Q1 2024 Yext Inc. Earnings Call
A few months ago <unk> was evaluated against several search providers and selected by net gear to power the search experiences across all of their global sites, including E Commerce support community and documentation, we're looking forward to a great partnership.
One of the largest regional banks in the U S became another great example of a customer visualizing <unk> as a platform as opposed to a point solution by showcasing how <unk> could not only replace an existing listen provider, but also enhance and improve their entire digital experience, we've been able to engage with the customer across several brands.
<unk> loan officers products and <unk> of the organization.
Our team provided quantitative analysis of their digital experience and provided examples of the incremental value that our platform can add relative to their in house and third party providers as a result, the customer chose our platform and our suite of products to work with their existing systems and to manage their experiences across channels.
And different modalities.
Bill tone was a competitive win where we were able to demonstrate the advantages of our platform over various point solutions Bell tone had been using in house tools and a competing listing solution and they needed a platform that could streamline their existing process and manage the scope of their extensive network.
<unk> direct integrations and extensive publisher network helped earn us their listings business and.
And they regarded our other products as compelling opportunities for us to scale in the future.
Mathnasium needed a platform that can help them automate their existing highly manual listing process and scale across more than 1000 franchise locations. We were able to win the business over several competitors because of our platform benefits strong analytics and superior technology.
And finally.
One of the world's largest producers of premium spirits I was looking for ways to leverage AI generated content as part of its marketing effort.
Consistent with what we have heard from numerous consumer brands. This customer wanted to explore cost conscious ways to generate content without having to devote significant internal or external resources by meeting with several of the company's C level executives, we were able to showcase <unk> AI based products and platform capabilities.
<unk> could provide better digital experiences to their customers.
<unk> is in a strong position, particularly at this moment in time to help businesses leverage AI based technology and improve their digital experiences through a composer Bowl digital experience platform I couldnt be more excited about the buzz around AI, that's helping drive awareness amongst C level executives and helping our teams demonstrated.
How powerful a partner yex can be businesses, particularly in today's environment.
Now I'll turn the call over to Darryl.
Thanks, Mark as our financial results demonstrate the first quarter highlighted our continued operating efficiency and profitability. Our Q1 revenue of $99 5 million exceeded the high end of our guidance range revenue growth was approximately 2% in constant currency and 1% on as reported basis. This represented a year over year net.
<unk> impact of approximately $1 $3 million due to FX.
While still facing uncertainty in the macro environment, our newly reorganized sales and marketing teams are executing on a prudent and productivity led growth strategy.
We achieved year over year growth sales organization that is much leaner than it was a year ago, which indicates that our emphasis on productivity and accountability is delivering the desired outcome.
Our growth in Q1 was driven by continued demand in our direct business, our customer count for direct excluding SMB increased 5% year over year to over 2970 <unk>.
Annual recurring revenue or IRR was $398 3 million up 3% year over year in constant currency as well as on an as reported basis.
Direct customers represented 82% of total IRR.
Correct. There are at the end of Q1 totaled $326 1 million, an increase of 5% year over year in constant currency as well as on an as reported basis.
Third party resellers, which represented 18% of total <unk> at the end of Q1 delivered IRR of $72 2 million a decrease of 6% year over year in constant currency as well as on an as reported basis.
As of the end of Q1, our net retention rate was 97% for our direct customers and 92% for our third party resellers. These rates were consistent with our rates as of the end of Q4, and we're pleased with the level of stabilization that's occurring due to the efforts of our sales and customer success teams.
Turning to non-GAAP results, which are reconciled to GAAP in our earnings press release Q1 gross profit was $78 7 million, representing gross margin of 79, 2% compared to 76, 4% in the year ago quarter.
The positive impact to our gross margin was a result of the changes. We described in Q4 related to the shifting of some of our lower margin services to our Si and partner ecosystem.
These changes as well as continued improvements in our operating efficiency contributed to margin improvements that were better than anticipated at the time of our Q4 earnings report in March we expected gross margin improvement throughout the rest of the year that would eventually put us at the high end of our 75% to 80% range. However, we were able to implement.
Organizational changes and recognized cost savings earlier than anticipated, we expect our gross margins for the remainder of our fiscal year to remain at the high end of this range.
Our operating expenses in Q1 were $69 million or 69% of revenue compared to $82 9 million or 84% of revenue in the year ago quarter. The.
