Q4 2023 Yext Inc Earnings Call
[music].
Hello, and welcome to the Yexed fourth quarter and fiscal 2023 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 keys, followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw from the question queue. Please press Star then two.
Please note. This event is being recorded I would now like to turn the conference that Richard Nils Erdmann.
Please go ahead.
Thank you operator, and good afternoon, everyone welcome to <unk> fiscal fourth quarter 2023 earnings Conference call with me today are CEO and chair of the board, Mike Wallrath, CLO, and President Mark Ferron, Tino and CFO Darrell bond during.
This call we will make forward looking statements, including statements related to our future financial performance expectations regarding the growth of our business our outlook for the first quarter and fiscal year 2020 for our strategy and estimates of financial and operating metrics capital expenditures and other indications of future opportunities as further described in our fourth quarter earnings.
Press release.
These forward looking statements are subject to certain risks uncertainties and assumptions, including those related to excess growth the evolution of our industry, our product development and success, our management performance and general economic and business conditions. 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 those forward looking statements are discussed in our reports filed with the SEC, including our most recent Form 10-Q for the quarter ended October 31st 2020 to our annual report on Form 10-K for the fiscal year ended January 31st 2022 and our.
Press release that was issued this afternoon.
During the call. We also refer to certain metrics, including non-GAAP financial measures reconciliations with the most comparable historical GAAP measures are available in the earnings press release, which is available at investors Dot Yexed Dot com.
We also provide definitions of these metrics in the earnings press release.
I will now turn the call over to Mike.
Thanks, Nils and thanks, everyone for joining us today.
We are pleased to report our Q4 results and a solid finish to our fiscal year 2023 for the full year, we generated revenue of $400 9 million and a non-GAAP net loss per share of <unk>, <unk>, which compared to a loss of 15 cents last year.
We made meaningful progress in driving transformation across our business through continued product innovation focused execution and improved.
Productivity.
We strengthened our commitment to solving customer pain points and drove increasing adoption of our platform.
At the same time, we delivered operating margin improvement in two consecutive quarters of non-GAAP profitability.
When we presented our management changes one year ago, we made several commitments, we committed to increasing customer focus and satisfaction.
We committed to shift our go to market model from a capacity driven model to a productivity driven model.
We committed to operating more efficiently and more profitably.
We committed to our shareholders and our employees to increase our transparency and communicate better.
Okay.
We've made significant progress with the objectives, we set a year ago and I would like to highlight some of the actions we took to improve our performance in a few key areas.
First we dramatically improved our go to market motion with a focus on increasing customer satisfaction.
We rolled out new brand positioning that better aligns with what we do making it easier for our customers to understand our products value.
We hired a new CMO to lead the development of our integrated marketing strategy and execution.
And we hired a new CRO to drive improved sales execution increased customer satisfaction and accelerate global revenue growth.
Ran and Tom have hit the ground running and brought fresh energy and perspectives to the organization.
Our renewed focus on customer satisfaction has begun to show up in our numbers with gross retention improving throughout the year the high eighty's in the fourth quarter, while we have much more to do here I'm pleased with our early progress.
Second we executed on our commitment to sustained profitability by operating more efficiently, resulting in a non-GAAP profitable second half of the year.
We did this by making strategic changes such as reducing layers and increasing spans of control better aligning our people and resources and enhancing coordination across teams to create a leaner more agile organization.
We began fiscal year 'twenty three with approximately 1400 fulltime employees and we began fiscal year 'twenty four with around 1100, a reduction of about 20% I.
I believe our company is stronger and more agile than it was a year ago and we are committed to continuing to drive better operating results in fiscal year 'twenty four and beyond.
Third we continue to drive product innovation to maximize our long term growth potential throughout the year, we enhanced all of our products with dozens of new features and upgrades, including our flagship listings product. This innovation is having a tangible business impact, resulting in several new logo wins, where he extra placed entrenched competitors.
After side by side comparisons demonstrated our products ability to drive superior value.
Our innovations across natural language processing analytics and security as well as our leading technology integrations are driving competitive wins in the marketplace and setting the stage for stronger growth moving forward.
Finally, we made use of our strong balance sheet to repurchase $13 8 million shares in fiscal year, 'twenty, three reducing share count by roughly 10%.
