Q3 2024 Yext Inc Earnings Call

Good afternoon, and welcome to the Yexed fiscal third quarter 'twenty 'twenty four earnings conference call all participants will be in listen only mode.

Should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero.

After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please.

Please note this event is being recorded.

Now, let's turn the conference over to Nils Erdmann Senior Vice President Investor Relations. Please go ahead. Thanks.

You operator, and good afternoon, everyone welcome to <unk> fiscal third quarter 2024 earnings conference call.

With me today are CEO and chair of the board, Mike Wallrath 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 fourth 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 third quarter.

Earnings press release these.

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.

These forward looking statements represent our beliefs and assumptions only as of the date made and we undertake no obligation to revise or update any statements to reflect changes that occur after this call.

Further information on factors and other risks that could cause actual results to materially differ from these forward looking statements is included in our reports filed with the SEC, including in the section titled Special Note regarding forward looking statements and risk factors in our most recent quarterly report on Form 10-Q for the three months ended October 31 2023.

<unk> 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.

With that I will now turn the call over to Mike.

Thanks, Nils and thanks, everyone for joining us today.

This quarter, we continued to execute our plan to operate efficiently while laying the groundwork for long term growth in Q3, we generated revenue of $101 $2 million adjusted EBITDA of $13 5 million and non-GAAP EPS of <unk>, <unk>, which reflects our most profitable quarter ever on a non-GAAP EPS.

Basis, and a solid and sustainable foundation for us to grow our business.

As we continue to improve our operations. We are hopeful this year would be a year of re acceleration for your X, but we arent seeing this in our revenue or are our growth rates yet.

As we discussed on our Q2 call the selling environment remains quite challenging with some deals slipping or downsizing. During the later stages of deal cycles. This caused softness in Q3 bookings as well as budget pressures on renewals.

On top of this we expect a singular large churn in Q4 attributable to a particular customer.

We believe this is due to unusual factors that are unique to this customer.

We will discuss churn in more detail, but this particular account a happy customer seems to be facing budgetary pressures of a magnitude. We are not seeing with other accounts. The net result is that fiscal year 'twenty for revenues and <unk> will not see the reacceleration, we anticipated when we began the fiscal year.

We think this is temporary because we see real improvement in underlying trends around pipeline sales productivity and profitability and we remain confident that we will see a return to high single digit AOR growth next year.

We will share our full outlook on fiscal year 'twenty five in our Q4 earnings discussion in March, but I'd like to take a few moments to share some of the reasons. We remain excited for the future of our business.

First profitability has increased significantly in addition to Q3 being our most profitable quarter ever we are shaping up to deliver over $51 million and adjusted EBITDA for the full year up over 200% versus last year.

We've achieved this margin expansion in the right way with gross margins up over 350 basis points compared to last year sales and marketing expense down 7% year over year, while still investing in R&D, which was up over 13% year over year in Q3 <unk>.

Progress is not just on a non-GAAP basis stock.

Stock based compensation has declined to just 12% of revenue and operating cash flow creation for the year will be over 100% of adjusted EBITDA, we are becoming leaner and more efficient.

Second our sales productivity is improving across all categories and geographies. While total bookings were down bookings per rep is improving even in the face of an increasingly challenging macro environment.

We've made these improvements by sharpening our focus on value based selling rep performance in qualified pipeline generation.

A renewed marketing engine has been a bright spot for us this year and our pipeline is strong and growing.

It is unfortunate that the challenging macro environment is causing deal slippage and downsizing as otherwise I think our renewed go to market effort. This year would truly be a bright spot for us with improving productivity, we have laid the groundwork for growth, including the potential to grow sales capacity, which we will look to accelerate once we have confidence in an improving macro environment.

Third our reseller channel also showed some early signs of stabilization and are are we are encouraged by the progress and believe in the long term growth opportunity of the reseller channel. We're focused on driving revenue through our resellers and are evaluating pricing strategies, including more usage based models to drive growth in this channel as we move forward.

We continue to focus on what we can control to put ourselves in the best position to capture growth as the macro environment improves we are committed to improving customer satisfaction and we continue to invest in our core products that are the main drivers of value for our customers today.

We've aligned our sales motion and sharpened our focus on core product innovations across listings reviews pages analytics and search that deliver tangible near term results to our customer.

And are increasing our focus on social features and functionality as well.

We are hearing from our customers that they want a partner who does more across the entire digital experience and our product roadmap is designed to concentrate on solutions that deliver tangible measurable value. These innovations include our ongoing work with AI and large language models, which enhance the functionality of our core products across areas like content.