A key part of our operating expense discipline has been the realignment of our sales and marketing team and our sales and marketing cost as a percentage of revenue were 40% in Q1 compared to 55% in the first quarter last year.
Our Q1 net income was $10 6 million compared to a net loss of $700 8 million in the year ago quarter.
Our Q1 net income per basic share was <unk> <unk> compared to a net loss of <unk> <unk> per basic share in the first quarter of last year.
Cash and cash equivalents were $217 million at the end of Q1 compared to $190 million at the end of the fourth quarter.
The increase in our cash balance was driven primarily by collections, partially offset by continued share repurchases in Q1, which totaled $4 $6 million or 600000 shares.
The commencement of the program our share repurchases have totaled $82 million with $14 4 million shares.
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 Q1 was $26 7 million compared to $17 9 million in the year ago quarter, and our Capex was 900000 compared to $1 6 million in Q1 last year.
Turning to our outlook for the second quarter and full fiscal year 'twenty for the macro environment remains challenging and customer behavior across all businesses suggest continued uncertainty longer sales cycles tighter budgets and additional approval layers are common and our guidance assumes that these weaker macro conditions and their effects will pursue.
<unk> throughout this year.
As of today for the second quarter, we expect revenue in the range of 101, five to $102 5 million.
Adjusted EBITDA in the range of $11 million to $12 million and non-GAAP EPS in the range of six to seven.
Which assumes a weighted average basic share count of approximately $124 6 million shares.
For the full year fiscal 'twenty four we expect revenue in the range of 404 million to $407 million adjusted EBITDA in the range of 49 million to 51 million and non-GAAP EPS in the range of 28 to 29.
Which assumes a weighted average basic share count of approximately $125 1 million shares.
We are 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 youre 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.
Great. Thanks for taking my question guys start to the year two if I could.
Maybe you could.
To elaborate a bit more on on kind of how you're progressing on some of the initiatives around sales productivity and building pipeline.
Some novel ways.
I'm curious sort of where that stands and how you are currently thinking about potentially adding quota carrying reps this year.
And then second question on net retention for direct same as last quarter, 97% I think historically it's been.
<unk> hundred 10, 112% range can you kind of refresh our memory or maybe like is the is the market for an offering like yours today kind of meaningfully different in any way.
Versus when you had retention.
And that higher range, just kind of curious whether.
Maybe the offerings for penetrating or anything like that any color you could share there would be helpful. Thanks.
Sure.
Tom.
So let me take the first one I'll try to remember this is the second one while we do that but you can refresh for me.
So progress on the sales and marketing side I mentioned this in my comments.
<unk> got an executive team now with Tom and ran who are together have been on.
In the seat for a little over half a year.
And we're clearly seeing progress I mean, we saw increased productivity in Q1, we saw.
We saw it we saw growth with obviously a smaller expense on sales marketing that tells me that we're getting more from the machine.
But I want to be careful not to indicate that the machine is the work is done there. So.
The work is clearly ongoing and it takes as I've said before it takes it takes more than a couple of quarters.
It's not just decide what you're going to fix but then go ahead and fix it and then obviously we have the sales cycles to think through as well so.
The long range view on this is if it takes six to 12 months to fix it in six to nine months sales cycles than you kind of hit full steam.
Yes.
A few quarters down the road clearly.
As far as the productivity goes in the quota carrying reps and we talked about this in Investor day.
This is the critical analysis for us So we're doing we're clearly doing with fewer reps today.
Similar numbers that we have done historically.
And the path to accelerating growth is obviously more sales capacity, but you really want to get that by seeing the qualified pipeline building.
And.
As I've said before we're going to be cautious about that because of the macro environment because of this these extensions that we're seeing.
But also because because we have a lot of there's a lot of new things being built here and we really want to make sure. We have clear view to the quality of the pipeline that we're that we're seeing so.
But.
Things are moving the campaigns that we launched just in the last few weeks are part of a demand generation strategy.
It's highly analytical and geared towards building more demand.
And as we see the demand build and we look at that pretty Granularly will be able to decide where do you.
Where will increase sales capacity convert into.
Into more IRR that makes sense.
Okay.
I don't know, we lost time, but I think the second question was on.
Net retention rate and whether anything has fundamentally changed with the business from when we were in.
In the 110 plus percent range.
Short answer to that.
