners every quarter, and we're bringing new AI search ideas and product categories to our customers drive.
Further upside to our plans.
I'll highlight just a few first product listings there for products what location listings offer physical locations. For example, many cosmetics originated on Revlon dot com, but the product content for makeup items beauty tools and hair products must also end up on dozens of e-commerce sites content like pictures product specifications price.
And more must be synced from a single source of truth across multiple endpoints, which is the exact same problem. We saw for locations product listings is an area a new area, where we are well positioned to enter and compete I'll try about chat and guided search.
They are rising in popularity and our ability to answer questions completely free form is the perfect overlay for existing chat offerings that blend the best of natural language understanding, which we do with future workflow, which we plan to develop based on the knowledge graph powering conversational AI search listings in everything from one.
Spot, we see a huge opportunity to compete in this market.
Finally, workplace answers or what others call enterprise search behind the firewall is one of the most commonly requested features from our customers and we're building the scale connectors and security features to enter this market with.
With this level of innovation, we are well positioned for the future I've never been more confident in our vision speaking of I'll turn the call over to Dave <unk>, our president and CRO to share more information about the third quarter, Dave. Thanks, Howard we had a solid quarter with consistent results across channels geographies verticals.
New logos and renewals.
Direct sales productivity is returning and every group in every region was part of this quarter success. This quarter, 53% of the customers that renewed were upsells are positive indicators that makes us optimistic about the future.
We're also encouraged by our increased engagement with customers as mentioned on last quarter's earnings call in lieu of our annual conference called onward, we're hosting a series of 40 in person field events that started the beginning of the third quarter call. The search bar reunion tour.
We continue to host meetings with customers and prospects at our executive briefing Center in our New York City Office, where we will increasingly engaged in high level conversation with C suite executives, including CEO CIO and CTO to name a few.
Theyre, telling us that theyre looking for a universal search solution to manage their entire customer journey, our customers are choosing <unk> to help them solve business problems they range from ours and locations to marketing it support.
Businesses around the globe are recognizing that the customer journey starts with a search and search enables them to run their business better now I'll take you through the details and share some highlights of the third quarter.
The total number of VX direct customers, excluding SMB and third party reseller customers increased 20% year over year to over 27 Hunter.
Our direct excluding SMB and reseller customers with over $100000 totaled 602 at the end of Q3 up 16% year over year.
New logo signings included World class brands, such as Citibank product Quest diagnostics and Parkview health.
With Citibank, we now have eight of the top 10 U S banks utilizing yex AI search platform, we continue to see momentum with answered with 91 answers led deals close in the third quarter up from 70 deals in the second quarter. This year.
Support answers deals more than doubled quarter over quarter in the third quarter, we signed some of the largest support deals with technology companies, including greenhouse Broadcom and outreach demonstrating how answers has enabled us to help businesses in industries like technology, which did not have a large physical presence.
American Eagle and Autozone, which do have a large number of physical locations also signed support answers deals.
Renewables in financial services, and health care were particularly strong and included Fidelity H&R block Morgan Stanley and RBC in Health care Humana Providence Health, New York Presbyterian Hospital also renewed.
Other notable renewals, including Comcast and Goodyear tire.
Upsells during the quarter included a healthy mix of well known global brands across all verticals, such as Burberry J P. Morgan Chase Kia Motors, Macy's Mcdonalds subway, United Health care and for Tusa, several leading global brands have expanded their <unk> by millions of dollars over time.
Including our core Altice Verizon of Wells Fargo.
Good indication that our land and expand strategy is working.
Internationally, we signed notable customers, including Sainsburys supermarkets in EMEA.
And I saw you in Japan.
We delivered a solid Q3 with participation across the globe a notable increase in our customer engagements and strong renewals and Upsells, we have momentum going into the fourth quarter and I'll look forward to a strong end to the year with that I'll turn the call over to Steve.
Thanks, Dave as Dave said Q3 was solid revenue above guidance strong cash position continued operating efficiencies. We view this quarter's results as an indication that our platform sales approach is working and our continued product innovations have positioned us well to capture growth as customer confidence returns.
Third quarter revenue grew 12% year over year to $99 $5 million on earned revenue increased 18% year over year to $151 million and <unk> was 387 million, that's up 12% year over year.