Asian Review response in AI chat.

Several competitive wins and boomerang customers during the third quarter underscore how important it is that we continue to innovate to set ourselves apart from our competitors.

In Q3, we had several upsells and new logo wins across a variety of business verticals in health care. For example, we signed deals with multiple providers and in each case, we were able to identify and solve pain points that were unique to these customers.

We've established a strong position in health care by demonstrating that our platform is cost effective efficient and uniquely suited to managing customer information across our publisher network.

One client in particular was an immediate win back from Q2, when they signed with a competitor and almost immediately ran into issues as the competitor failed to deliver on their deadlines in August they approached <unk> and wanted to move back to our platform as soon as possible.

We are similarly, seeing numerous competitive wins across the technology sector, including Elt's, and Vodafone and in retail restaurants, and hospitality with authentic restaurant brands golf Tech raising Cain restaurants, and TJ ex UK to name a few.

All of our competitive wins in the quarter not only underscore the importance of focusing on innovation, but also signaled the healthy demand for our products. We continue to see strong interest from our customers and consolidating functions across our portfolio of products.

We're making progress on our crops cross platform motion and customers are seeing the additional value that's possible through leveraging our knowledge graph across more than one of our solutions. During the quarter, we were particularly successful upselling several large financial services customers.

Yeah.

One of these customers a multiyear deal and a new product build out was a notable upsell during the quarter. We created a strong value use case based on our success and the positive response, we received building their financial adviser experiences for their wealth management businesses.

We had similar success with a global investment management services firm, which is launching three search experiences on the homepage of their personal investing pensions and financial advisor websites with a yet search bar prominently displayed on each.

We continue to invest in search and AI content generation products, which we believe will represent large incremental air our opportunities in the years ahead.

One of the world's largest retailers for example saw how our AI products could help enhance communications across intranet sites, our team demonstrated the ease and effectiveness of implementing our knowledge graph and identified how AI driven search could drive increasing employee satisfaction, which led them to becoming a new client in the quarter.

Okay.

We are committing development resources to deliver what our customers are ready to buy in the current macroeconomic environment. Our core listings reviews and pages products continue to be best in class or top new logo. In Q3 was with one of the world's largest tax preparation software services.

The customer was looking for a flexible open API platform to help their developers quickly standup websites listings and reputation management.

After seeing how our platform can help their tax professionals become discoverable across all digital channels. They chose gx products as their digital experience solution.

Shifting to the fall release, we launched over 80, new features with enhancements across every area of our platform based on feedback from our customers partners and employees. We will continue to focus our attention on product enhancements to help our clients and partners drive internal efficiencies boost their online presence and delight their customers.

We feel strongly that <unk> remains well positioned to capitalize on the digital transformation taking place across organizations worldwide. We have laid the groundwork for future growth acceleration and our highest priority is to capitalize on this opportunity when the buying environment has improved.

As we complete our sixth full quarter of operations since our leadership transition last year I feel great about the team we have in place globally, the future opportunity across a broadening set of products and the leading indicators. We are seeing a return to accelerating growth in the future.

I am very grateful for the focused and steady efforts of our entire global team in a very challenging environment with that I'd like to now turn the call over to Darryl.

Thanks, Mike I'll start with a review of our third quarter results before moving on to our guidance for Q4 and fiscal year 2000 and for revenue for the third quarter grew to $101 2 million up 2% on an as reported basis or up slightly in constant currency.

Our growth in Q3 was driven by demand in our direct business as we continue to see good sales productivity and qualified demand across verticals, both domestically and internationally.

Our Q3 revenue was slightly below our guidance range of $101 5 million to $102 $5 million. This was primarily due to foreign exchange rate fluctuations drop in foreign exchange rates that occurred from the time, we provided our guidance in early September through the close of our quarter resulted in a revenue impact of over half.

A million dollars.

Annual recurring revenue or <unk> was $396 $8 million at the end of Q3 up 2% year over year or 1% in constant currency.

Direct customers represented 82% of total <unk> and direct <unk> totaled $326 $6 million, an increase of 3% year over year or 2% in constant currency.

As of the end of Q3, our customer count for direct excluding SMB was approximately 2900 <unk>.

Third party resellers, which represented 18% of total air or at the end of Q3 delivered <unk> of $72 million, a decrease of 3% year over year were down 4% in constant currency.

As Mike mentioned earlier, we are encouraged by the improvement relative to last quarter and believe that our reseller channel will return to growth over time.