We will continue to focus on minimizing dilution to shareholders and using our strong balance sheet strategically.
Our work in these areas driving customer value operational efficiency and product innovation are paying off and I'm confident that we are building a best in class Ias company.
We've made significant strides and we're looking forward to further progress in the year ahead.
Despite the challenges of last year, our global team has remained committed and focus and I couldn't be more proud of the way. They are delivered in a very difficult environment.
Fiscal 2023 was a pivotal year for <unk> in our Q4 performance demonstrates the strength of our platform our focused execution and our go to market strategy that is increasingly resonating with our customers and partners for the fourth quarter, we delivered revenue of $101 9 million and non-GAAP net income per share of <unk>.
<unk>, both of which were better than the high end of our guidance ranges.
As we seek to expand our margins through focused investment on our highest ROI opportunities. We made a number of decisions in Q4 to sharpen our focus and reduce investment in areas of the business that were inefficient from an operating perspective.
These actions included moving to a partner centric go to market strategy in Japan, and reducing our direct sales efforts to smbs.
Most significant restructuring effort. We made in Q4 was the decision to focus our services offering on the highest value activities for customers, which I'd like to discuss in more detail.
Our services business represented a small amount of overall revenue approximately 9% of total this year, but our focus on delivering the vast majority of services ourselves has had a meaningful impact on gross margin.
We plan to transition a portion of our services business to our systems integrator and partner ecosystem over the coming years.
We will also continue to invest in automation that will require less services and create more value with customers.
By making this decision now we've been able to significantly reduce the size of our professional services organization. In fact this was the largest part of our Q4 restructuring and the result will be an immediate improvement in our non-GAAP gross margin, which Daryl will discuss in more detail.
Over the last several months the world has been captivated by the potential of generative artificial intelligence to transform customer experiences chat.
<unk> G. P. T is one of the most rapidly adopted technologies of all time in general purpose large language models have potential to bring disruption to the dominant search paradigm.
These models are trained on a wide variety of public datasets, which often include little to no authoritative information about our business and because of this the accuracy of generator responses is unreliable or can't be independently verified as.
As an example, we address this problem with UX chat, which can provide every business with conversational AI experiences that are generated from accurate information stored in their own knowledge graph.
In fact, the R&D investment we have made in integrating large language models and machine learning throughout the answers platform ideally positions us to help enterprise customers leverage the potential of AI, while eliminating the risks have been answered so called hallucinations and data and security.
We've been meaningfully investing in AI and large language models and the ex dancers platforms since 2017.
We also intentionally built our platform to be model agnostic, which positions us well to add value for our customers regardless of what happens with consumer search.
Chat bots and other content generation models continue to gain adoption. We believe this will lead companies to place increased strategic emphasis on ensuring their knowledge and information are optimized.
<unk> this presents an exciting future growth opportunity.
We can help our customers leverage this emerging technology to deliver perfect answers across every digital experience.
Today, we believe that we're in a great position to take advantage of the rising need of businesses to safely and effectively put AI to work across their digital experiences.
We will continue to take a thoughtful and cautious approach to formulating our financial guidance, which Daryl will discuss in greater detail in a few minutes. There are three potential revenue headwinds factored into our guidance for fiscal year 'twenty four.
First deemphasizing certain areas of our go to market focus such as direct sales to Smbs and direct sales in Japan. While these choices will be a net positive in terms of focus efficiency and profitability. They will have a modest impact on the revenue in the short term.
Second our decision to focus on building systems integrator and partner relationships for managed and professional services and limiting our own services business to the highest value expert services will benefit our clients in many ways. This decision will also benefit gross margins and our bottom line. However, we anticipate that it will put modest pressure.
On revenue and renewals as we restructure some existing service agreements.
Finally, we continue to consider the uncertain macro environment and assume that elongated sales cycles and budget pressures could persist for the foreseeable future.
FX also remains a headwind to revenue growth.
Despite the anticipated revenue headwinds in fiscal 'twenty, four we expect a more efficient and profitable business next year and believe we are on the path to sustainable and profitable growth for the long term.