To the question for me is now that we want to be we want to be there or better.
Clearly, we're taking as we've said, we're taking some headwinds on here with the <unk>.
De focusing of certain types of revenue that we talked about allow us quarter in and during Investor day. So.
It is having a really positive impact on our gross margins.
But we're it's not going to help the net retention metric or the gross retention metric in the in the near term.
As we make sort of.
These decisions around revenue, that's far less efficient than we want it to and I think that's part of the story, but I don't think theres anything structural or about the business if anything with the breadth of our product and the product innovation that we're seeing.
There should be more upsell opportunity ultimately in cross sell opportunity that would drive that number back to and above 110% in the long run.
That's great. Thanks, I was on mute before but I appreciate the color.
No problem.
The next question comes from Ryan Macdonald with Needham. Please go ahead.
Alright, Thanks for taking my questions. Congrats on a nice quarter, Michael maybe just to start on the chat.
Chad <unk> chat and some of the new of sort of the AI enhanced offerings that are in beta right now it's great to see obviously the sort of early progress there in interest, but as you kind of go through the conversations are you seeing more demand from sort of net new customers prospective customers the extra more with the existing <unk>.
Based on the conversations you've had thus far is there an opportunity here to sort of buck the broader macro trends, maybe tightening spend too to sort of see shorter sales cycles for sort of a hot investment area.
Yes, so I think it's early to comment too much on the specific products UX chat is still in beta content generation. We just just launched and we feel there is a lot to come in that area.
But clearly these are areas that companies are focused on figuring out how to make use of generative AI.
And as we've said we've been in that business for.
Heavily investing in that business the last five years and so what I'm seeing in my conversations with customers has a tremendous amount of interest.
And the right amount of reticence also enterprises need to be careful with how they deploy these technologies.
There's a lot of generative stuff showing up and smart.
Smart management teams are thinking really carefully about this technology because we've all seen there as there is downside to it.
So.
When you talk about outrunning the headwinds I do think there are a number of opportunities for us there one as well.
We have not had and I think this is well understood. We have not had a highly tuned and highly efficient demand generation machine or a machine that converts qualified demand as effectively as we would like to bookings and thats been the source of some of our frustration on that side. So as we build that.
Versus companies, who have had really a finely tuned.
Our go to market machines, we should have the ability to begin to outrun some of the macro headwinds.
But.
We're staying really conservative on how we project that given our.
Beyond next quarter. It's we obviously have limited visibility into how the market is going to be and what those uncertainties are going to look like so.
So we're funding mix of optimistic and seeing seeing progress, but at the same time being I think very conservative about what the environment might bring to us.
Well, that's a tricky balance and again, it does but that sounds great and the second question I noticed in the prepared remarks, there was sort of a.
Heightened level of focus maybe on the customer.
All outs of a number of win backs that you had during the quarter and I'm. Just curious as you think about sort of the go to market strategy are you, placing an increased level of emphasis on winning back previously lost customers and maybe what youre doing there and then is this really being driven by anything any dynamics are evolving.
Dynamics within the competitive landscape at all thanks.
Yes, so I'll say some stuff about that and Mark may want to add so what.
What I'm seeing is a couple of things so I think when we.
Recommitted ourselves to.
Communicating better about the innovation, that's happening through the listings and reviews products in particular.
I think we've gotten better at talking about the innovation that's happening there for a little while I think we lost that threat.
Yes.
Maybe as importantly, or more importantly, I think this environment makes it much harder on some of our smaller competitors to.
Do deals that are uneconomic to and to service.
Their customers and so.
Smaller private companies, who have been attempting to compete with us here.
We're living in a very different capital environment and they were living in a couple of years ago and even last year.
I think they have a lot less scale in their business and so.
Suspect that one of the things we're seeing is that where some of these companies where they don't have technology technological parity. We're competing on services are in a very different financial position now and so.
We're going to continue to.
Go after winning back customers improving to these customers that we have the best solution set of solutions.
I think the other thing Thats happening is in this environment. The consolidation play becomes really important so being able to offer multiple and packaged and bundled together multiple services.
It can help a lot in an environment, where a lot of companies are looking for cost savings and so I'd highlight those three things and say that thats driving it mark.
The only thing is it's really piling on top of what Mike said is that we saw a few years ago, a flight to low cost low quality providers.