As of the end of Q3, our net retention rate, which is calculated on the basis of their R was 97% for our direct customers and 95% for our third party resellers.

Turning to non-GAAP results, which are reconciled to GAAP in our earnings press release Q3, gross profit was $79 $8 million.

Representing gross margin of 78, 9% compared to 75, 3% in the year ago quarter as.

As we've mentioned previously the improvement relative to last year was largely attributable to the organizational changes within our services organization, which was a process we kicked off in Q4 of last year.

We expect our gross margins for the remainder of this fiscal year to remain at the high end of our 75% to 80% range.

Our operating expenses in Q3 were $69 $9 million or 69% of revenue compared to $72 1 million or 73% of revenue in the year ago quarter.

Key part of our operating expense discipline has been the realignment of our sales and marketing team and our sales and marketing costs as a percentage of revenue were 41% in Q3 compared to 44% in the third quarter last year.

Our Q3 net income was $11 $3 million compared to net income of $2 $5 million in the year ago quarter.

Q3, net income per basic share was <unk> <unk>.

Compared to net income of <unk> <unk> per basic share in the third quarter last year.

Cash and cash equivalents were $182 million at the end of Q3 compared to $201 million at the end of Q2.

The decrease in our cash balance was driven in part by continued share repurchases in Q3, which totaled $11 $9 million or one 8 million shares.

Since the commencement of the program our share repurchases have totaled $100 million or $16 8 million shares.

Net cash used in operating activities for Q3 was $1 6 million compared to $10 8 million cash used in the year ago quarter.

And our Capex was $800000 compared to $1 $5 million in Q3 last year.

In summary, our third quarter results highlight the continued progress we've made in improving sales productivity and operating efficiency to have achieved record non-GAAP profitability. Despite the persistence of unfavorable macroeconomic conditions is a testament to the discipline and hard work of our team.

When these pressures ease we're confident that the improvements we made will allow us to drive growth in our IRR followed by our top line.

Turning to our outlook for the fourth quarter and full fiscal year 'twenty for our guidance factors in the outsized impact of the large customer churn Mike mentioned earlier, we calculate the impact of this customer churn alone to be approximately $11 million in IRR in our Q4 revenue guidance factors. This in our.

Our outlook also includes our assumptions for the continuing effects of a challenging macroeconomic environment.

As of today for the fourth quarter, we expect revenue in the range of $100 million to $105 million <unk>.

Adjusted EBITDA in the range of 12 million to $13 million and non-GAAP EPS in the range of seven to eight.

<unk> assumes weighted average basic share count of approximately $124 4 million shares.

For the full year fiscal 'twenty four we expect revenue in the range of $403 2 million to $403 $7 million adjusted EBITDA in the range of $51 7 million to $52 7 million and non-GAAP EPS in the range of 31 to 32.

<unk> assumes a weighted average basic share count of approximately $124 1 million shares.

We will provide more detail about our plans for growth in fiscal 'twenty five as well as the rest of our financial outlook for fiscal 'twenty five during our Q4 earnings call in March.

Before we open up the call for questions. We wanted to provide an update on our plans for future quarterly earnings calls beginning next quarter, we plan to publish quarterly commentary on our website at investors Dot <unk> dot com shortly after the market close and begin Q&A directly at the beginning of the call rather than read prepared remarks, we.

Believe this is a more efficient way to share this information with you and to make the most of our Q&A sessions going forward.

Now we would like to open up the line for questions.

We will now begin the question and answer session.

To ask a question you May press Star then one on your telephone keypad.

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

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

Hey, this is why it's wants them on for Tom Thanks for taking our questions.

So my first one is just around next fiscal year, it's probably a bit too early for you guys to comment on it but can you maybe share how youre thinking about.

The kind of growth versus profitability.

<unk> ability tradeoff.

The macro and rates will play a key role on whether you guys sort of lean in on the growth side or maybe make further cost cuts, but anything you can kind of share on that front would be great.

Yes sure. Thanks for the question happy to weigh in on that so.

One of the things were happening I'm very happy about is the increase in sales productivity that we're seeing the ability to generate pipeline.

And even in a tough environment, where.

It's obviously a difficult right now to get enterprise.

Businesses to commit to long term subscription software agreements.

We feel good about the fact that we have levers in any environment to play with and we've I think we've shown that we can move the levers when it comes to getting more efficiency and productivity from our from our team. So it's impossible to predict what the environment might be like next year.

One of the things I think we've demonstrated is that we will be able to turn the dials on either increasing capacity.

In the event that there is more qualified demand in the market is.