I have great confidence in the long term success of our business. We have significant opportunities ahead, given our expanding base of new and existing customers and the increasing value of our answers platform.
Satisfaction across our customer base is improving and we are uniquely positioned to add increasing value in ways that our customers are only just now beginning to appreciate.
We will remain laser focused on driving sustainable growth and running an efficient organization. We look forward to discussing our financial objectives in greater detail, along with our strategy and technology developments at our upcoming Investor Day on April 4th in New York City.
In this meeting we will discuss the drivers of our fiscal year 'twenty for financial plan measures, we are using to benchmark and forecast our growth our product and go to market strategies as well as customer testimonials on why they chose our platform. We invite all investors and analysts to attend and we're excited to see you next month with that I'd now like to turn the call over to Mark.
<unk>.
Thanks, Mike I'm also proud of the progress our team has made in a short amount of time and I want to acknowledge and thank them for their hard work.
Over the past 12 months, we've completely remodeled our go to market motion and our entire product platform, while improving efficiencies across the entire organization.
In short, we got leaner and stronger this past year and didn't skip a beat on product innovation.
I wanted to pick up on a point that Mike made which is that we are well positioned to add value for our customers regardless of how the search wars play out now.
A knowledge graph is a key foundation of conversational AI for business and we've been helping customers build their knowledge graph for years.
We've been leveraging AI and transformer based models in our digital experience platform for many years, specifically in our search and connector offerings.
Within the family of transformer models, we work with we have been developing generative models and have been piloting them with customers for the past year.
Over the coming years, we will continue to take a model ignostic approach to helping our customers deliver digital experience, which will include developing our own models and using the many great third party models on the market today.
We believe that AI will fundamentally change the digital experience for every user in every brand in order for businesses to take advantage of this market shift they will need new building blocks and a new composedly architecture that leverages the best in breed technologies to deliver the digital experiences that their customers expect.
This new digital experience architecture will be built on the foundation of AI and knowledge graph technologies, which will allow for companies to deliver conversational and consistent experiences across all of our digital channels, such as search engines websites mobile apps chat messaging, social and hundreds of other digital touch points.
<unk>.
And yet we continue to drive innovative ways to incorporate AI into digital experiences. In addition to announcing next chat in mid February last week, we announced content generation, we believe by adding the content generation feature to our knowledge graph and we are the first content management system that automatically and proactively generates its own.
Content <unk>.
<unk> content generation uses multiple large language models, including GPT, three and existing information from our customers knowledge graph to automatically generate and suggest rich business specific content that is on brand and align with the writing styles or patterns found throughout an organization content library.
The UX chat and content generation announcements have both generated a lot of interest from customers and prospects within a week of announcing ex chat. We had hundreds of requests to be included in the beta and over half of them were with new prospects and while it's only been a few days since announcing content generation the flood of inquiries looks like it might even exceed that.
Level of interest the responses, TX chat and content generation and make it crystal clear to us that our digital experience platform is resonating with the market and that is at the forefront of enabling businesses with the tools to leverage our latest degenerative AI.
We believe this creates an opportunity for <unk> to solve problems for a diverse range of verticals leveraging our entire product platform, we are making it easier for businesses to enhance their digital experience through yet and we saw great. Examples of this in Q4, we expanded our leadership position across financial services health care and technology, while also adding some.
Significant wins and multi product cross sales in E Commerce financial services and the energy sector I'll name a few of these.
Our go to market team executed an excellent renewal and expansion of Heartland dental who has been a customer of <unk>. Since 2013 Heartland was looking for a web platform provider to create a fleet of websites for thousands of dental practices. They support after a detailed bake off against other established web platform vendors, yes.
Selected as the vendor of choice Heartland chose <unk> over existing web platforms because of our headless content management capabilities. Our open source standards developer experience and modern web architecture.
Working with one of our new marketing partners Philly marketing labs, we successfully won a competitive bid with a new customer who is among the largest global money service providers and one of your largest accounts in terms of location volume.
Our client was frustrated and seeing some of their global locations not existing in Google maps through their previous vendor as a result, Philly marketing labs, let MTX because of our top position in the G. Two listings grid.
We're presently deploying a highly customized solution that will enable the client to improve the discovery ability of their 600000 global locations more efficiently and cost effectively than their previous provider.