Our trailing 12 month net dollar based retention for direct excluding SMB and third party reseller customers was 100% now this metrics seem to have found its floor. Given this quarter's upsells. We would anticipate this metric to improve over time, given our trailing 12 month methodology.
In addition, we saw strong gross retention in Q3, returning to more normal levels.
So turning to non-GAAP results, which are reconciled to GAAP in our press release Q3 gross margin was 76, 5% this quarter and Thats up from 75, 2% in the second quarter of this year keeping in mind, we made some investments into our professional services and support teams last quarter, we continue to be in our law.
Long term range of 75% to 80% gross margins on a non-GAAP basis.
Q3, operating expenses were $81 million or 81% of revenue and thats up slightly from 80% in the year ago quarter, while investing in revenue generating opportunities such as marketing events and product launches.
Sales and marketing as a percentage of revenue quarter to date decrease from 53% as of Q3 fiscal year 'twenty, 1% to 52% as of Q3 fiscal year, 'twenty, two and sales and marketing as a percentage of revenue also decreased from 56% and 21% to 53% in 'twenty two.
G&A as a percent of revenue has been relatively flat on both a quarter to date and year to date basis.
Our Q3 net loss was $5 $5 million and that compares to a $2 $8 million loss in the year ago quarter.
And our Q3 net loss per share of <unk> compares to <unk> last year.
Cash and cash equivalents were $230 million at the end of the third quarter and we continue to have a strong balance sheet and we're well positioned to invest in growth as we expect going forward.
Net cash flow from operations for the three months ended October 2021 was a negative $9 $7 million and that's compared to a negative seven 4 million for the three months ended October 2020.
But on a nine months basis cash flow from operations was a negative $7 3 million and that compares to a negative $23 7 million for nine months ended last year October 2020.
Capex was $1 8 million in the three months ended October 21, and that compares to $13 nine in the same three months ended October 2020, but we're returning to more normalized annual Capex run rates.
So now turning to our outlook, we expect Q4 revenue to be between 100 million and $102 million, we expect non-GAAP net loss per share between eight and 10 cents. That's assuming a weighted average basic share count of approximately 133 million shares in Q4.
For the full year of fiscal year 'twenty, two we expect revenue of $389 $7 million to $391 $7 million, our non-GAAP loss per share is expected to be between 2020 two.
This assumes a basic weighted average share count of approximately $127 eight.
8 million shares.
Hey, I'm excited about our continued innovation across the answers platform and the improving growth in our listings business listings is seeing strong indicators of recovery, our land and expand strategy is working and sales productivity is improving Europe's returned to growth and we have a strong platform under which we continue to innovate.
We're in a good position to capture long term growth as macroeconomic conditions to continue to show signs of improvement and I am excited about our future potential with that back to Howard.
Steve list.
Listings has bounced back from 1% to mid single digit growth. While there are other products in our portfolio are growing north of 30%.
All other products, including answers by the way, which is growing in triple digits. We are.
On the road to recovery operator, we're ready to open it up for Q&A.
Thank you we will now begin the question and answer session.
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At this time, we will pause momentarily to assemble our roster.
Our first question comes from Arjun Bhatia with William Blair. Please go ahead.
Yeah.
Hi, This is Chris on for origin, just first of all congrats on the solid third quarter.
So get the macro has been a bit of a headwind to customer expansion over the past year, but you've touched on gross retention a bit and kind of want to double click on that and they said, it's returning to normalized levels, but can you help us quantify kind of roughly where that is today and where it was during the floor of last fall.
Yes or.
The previous couple of quarters, when we were into a major COVID-19. It was dramatically lower and I, we don't give out the number because there's a lot of math involved in both of these I'll just say that it's recovered dramatically into this back into line with what we've seen pre COVID-19 like.
Fiscal year, 'twenty and net retention like I said, it's kind.
Hit the floor, but we've seen yes, it's only.
100%, if you will and you would expect it to be higher but a lot of the upsells are starting to come back and Youll start to see that now start to work in our favor going forward here. It just as tough when you have trailing 12 quarters and remember in this math. We are Q4 last year in Q1 of this year and both were very tough quarters on retention. So we're comfortable.
With where we're going here and as Dave said a lot of good upsells are starting to come our way. So we're excited about that keep in mind Q4 is a big renewal quarter. So there's some more potential for ups or upsells, there as well and that will start to influence. The number you are saying.