Is improving.

But also I think we've shown we can get efficiencies from the business and tougher environment. So.

I wish I could tell you what it's going to be like I can.

But I feel really good about our ability to react whatever the environment is like.

Got it that's helpful. And then secondly could you maybe talk a bit about how you expect Mark Graham Keynotes departure, how it's going to change your organizational structure and how decisions are made any significant changes in your strategy that result from his departure.

No I think.

Mark.

Did a great job here during a time of great change in the organization of bringing in leaders one when I took over.

We didn't have a chief revenue officer, or Chief marketing officer, or Chief product officer in the business and Mark bridged a very big gap for us.

And a lot of ways.

It was successful bringing in great functional leaders in those roles in <unk> and.

And based on that success the role that he was then became a layer that was that was.

We agreed was unnecessary.

And.

I think I think it was a natural time for Mark to take take the next step.

The way, we're going to do strategy here.

We're going to listen to our customers and we're going to hear what our customers have.

I have to say and what they want.

And we're going to react to that and so as the market continues to shift.

There is a lot more focus from our customer base right now on how do I drive value with the existing.

Listing customers how to drive value with our <unk>.

Existing platforms and services and where the natural.

A natural add ons and so I think the emphasis around here is on.

Delivering value to customers and then listening to our customers they tell us where we should go next.

Got it that's helpful.

The next question is from Rohit Kulkarni with Roth MK M. Please go ahead.

Oh, Hey, Thanks, perhaps forces to Mike.

High single digits growth potential, but I'm. So if you could.

The way to bridge into what is under your control to get there somewhere beyond right now.

But I was by channel or by organization all of them.

Anything that Youre seeing right now.

Through the sales channel that gives you that confidence.

That could grow high single digits.

And our next.

Next fiscal year.

Yes, so we wanted to talk about this so.

Here's how I would frame it.

Obviously entering this year I think we and most expected that there would be some level of improvement in the macro environment as the year went on I don't I don't think we've seen that I think we're pretty we're pretty clear last quarter and we continue to see an environment, where there is optimization of cost and challenges with budgets in deal cycles.

That's a different store.

Lori than than than others are telling in the space. In addition to that as we talked about all year. We made decisions at the end of last year that we're going to create headwinds for us. This year. So we talked about low single digits impact of the changes that we made in our SMB group our strategy in Japan as well as R. R.

Our managed services group and so when we when we take those assumptions right, which we've seen those those low single digit headwinds have appeared as expected and as we talked about those are going to happen during.

Hi.

We're going to be more weighted to the second half of the year.

We've also now seen.

This isolated large customer churn in Q4, which is going to create an additional headwind next year.

We don't expect those headwinds to continue in a meaningful way next year and so as we see our execution improve on things like sales productivity pipeline and efficiency.

We feel confident that those things will allow us to to grow next year.

With some of these.

Let's call it.

Chosen headwinds this year.

Okay. Okay.

I guess when it comes to leading indicators you mentioned kind.

Bookings per Rep is improving you also mentioned.

<unk> is growing any additional color you can give mike in terms of.

Then are you seeing those.

Oh signs of growth.

Silver lining.

And perhaps some specialty geographies.

Lord verticals size of customer that would be helpful.

I think I think from a productivity standpoint, one of the most encouraging things is we're seeing it everywhere.

So it's we're seeing it across all geographies.

The.

Look at this as a testament to the amazing amount of hard work that's gone into install a.

A much better sales and marketing machine this year and the leadership that we've that we brought into those groups and so.

That's not an isolated the productivity increases or not an isolated thing that are all happening in one or two verticals or one or two geographies and so it feels much more systematic, especially when you factor in the fact that it's just been a very difficult year to get.

To get deals done.

To get Fuller value deals done often we're seeing customers, who want to who want to do more but only have budget to do certain amount and.

No.

I think that that's probably the.

The most exciting thing that we're seeing is that the.

The machines that were building or are working even in a difficult environment.

Okay Fantastic and then one last one then I'll go back to the queue is with this isolated customer churn.

Any learnings on anything that you can do to.

Mitigated that reduce the likelihood of something like this happening any more color you can pull in the context of these children.

Yes. So so this one is disappointing obviously, it's a large customer and what's most disappointing about it I mean, I've I've talked a lot over the last six quarters about the customer discussions that I've had with customers who early on who felt that we had let them down in some way.

And we've discussed a lot of that this this particular instance doesn't have any of that what we've heard from what we heard from this customer was this was this is a happy customer who saw value in the products that they were using.