A major win in the managed health care and insurance vertical was Unitedhealth group. This was a renewal with a customer that historically had used <unk> entire suite for a portion of their optum locations and providers as well as often dot com.
Because of our successful implementation and the value of our platform delivered they asked us to expand their rollout. These three customers are great. Examples of the strength and innovation that we continue to see with our listings product.
An important commerce win was with a global online brick and mortar specialty retailer.
This is a customer that had worked with various different vendors across listings pages and search the customer was not initially looking for any changes to their providers, but after showcasing the value of having a single channel agnostic content repository by using the knowledge graph and the interrelated benefits of our answers platform.
They selected <unk> as their sole provider of all these services.
A couple of notable wins for support search during the quarter included eight by eight and a large web hosting company in the case of the former <unk> chose <unk> because of our self serve functionality seamless UX and their ability to own the integration process with the latter customer we wanted a head to head POC and our team.
[noise] out an arsenal of enterprise search competitors as a result, <unk> will power the back end of the company's Health Center, we built and optimized a fantastic search experience for the plc, which has the potential to extend to other areas of the customers' business.
Also in support search a wireless service provider had originally developed marketing and support search functionality internally for them and through our ongoing collaboration and execution to enhance their search experience they've expanded on our partnership to include the Buildout of a search bar that featured prominently on their homepage.
Sainsbury supermarket is the second largest supermarket chain in the U K is another example of a customer that chose our platform capabilities to create an entire digital experience sainsbury was looking to upgrade to support site to be faster.
<unk> optimized and have a great great search experience, which would translate into reduced calls to the call center and ultimately cost savings.
After looking at several vendors they chose the answers platform for content management web rendering and search and will develop their new support site on <unk>.
With <unk>, we had a knowledge management win against several established competitors pursue self service site had been developed internally in the company was seeking to reduce the volume and cost of customer calls after showcasing yes best in class support solution, we demonstrated how <unk> could provide both case deflection abilities as.
Well as vendor consolidation.
Ultimately kazoo chose the extra both support search and as the default knowledge management solution across the company.
I look forward to showcasing some of our latest products featuring our upcoming spring release hearing directly from our customers about how they are leveraging our platform and diving deep into the AI opportunity at our upcoming Investor day on April 4th it.
It will be an event you won't want to Miss.
Now.
I will turn the call over to Darryl.
Thanks Mark.
As our financial results demonstrate we continue to execute well in the fourth quarter. Our Q4 revenue grew to $101 9 million, which was above the high end of our guidance range and our full year revenue was $400 9 million compared to $390 6 million in the prior fiscal year.
Revenue growth in Q4 was approximately 3% in constant currency and 1% on an as reported basis. This represented a year over year impact of approximately $2 $3 million due to FX.
Full year revenue growth was approximately 5% in constant currency and 3% on an as reported basis. This represented a year over year impact of approximately $10 $2 million due to FX.
Unearned revenue was $223 7 million at the end of the quarter up slightly from the same period a year ago.
Annual recurring revenue or <unk> or are at the end of Q4 was $400 4 million up 4% year over year in constant currency and 3% on an as reported basis. This represented a year over year impact of approximately $4 $8 million due to FX.
Direct customers represented 82% of total air our direct air or at the end of Q4 totaled $327 million, an increase of 6% year over year in constant currency and 5% on an as reported basis.
Our customer account for direct excluding SMB increased 7% year over year to over 2960.
Third party resellers, which represented 18% of total air or at the end of Q4 generated <unk> of $73 3 million a decrease of 6% year over year in constant currency as well as.
As well as on an as reported basis.
<unk> is how we gauge our progress and momentum in sales renewals and up sells and when calculated on the basis of there are we believe our dollar based net retention rate indicates the long term growth potential of our customer base.
Historically, we'd use trailing 12 month revenue as the basis for determining net retention, but going forward. We will disclose this are our based net retention rate.
At the end of Q4 this rate was 97% for our direct customers and 92% for our third party resellers.
Our fourth quarter earnings press release, we have presented a table of comparable rates for the current and historical periods.