Got it that's really helpful. Thank you.
And so you mentioned customer demands coming back a bit so with that how are you thinking about investments going forward. You know what are some of the priorities going into next year and are there any areas that you can pull back in over the past 12 months to 18 months that you know kind of reinvesting. Thanks.
Howard you want to do that.
You know one of the things about investments is that we're going to continue to if you look at our R&D investments, we don't necessarily need to increase them as a percentage of revenue, we're going to keep them, where they are and still come up with a bunch of great stuff. So we feel really good about our R&D, we feel really good about our ability to innovate and deliver.
Some forward looking products on top of what we already have.
Scott you didn't spend.
Great well. Thank you very much thanks for taking my questions. Thanks, Chris.
Yeah.
Our next question comes from that upon withdrawing Securities. Please go ahead.
Yes, thanks, and thanks a lot.
Couple of questions.
On the on the new wins that we're getting what person data includes answers versus listings feeney.
With that I would put us and then on the.
Guidance Steve.
People are talking about this.
And the new.
Wireless.
And then maybe it's still too early to say.
And in fact, when it might be but when you look out into Q4 guide what are you assuming there.
And then I have a quick follow up.
Yeah, Let me take the guide for a minute one is we feel very comfortable with the guide.
As you know in subscription business, you have pretty good insight into where things are going.
The couple of things and I know <unk> mentioned this a couple of times, but our product mix has started to shift from listings to answers, which has helped us out dramatically.
We're getting broader industry segment base as well so.
Not as concerned about any type of future variants or whatever and we're kind of you know our sales team has been getting productive through all this period as well. So we feel good about Q4 guidance. We're clearly working on next year, So I won't really get into that number.
But I think the shift in the business mix that we have the shift in the industry segment mix that we have the continued.
New product offerings that take us away or mitigate some of the direct listings business.
Going to help us out, but also point out we had a lot of customers that Dave talked about that are back in retail and hospitality. So I do think things are starting to return here and we feel comfortable that the guidance. We gave is solid for right now for Q4.
And then the answers listing mix Staver Howard you want to talk about that.
Yes.
Nevada.
Non listings answers.
<unk> grew 30% sorry, non listings <unk> grew 30% year over year.
And answers are are which we've said is growing 130% year over year.
And so when we think about the overall contribution answers has on the business, which is what I think you are asking.
And include the support and recurring services and other products that are or is growing around 150% year over year and is roughly $20 million of total <unk>.
And I just want to be clear this is not a prescriptive metric, but its an estimation of sort of that contribution.
Yes, I think that's part of the shift in our business model mix as part of the shift in industry mix that youre seeing too. So you know going into next year, we're going to have a strong product offering and a strong industry mix that'll.
That'll take advantage of all the macroeconomic things going on I think.
Got it a quick follow up if I may.
So.
The productivity up $50, San Diego and you.
Pointed out if I had to think about sales.
Gallons.
And I think you spoke previously about 215, maybe is a good number.
And I guess you are not.
Ready to share the number for next year, but how should we think about the productivity gains.
And that being neighborhoods into next year, Yes, I think the productivity has been a great improvement. It certainly gives us a lot more resources as you know, we like everybody else expense experienced challenges in recruiting good sales reps, but this covers that no matter what our numbers are for quota carrying head count next year, we have enough capacity.
Due to do and run the business that we want and improving sales productivity is kind of job one at the at the moment.
Okay. Thanks.
Thanks, you guys and congrats.
Thank you. Thank you.
Our next question comes from Ryan Macdonald with Needham. Please go ahead.
Hey, guys. This is Josh on for Ryan Thanks for taking my questions and nice job on the quarter.
So I believe you recently increased your vertical focus here announcing expanded functionality in financial services in the public sector can you talk about how these new offerings are resonating within those verticals and then what additional verticals are you focused on in terms of deploying a similar strategy going forward.
Hey, Josh it's today Vernadsky. Thanks for the question.
So what's happening is as we start to.
Approach our sales.
Pursuits with the platform, we're starting to uncover just different use cases and a lot of what we're focused on with these vertical solutions are based on use cases, when we look at it we're no longer selling a product we are selling a platform that can solve a lot of search needs, whether it's out on the long tail the internet in front of your firewall behind your firewall.