During the sort of some of the economic downturn that happened around COVID-19.
The old Adage, you get what you pay for.
And so a lot of these customers are starting to recognize that.
The sort of promises made for the price points that were made or are just that they were they were maybe false promises in some cases, so we're starting to see.
That recognition and the recognition of the quality of our product and what that quality does and so ultimately you start to see that you start to see those boomerang coming back in addition to that.
Because we are we have expanded our product set and really moved a lot of existing products forward, while adding new products. They see yet not just as a point solution for a single product, but actually seeing us as a partner for multiple different areas as Mike said the consolidation of a single vendor that can help them in multiple areas and that was some of the driving reasons.
Behind some of those win backs as we as we talked about on the screen.
Yep.
Awesome I appreciate the color congrats again.
Thanks.
The next question comes from Rohit Kulkarni with Ross.
Please go ahead.
Oh, Hey, Thanks, a couple of questions.
One of them.
You bet.
With getting the product to market.
Any feedback you may have heard from.
Customers that maybe looking at demos demo.
At the Investor day were pretty impressive run very flushed out so would love to get an update on anything new with regards to.
A real product.
From.
Perspective.
And then Dave will follow up on the boot barn customer lines.
Very interesting thanks for all the color.
Maybe talk about.
How much open the polls.
In terms of getting those boomerang customers back in Boston.
Upsell versus new.
Net new customer wins.
And if you had to choose a crowded bodies over the next six months.
When you go.
Go to market strategy, how would you prioritize that.
Boomeranging horses.
So Oh cross sells versus net new wins.
Yeah, So mark can probably.
We lost a little of the first question, but I think it was around momentum of the AI products in the market and what we're hearing from customers around some of the newer products like chat and content generation and Mark can give you probably some more color on that yes, I mean, it's been really amazing with what's been happening in market right now I mean, we're being helped by an overall <unk>.
And AI and overall interest in what generative AI can do for organizations. What I think is where we are in a really special position is that.
What we bring to the market right now is not just hype, it's not just a story, it's actually tangible products tangible ways that they can leverage generative AI inside of their enterprise inside of their companies.
So that has definitely given us an advantage in these conversations where maybe the initial interest in understanding what AI can do for the enterprise as maybe what got us in the door, but then we quickly turn that into something tactical something real as we show them actual product, let me show them how.
How their lives and the lives of their of.
The teams will be enhanced to increase in productivity that we're seeing across the board and when they will see across the board by leveraging some of our products and then on the chat side this very new and natural.
Customer experience is really what's captivating a lot of imagination of some of the folks that we're talking to about this.
Such a demonstrable product and it's such a demonstrable set of products. The AI you can sort of you can show. It you can see it it's not a sort of a hypothetical.
That has really spurred on a ton of interest.
And ultimately when we're in the room know we of course share the broadest set of products that we have so it becomes a gateway or an entry way for us to have a larger conversation around the entire platform.
And Theres a lot more on that front coming I mean, we've been doing this for a long time and we've got a really robust product roadmap so were.
It's super Energizing to have these conversations with customers I think on your question about focus on boomerang customers versus up sell versus new.
It's it's all of the above and it's basically prioritizing the customer opportunity interestingly one of the things I think I was.
Engage with a customer just this week, who had who had been one of our listings only customers who had left us in one of the customers I talked to where.
And those early discussions where it became clear that <unk>.
Service had been an issue and focus had felt like an issue. This.
This customer.
Opportunity showed up as an opportunity to do everything Butler stinks.
I think.
Somewhat tentatively and as we updated.
This has been a few years so as we updated the set of products and solutions.
I think as were opened with.
With respect to the opportunity to consolidate functions and.
How far that the platform has advanced over the last two or three years.
And what was what was initially a discussion about.
The non listings products became a full platform.
It has become a full platform discussion around.
What would ultimately be a boomerang customer on listings and so.
It underscores I think what we're seeing anecdotally in the market which is.
Broadly in your everybody's talking about it how can I and we're doing it inside our own business, how can I have less.
Less software contracts and.
<unk>.
Less shelf, where unless things that im not not using well and instead focusing on on a broader platform services that work really well together are built to be integrated with my other systems.
And so but we will continue to pursue all all qualified demand across all of those different categories as aggressively as we can.
Great. Thanks, Mike Thanks, Mark.
Yes.