As Mike mentioned earlier, we achieved a gross retention rate in the high <unk> for the fourth quarter bearing in mind. This rate represents our direct customers. Excluding smbs. This was our highest gross retention rate of the year and an improvement over the mid eighties rate that we experienced in the third quarter.
As we've said in the past this is a quarterly rate determined by comparing the annual dollar value of contracts up for renewal in a given quarter against what was renewed excluding upsells.
Turning to non-GAAP results, which are reconciled to GAAP in our press release Q4 gross profit was $76 6 million, representing gross margin of 75, 1% compared to 77, 1% in the year ago quarter.
Full year gross profit was $301 9 million and gross margin was 75, 3% compared to 76, 6% in the year ago period.
Compared to Q4 of last year, our gross margin was adversely affected by severance and employee related costs associated with our decision to reduce the size of our team by roughly 8%.
The total impact of this head count reduction was approximately $2 million roughly half of which was recognized in our cost of rabbit.
As part of this process and the organizational changes Mike referenced earlier, we implemented a new cost structure, which allows us to focus on higher ROI opportunities.
<unk>, while continuing to invest against the number of strategic business needs.
In fiscal 'twenty three services was approximately 9% of revenue.
As we shift some of these lower margin services to our Si partner ecosystem, we will see a headwind to revenue and <unk> growth as well as retention. However.
This will also result in a positive impact to gross margins.
Just on these changes combined with our Q4 restructuring we expect our first quarter gross margin to be in the middle of our 75% to 80% range with continued gross margin improvement throughout the rest of the year.
Another key area of focus to increase our efficiency has been on our operating expenses.
Q4, operating expenses were $70 1 million or 69% of revenue compared to $80 8 million or 80% of revenue in the year ago quarter.
Full year operating expenses were $303 7 million or 76% of revenue down from $315 9 million or 81% of revenue in the prior year.
One of the main drivers for this has been through a realignment of our sales and marketing cost structure, where we have been able to reduce sales and marketing as a percentage of revenue to 41% in Q4 from 51% in the fourth quarter last year.
Our Q4 net income was $6 3 million compared to a net loss of $4 1 million in the year ago quarter.
Our Q4 net income per share was five cents compared to a net loss of <unk> <unk> per share in the fourth quarter last year.
Cash and cash equivalents were $190 million at the end of Q4 compared to $162 million at the end of the third quarter the.
The increase in our cash balances was partially offset by continued share repurchases executed during Q4, which totaled $8 $3 million.
Year to date, our share repurchases totaled $77 $4 million.
We intend to continue to maintain a strong balance sheet and cash position going forward and will remain open to buying back our stock at attractive prices.
Net cash provided by operating activities for Q4 was $35 9 million compared to $29 1 million in the year ago quarter and our Capex.
<unk> 8 million compared to $1 1 million in Q4 of last year.
Now I'd like to turn to our outlook for the first quarter and full fiscal year 'twenty four as we've discussed the macro environment remains challenging and customer behavior across all businesses suggest continued uncertainty.
Longer sales cycles tighter budgets and additional approval layers of common and our guidance assumes that these weaker macro conditions and its symptoms will persist throughout calendar 'twenty three.
In addition to the economic environment, Mike referenced anticipated revenue headwinds from our shift in emphasis towards <unk> and service partners, which are factored into our Q1 and full year revenue guidance at the same time. We are also anticipating a much more efficient and profitable business next year and will demonstrate this in several ways.
Including our gross margin improvement a reduction in operating expenses as a percentage of revenue and growth in our bottom line.
To help highlight these improvements going forward, we will begin to give guidance on adjusted EBITDA in.
In addition to our expectations for both revenue and EPS, considering that roughly 17% of our costs last year were noncash in nature. We believe adjusted EBITDA, which is calculated on the basis of our cash expenses is an important measure to track our progress on profitability.
As of today for the first quarter, we expect revenue to be in the range of $98 million to $99 million.
Adjusted EBITDA in the range of 10, five to $11 5 million and non-GAAP EPS in the range of five to six which assumes a weighted average basic share count of approximately $122 9 million shares.
For the full year of fiscal 'twenty, four we expect revenue to be in the range of $402 million to $406 million.
Adjusted EBITDA in the range of $44 million to $46 million and non-GAAP EPS in the range of 22 to 'twenty three.