So a lot of it is being driven by customer demand and the ability to look at what their customer journey looks like and solve it with search so that's number one.
Number two you are right. We are looking at the public sector, we have organized ourselves around our public sector group. So today, we have three groups that are dedicated to wake up in the morning. They only thing they care about is that particular vertical one is healthcare one is financial services and one is public sector within the different regions, though we do have aes or <unk>.
Executives that concentrate on certain industries like high growth in technology, and you've seen some of them you know I highlighted in my opening comments about some of the support deals where their technology companies and we think Theres a real sweet spot for US. There. So we have some focus over time as we start to build it out.
I suspect we will continue as most companies do when you go through this journey of continue to have more of an industry focus as we continue to build out solutions.
Got it that's Super helpful. And then maybe this is a follow up.
We've noticed that you exited now marketing e-commerce search and workplace search on the web site can you just discuss the demand.
You've seen for these offerings, thus far and are they creating an opportunity for multi product sales on top of answers and support answers.
Support answers in itself is an opportunity for multi product sales. So we're already there before we get to workplace and E com.
They're up on the site folks can request and if they come to US we will certainly have a dialogue. We continue to build the features really for workplace answers, where we see the biggest opportunity and hear from our customers that they want that and set of functionality and in this quarter made a ton of progress to being able to.
To do that particularly in the security side with consumer authentication scalability side, where we can support we more entities in our knowledge graph now and going forward, we just need to get some more connectors in there to really have a competitive offering in this space, we've not gone to really outbound push this yet we're handling what's coming to us.
But it is encouraging and I would tell you that said, Josh there is quite a bit of demand for it we have a lot of conversations around it in.
Can't wait to have it.
Got it Super helpful. Thanks, Nice job on the quarter guys. Thank.
Thank you.
Our next question comes from Row Hotel Kearney with Cam partners. Please go ahead.
Oh, great Hey.
Good quarter couple of questions. One is just the shape of the recovery over the last three or four to six months you had mentioned.
Challenging July.
Britain of August any more color on how <unk> month over month gains have been over the last few months.
And what are you assuming I think you already mentioned when we Corona related.
I guess just told.
The last few months have been and what do you expect over the next few months.
Yes, we probably all have an opinion on that I mean, our third quarter is August September October. So August is summer time for almost everybody and we're like a lot of software companies backend loaded into the last month or two of the quarter. So it's really hard to ferret out any trends other than to say we are seeing.
Customers return the listings business coming back with some of the renewals and wins that they've had has been great. The Upsells has started to return. So yeah. It's tough to look at it month to month and we're not really looking at it even now we know that there is a lot of deals that will close in the January timeframe.
And.
Thanks.
Howard described the return of the listings business is a good signal that things are coming back and I think that.
A lot of the location based businesses are now starting to say they have to reinvent themselves and this is part of that reinvention.
Okay.
Okay, and then on the <unk> guidance any extra color you can give Steve what.
What are you assuming that the upsells and renewals maybe on a two year stack like how are you thinking.
Two years ago.
So it's underneath yeah, well you know our cohorts have been pretty strong going forward and we showed that at our last investor day.
Robert it's tough to characterize it because theres so much business between now and the January 31.
That we've contemplated that in our guidance and we think as I said, we think the net retention metrics will start to return just based on our math and we had a good strong gross retention in Q3, but we have a lot of work to do in Q4 to put up those numbers, but we feel good.
About the guidance that we have right now.
Okay, great great quarter, Thanks, guys.
Thank you. Thank you.
Okay.
Our next question comes from Tom White with D. A Davidson. Please go ahead.
Hey, guys. Thanks, so much for taking my question. This is Kevin.
So first of all I wanted to just talk about.
The recent recovery trends in your Verde closing scheme that has the biggest impact from Covid I guess that probably are retail and food services.
How are the discussions with those customers and prospects going any signs that your customers are starting to add new locations again, and then I have a follow up question after that.
So this is Dave or Netscape.
We're having good conversations there is a.
A definitely a renewed level of engagement with them.
And it's as I mentioned in my comments some of the Upsells that we did this past quarter fit right into it there are quite a bit of foodservice and retail.
And.
Just anecdotally they are very very engaged with us I see a tremendous level of interest.
And yes to your question they are adding more locations.