As a reminder to ask a question you May Press Star then one.
The next question comes from Arjun Bhatia with William Blair. Please go ahead.
Hi. Thank you this is Chris on for origin.
So firstly I want to talk about was obviously the degenerative AI space in general in General has evolved.
Evolving very quickly.
<unk> seen much buyer hesitation due to just how quickly the space is moving and maybe some of the larger customers wanting to wait to kind of let things settle down a bit before making.
Long term commitments or purchasing decisions and if so what's the right message to get past that adoption barrier.
Yes, so mark will talk about the detail I'll give you I'll give you this color I think.
Keep in mind that chat GBT, the sort of lightning bolt that changed the market was six months ago right and so in normal course, we've talked about enterprise cycles six to nine months everyone's talking about the elongation I think that's clearly being seen so so so we're probably still three months from leg.
The deal cycles, three to three to six months from the deal cycles in the industry that might have started around general revive from actually getting to the end of the road and so I think it's really early to opine on the willingness or reluctance of enterprises to kind of dive into these things.
I do think every business.
In the World has.
Has this problem which is.
If you fear it too much you are going to be left behind and your competitors are going to use it.
If you don't fear it enough you're going to make mistakes and youre going to be embarrassed or worse and regulated industries and things like that and so it's a little bit of the Goldilocks thing, where you should have a healthy fear about how to bring these things to your business, but it shouldnt paralyzed U.
Making use of them because.
If you if you companies who refused to take advantage of these technologies are going to have a really hard time competing with companies who are modernizing their digital experience platforms and really focusing on delivering a consumer grade digital experience.
So thats my high level view and Mark may have specific customer stuff.
Anecdotally everything that Mike said is backed up by what we're seeing in market right now, there's there's not I'm not seeing a hesitation I'm not seeing a sort of fear of new technology. What im seeing is just the normal sort of buying cycle that you would expect for any piece of technology.
Youre talking about something like chat, specifically I mean that is a major channel for digital experience.
The cycles on the on those types of products they should be thoughtful they should be sort of span the normal.
Set of steps and piloting phase in the rest of the processes that you need to go through when you're when you're changing.
No.
In many cases, we're adding a dominant digital experience channel to your lineup so.
In many cases actually it's quite the opposite is that this technology is now opening up new use cases that maybe before the previous version of <unk> technology would have never been considered which is I still think is one of the one of the cool parts of this that we're seeing is that there's new use cases that are coming up.
<unk> really never been considered before so.
Yeah.
So you have another one Chris.
Yes, yes. Thank you that's all really helpful color one other one was.
So it seems like nearly every company that we're talking to as well.
We're hearing about how quickly product roadmaps are kind of evolving and shifting to meet.
The surge in demand for regenerative AI, given that you've had a bit of a head start in this space are you seeing much of that dynamic kind of play out internally for you as well.
How are you thinking about product strategy in the current market.
Yes, I mean I.
I think the beauty of being too far ahead of this curve is that it has created probably a lot less disruption internally in terms of having to re prioritize the whole roadmap and catch up.
We're seeing this every day.
We are.
Everybody seems to have their generative lots.
Lots of companies that never talks about generative until a couple of quarters ago are now now that strategy is built around it.
We think thats, good and we think that thats drawing attention to it but we've been at this for a really long time, and we've been able to keep our heads down and deliver.
Really significant product innovation without getting distracted or having to re or I mean, we're all I think we're always reorienting, our prioritization around what our customers want and where the where the where.
Where the market is growing at every good product company does that but we just have the benefit of having.
Yeah.
I think trying to break this down for a number of years that lets us feel really confident that the prioritization. We have is good.
Yes, I think the foresight that we had in heading down this path a few years ago is.
He is definitely paying dividends right now.
So there.
Sort of ebbs and flows of our product roadmap are mostly driven by customer need in general.
That's been our orientation around product roadmap for a while it's let's look at the set of things that are the set of customer problems that are out there that we can help them with and we will.
We have had.
Multiple forms of different types of AI generative AI different transformer based models that have been.
Things, we built on part of our roadmap in Berlin for quite some time, so there hasnt been a lot of radical knee jerk change.
And a lot of ways to sort of the market is coming to us which has been terrific.
Okay.
This concludes our question and answer session and the call has now concluded. Thank you for attending today's presentation. You may now disconnect.
Okay.
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Yes.
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