Which assumes a weighted average basic share count of approximately $124 5 million shares.
Look forward to seeing many of you in April and operator, we're now ready to open up the line for questions.
Thank you 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 from the question queue. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Today's first question comes from Tom White with D. A Davidson. Please go ahead.
Oh, great. Thanks for taking my questions a couple.
On guidance, if I could and then one on AI just could you talk a little bit about what the full year guide kind of contemplates as it relates to your listings business.
And then also on on gross margins.
Should we anticipate that that kind of the sort of steady steady state or kind of long term kind of target for gross margin is is up appreciably. After the changes you guys are making on the services side.
And then I've got one on that.
Great. Thanks, Tom It's Darryl.
On the question with the revenue guide, we don't really forecast out or playing out the business based on products.
What I can say is you know obviously, we mentioned the headwinds that we're seeing from a couple of different areas based on some of the strategic decisions that we made in Q4. So that's certainly going to have an impact we think that impact is in the range of low single digit percentage point on growth.
You know what I will say about the listing businesses Marc highlighted some of the specific customer examples in his section that that demonstrates that demonstrates the strength of the listings product and how that ties into the rest of the platform.
So we feel pretty good about that your second question with respect to margins.
Yeah, you're right. The actions that we took in Q4 was primarily aimed at how.
How we operate the services business and our plans for the future. So yes, we will see a step function in Q1 compared to Q4 like we said we would expect Q1 gross margins to be in the middle of that 75% to 80% range and we will show continued improvement throughout the rest of the year.
Okay, Great and then.
Sorry, Mike I was just going to piggyback on what Darryl said about the listings business. So one of the things. We told you in Q1 and Q2 was that.
A lot of the gross retention challenges that we saw in Q1, and Q2 were largely coming from listings only or primarily listings customers and so so we're we're very pleased to see that our gross retention metrics have improved throughout the year and particularly in Q4 into the high Eighty's.
That's a that's a.
What that shows is that we're doing a much better job.
Bringing satisfaction of these customers and servicing these customers and so in the area, where I think we were most exposed which were largely the listings only customers.
Okay. I appreciate that added color. Thanks, and then just ungenerous today I know theres been a lot of debate about how it may kind of alter the established search engine paradigm can you just elaborate a bit more on <unk>.
Whether that represents an opportunity or a risk for <unk>.
Let me start and then Marc Michael you can probably go a little deeper on this I'll just tell you. This.
The platform that we've built is designed to be model agnostic it can.
Regardless of weather.
Any of the existing players or new players show up and become.
Expenses in this market with with dominant models all of that bodes well for your accident for our customers because what we're interested in is making sure that the best models are are in use mark can talk a little bit more about how we do that within the platform.
What I think we're seeing is a lot of business is awakening to the the risks of not controlling the sources of information that are being fed to the AI.
Even just over the last couple of months you, you're starting to see businesses take actions too.
Significantly limit, what's being done with AI without having better controls over how the technology is being used.
That's the problem that we solve for customers.
Just to add to what Mike said.
Yeah, well degenerative AI is doing right now is it's raising the bar for digital experience and you're starting to see.
Just wondering if your content as far as the basic.
Regenerative AI and the ability to deliver direct answers as part of consumer experiences. So the opportunity for us is to really help our customers and help businesses deliver a similar experience to what the consumer experience is because if this is the new bar then every enterprise every business in the world is going.
You have to live up to that new expectation of digital experience and so the big difference here is that for our business though.
You need to make sure that you're answering questions that are.
That have 100% accuracy.
That come from a set of corpus or a set of information that you control and of course as you see new searches come in the ability to add and augment that information to make sure that the next time someone asks that question that you can and that's why it's a pretty big opportunity right now that we're seeing show up in so many different sectors in so many different areas, but for US we're really excited about.
Got it.
Great. Thank you very much.
The next question comes from Rohit Kulkarni with Roth MK and partners. Please go ahead.
Hey, I'd go with AI closer in the boardroom next I saw firsthand the chatbot, maybe maybe talk about how do you provide.
Concrete anecdotes or drop.
Showcase that the chat bots that are ex pats with the corporate information, which is the big challenge that I'm trying to get a whole bunch of Mrs. As such so I guess maybe talk to.