And adding capacity in other products as well with Upsells.
Awesome. Thank you and then but then support into product I was wondering if you could.
Talk a bit more about the trends you're seeing with that I'm curious to see the expansion opportunity with your legacy customer base, and then what types of new customer segments or verticals, you're expecting to see the most interest from customers for that product.
So I would tell you that the.
The level of interest for support is as strong as anything that I've seen in terms of new product introduction, what makes it really special is that all of our solutions. We talk about are built on a common knowledge graph. So, particularly on up sells these folks have already invested time money and effort into building out a knowledge graph so for.
Support, we're adding to it and it's much easier to layer on top of it additional solutions and I will tell you that if you look across the board whether it's in the Zen desk World The Salesforce service cloud World.
<unk>.
There is a huge need for what we do to help with that customer journey in terms of helping to deflect customer tickets reduce support costs, helping to enable a customer service rep.
If you look at some of the sales that we had this past quarter and we talked about Samsung a while back prior some of those ROI numbers are off the charts and so I think particularly with support you see a tremendous tremendous gain on ROI.
Samsung had a 40, we just did a.
User cases, if you check out our press releases on our website, but.
Samsung at a 45% increase in net promoter.
Promoter score.
We had a 33% increase in customer sat.
There was 19% more engagement with their help site and these are real numbers typically a support offering represents a fairly big opportunity and.
It's super exciting.
I'm very very optimistic about where we're headed with it.
Great. Thanks, so much them great color great quarter. Thank.
Thank you. Thank you.
Thank God, if you'd like to ask a question. Please press Star then one at this time.
Our next question comes from Sheila <unk> with Jpmorgan. Please go ahead.
Oh, Great Hey, guys congrats on the quarter. Thanks for taking my question.
I wanted to ask about that.
Relationship I was looking at their website. It seems like they haven't enterprise search product, which is based on solar already. So was wondering what led to that relationship is that kind of replacing that product or is that more of a.
Piece of providing kind of choices to their customers and secondly, do you expect to forge such relationships with other CMS says.
Obviously, it's about helping any customer with a choice that they've with search they want to use in their website. When it comes to solar versus the X. It's not even close we're in the cloud where natural language, where based on our knowledge graph. We have analytics, we have a full platform to manage the universal search.
Everywhere someone's looking whether its on a health site of support site in the community on Google you put information in the <unk> knowledge graph and Bam a can power a page on our website and answer and support and also show up in Google.
In a Google natural language search so.
The differentiation of <unk> versus solar is not even it's not even close and so as their customers have seen this that that means that we're talking to a lot of the same folks and a lot of the same deals and for any company that wants to build the best customer experience.
They're going to want to have <unk> search powering their customer search on their sites and everywhere else all from our knowledge graph and so we're delighted to just like we've done with Adobe be able to do this with now <unk> and we work with many of the same folks they've David really great penetration into the <unk>.
Care market and so we're we're glad to be working with them.
Got it.
Just as a follow up on the international side I think last time, you had said there are some challenges it seems like it's coming back.
But again, we are hearing.
Being closed down do you do.
So are you are you.
Are you baking in a little bit of a cautious.
Yes.
For the international business going forward.
I don't think go ahead Howard.
He was going to say I think Steve kind of alluded to the fact that we've contemplated the.
The potential impact of the mutation in our in our guidance here, which we which we feel good about.
Another thing I'd say is just that when you look at our international businesses. Please.
As European and you've got Japan in there and in Europe, a lot of it really does come from northern Europe.
<unk>.
So the other thing I would just say is that.
With regard to kind of looking forward for our business.
The mix of our products is pretty different than it was 18 months ago During March 2020.
And so a much smaller percentage of our business comes from location based businesses you hear us talking about support answers deals with Broadcom with outreach with greenhouse. These are tech companies that are less likely to have to be affected by location shutdowns.
So our industry mix and our product mix is totally different than it was 18 months ago as is our sales motion, where we have adapted to being able to sell within within this new normal. That's just the normal way. It is for US right now and with our AI platform and expanded Tam we are comfortable in selling in whatever manner.
CRO environment, even if it turns out to be bad, which we are not health experts and we don't know.
Got it thank you.
Okay.
This concludes our question and answer session as well as our conference for today.
Thank you for attending today's presentation you may now disconnect.
Okay.