How does a UX chat integrated with existing knowledge base.
Outperform.
Bings at or some other language model integrated chat bots with public information and then any any color on pricing on any of the new Hum do you think the mountains and charter.
M S.
Sure I'll take the two different questions there I'll start off with sort of what it is.
How do we think that we would build delivery a better experience I think the key is that we're delivering an enterprise experience and what that means is is that.
As the chat conversation takes place as that back and forth takes place with the user.
The information that the generative models has or are these sort of narrow information that it has is just the information that's in the knowledge base and part of the challenges of course to make sure that these generative models do not makeup information.
And one of the cool things. We're doing here is we're combining our large language model expertise with our search offering with our search expertise combined with our knowledge graph expertise in bringing all of those technologies together to ensure that when not only can answer a question accurately but more specifically that it doesn't.
Answer questions that it doesn't know anything about and that is one of the real challenges with these large language models and the way. We do that is by of course narrowing down a narrowing down the data set and then the more specifically leveraging these large language miles for what they are which is the ability to sort of translate natural language into other forms and other other structures.
The second part around pricing.
Just announced the UX chat offering we are in a limited beta right. Now so we don't have a pricing model that we're ready to share with the world and the same thing with content generation.
Okay.
Then a bit on the guide for the fiscal year.
I don't know whether you already helped quantify the headwind associated with kind.
And I hope youll be emphasizing a directive to Smbs and then a more that's my partner relationships. So maybe Oh I don't know if it's easy to quantify kind of incremental revenue and incremental EBITDA.
What kind of headwind that you're assuming.
In the current system here at Baird.
Arrowhead is darryl thanks for the question.
What we can say is we laid out sort of a couple of different headwinds in Mike's section and when you look at the those in the aggregate we think the impact year over year revenue growth is in the low single digit percentages.
We haven't really gotten into you know how that sort of rolls into EBITDA, but you can see the that's a pretty good increase in EBITDA from fiscal 'twenty three to our fiscal 'twenty. Four guide. So we've certainly made a lot of really great progress this year on generating efficiencies that will be sustainable.
Okay, Okay, great. Thanks, Mike.
The next question comes from Arjun Bhatia with William Blair. Please go ahead.
Hi, guys.
Thanks for taking the question.
Maybe if I can just continue on the generative AI conversation I'm curious, where you see <unk> chat fitting into the broader picture with <unk>.
<unk> answers and I'm trying to envision a customer use case is there.
Room for a customer to adopt both UX chat and Yexed answers or does generative AI and natural language responses replace the need for semantic search that a customer may have on there on the website.
Yeah. So.
Best way to think of this is that there's going to be multiple digital experiences that exist in the world Theres not just one but there's not sort of like one digital exchange to rule them all.
Whether it be mobile whether it be web whether it be messaging and chat.
Whether it be a commerce experience, they're all different experiences they're all operating against the same the same information. So there are certain digital experiences that may call for more of a messaging experience. So that's something where you want to have an exchange that's more sort of human like and that might be the best the best scenario and maybe that's sort of.
An example of like a shopping assistant or or even like you were handling support use cases. There are other examples where you want to have free form a full result sets that you can visualize and you can interact with like an e-commerce setting or something like a locator rate. Those are those are they're just different they're different user experiences that are there.
He may want to deliver and so as we have expanded our digital experience offering an expanded set of proposal pieces are building blocks of our platform, we want to give our customers. The option, we want to give them. The choices, we want to give them the widest breadth of tools or building blocks that they that they can possibly have in order to create as many different experiences as they like.
Okay got it that's helpful. And then just taking a step back as we think about all the new product announcements you have UX chat you have the CMS solution.
Self generating CMS rather.
Are these where are we in just the development and of these products and getting them to a fully functional level.
And then from a financial perspective, how should we think about just the timeline of when we start to see an impact on revenue and end customer adoption from these solutions.
Yeah.
So we've talked about content generation being there as part of our spring release, which will be coming out in a few weeks.
For UX chat we're in we're in a early stages of a beta right now we've actually are beginning to launch a handful of beta customers and so for US we're looking at.
Getting those customers successful.
And then towards the back half of the year.
Opening up to opening it up to a much much wider audience.
Perfect. Thank you.
You asked about like you know what.
Should we expect to see financial contribution I think I think it goes to the way you know the answer to that question as it goes to the way we think about how we go to market right. So.
We're not necessarily thinking of these things as point solutions, we're thinking of them as digital experiences that we're gonna help enterprises deliberate more effectively and so depending on the company then they they may have they may need all of these digital experiences the mailing needs some of them in the modularity of the platform the ability to take pieces of it and make it all work off the same knowledge.
Graph and the same set of models and technology is one of them is what I was one of the really compelling things about the platform. So.
We're happy as we've said before we'll land with one solution or many solutions, depending on what what's top of mind for the customer our goal is to prove the power of combining cosmetic surgeon large language models with the knowledge graph in an enterprise setting.
And once we've done that then the upsell.
Cross sell motion is as is obvious because you've already compose the knowledge graph and you can then.
Layer additional experiences on that seamlessly.
Okay got it that's helpful. Thanks for taking the questions.
As a reminder to ask a question you May Press Star then one on your telephone keypad.
The next question is from Ryan Macdonald with Needham. Please go ahead.
Hey, Thanks for taking the question. This is Matt Shea on for Ryan Nice to see some recovery in the dollar based retention in the corner. It looks like gains were stronger in the third party then the direct segment what drove the difference in the quarter over quarter recovery and what gives you guys confidence that Q3 was the trough for those metrics and that you can continue to build off of.
The success that you're starting to see them in Q4 over the course of FY 'twenty four.
I'm going to let Darrell answer the numbers question I'll say qualitatively I.
I think we can feel this and we can we can see this in field isn't our customer engagements.
What would drive the gross retention numbers is obviously customer satisfaction, we've talked about this quarter after quarter.
It was not funded in Q1 and Q2 to speak with every customer who left us and here and there and hear about the reasons why so I can tell you is you know I haven't stopped speaking to customers I talk to them. All the time every opportunity, we get and our our focus on customer satisfaction and making sure that.
Not only do they want to continue using the products that they're using but they want to buy more from us is taking hold and so qualitatively we feel really good about the progress we've made there.
As we enter a new year here, where we will go through the same.
Up for renewal ramp that we see every year and I think we'll just keep getting better at this yes.
Yeah, Matt. This is John just to answer the question on the numbers just wanted to make sure. It's clear we moved from.
The the legacy method that we were doing to.
To calculate net retention on revenue over two hours and more forward looking metric. We're also disclosing <unk> at the end of each period. So we thought it would be useful to provide a retention rate based on that same basis.
Just to help provide some little bit more clarity there.
The compares to the revenue rate to the error rate are generally pretty close pretty close within one to two percentage points each quarter, but going forward. We will continue to provide this on the AOR basis as it lines up pretty neatly with our IRR disclosures. So when you think about that you know the the higher gross retention that.
We saw in Q4 in the in the high eighties.
Certainly helping move that.
Move the net retention metric in that direction.
Got it that's helpful. I appreciate the color and then.
I appreciate the earlier comments on some of the new C suite additions, the new CMO and new CRO now that they've been in the seat for you know four to six months, maybe a little longer as you look to start the new fiscal year, what strategies would you say that they are the most focus on and how is this informing some of your initiatives for the coming year.
Yes, So I think we're roughly four months for Tom in roughly six months brand and you know when we hired these leaders one of the things I told you was with <unk>.
Sales cycles in the six to six to 12 month range.
It takes a while to really see the quantitative impact of of a better go to market machine because it takes a while to build that and as you're building that you're definitely getting better at delivering.
The through that through that engine.
But it's not like it starts on the data they get here so.
We're really pleased with the progress that's being made there I think Tom and Randy.
They know their business, well and they're executing effectively and the.
The results are showing that things are improving I think we expect that to continue throughout the year.
And a lot of the things that we've been building and launching on the go to market side of things are really just now getting getting into usage. So.
It's still early but we're feeling really good about.
Whats happening on that side of the business.
At this time there are no more questions in the queue. This concludes our question and answer session as well as today's conference. Thank you for attending today's presentation. You may now disconnect.
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