And wanted to continue to use the products the problem was a budget problem.

They were in an extreme cost cutting situation.

There were layoffs, there were just really significant cost cutting things happening inside the business.

And frankly, we chose there there was a there was a scenario where we could have.

Probably held onto some some amount of IRR from this customer, but theres no way, we could've done a profitably.

And we're talking about budget reductions in the magnitude of 80%.

To deliver that would've been a highly unprofitable deal for us and so unfortunately, there was there was really no.

Specific learning from this other than customers, sometimes have to do things that Don.

But don't necessarily make sense.

In terms of in terms of value.

So we're disappointed about it we hope that in the future. We can we can win this customer back when things are better.

That's the that's the color.

Okay. Thanks, Mike Thank you.

The next question is from <unk> Khan with B Riley. Please go ahead.

Yeah, Hi, Thanks, a couple of questions for me so.

Mike maybe you can give us some color Andrew.

So what you might be seeing by category are you seeing.

More weakness and maybe a more challenging in some categories versus others.

That's one and then the other thing you mentioned some opportunities.

Yeah.

In the reseller channel.

Initially.

Usage based pricing, maybe you can elaborate on that amendment too.

Yeah. So let me take the first one first and then you can remind me what the second one is because because I'll forget.

So.

The.

It's really interesting what we're seeing across category I wouldn't describe this as one particular.

Gives me industry or category.

Within categories, we're seeing different customer behaviors. So.

We will see within a category that there are customers, who were more conservative last year and probably cut budgets.

Last year. So we're now in the and this is where we're seeing we're seeing more success with deal cycles and then some of the customers who were seeing have more challenges in this environment are the ones who were more actively buying.

Or are less focused on cost cutting last year, and so I don't have a specific industry or a specific category, where we're seeing where we're.

We're seeing we're seeing pressure, it's more intra category and it really depends on decisions that the management teams have made over the course of I would say the last kind of six six to eight quarters.

Which is I think probably normal in this environment.

Yes.

And so I think that's what I'd say about the first one the second one you were asking about reseller usage I mentioned this because I think.

There are two things here. So one is that as a company we've been striving to get better at meeting our customers, where they are we've talked about customer centricity a lot we've talked about the need to respond to our customer needs at least as much as our own and so when it comes to resellers in particular, the way that they sell primary.

Early to Smbs.

It doesn't always line up with a long term multiyear committed contract sometimes it does and sometimes it doesn't and so we're seeing an appetite there for potentially.

Opportunities that would grow revenue, but might not grow the committed <unk> of those businesses. So what we're going to do and this is what I wanted to make clear what we will do our best to provide.

Color on this on a quarterly basis, but we're going to respond to the revenue opportunities here.

And if that means that the.

Committed IRR there could be muted even in the event of revenue growth, we'll do our best to show you those trends and.

And disclose them.

Okay, and then maybe maybe a quick follow up so some of the commentary that you're reading from the latest <unk> forecast for 2024 and it looks like.

But this might be going for it services and the like so can you just talk about.

The AG.

The budget that you go after it.

Set of solutions.

What are you hearing so far.

And their customers.

Yes, so I think the.

As is clear the majority of our.

Our today lives largely within the marketing Department as you would expect with things like listings and reviews.

And pages for the most part Theres, obviously, some some in some organizations as theres more involvement in those discussions and others.

And I think Thats one of the things that.

We do see in the future with more of the search and content generation opportunities.

And kind of what I would call the led opportunities around around those things that that crosses over a bit more into the into the sector.

I think my comments last quarter were a little bit unpopular about the length. The length of time that we would expect before we really see material bookings.

From the AI wave.

But.

I stand by it I think.

4% to six to eight quarters away from companies really getting serious about deploying.

AI in ways that talks to the customer and to talk to the customer because of the legal regulatory and compliance risk there.

And so.

Obviously in a scenario, where the market has been challenging marketing budgets the resources available to marketers.

They've had the same headwinds that that that we've seen in terms of the amount of staff they have and so they're all looking at how do I, how do I optimize the budget and how do I do do more with fewer resources inside the marketing department and were very focused on being a good partner on that side.

Okay.

Thank you Mike.

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

Hey, this is Matt Shea on for Brian. Thanks for taking the question I wanted to just double click on the churned customer coming up next quarter could you, maybe just walk us through and I appreciate the quantification around it but maybe could you just walk us through the timing of when this client is expected to churn and ultimately how we should layer kind of that <unk> impact into our Gulf.

Forward numbers.

Thanks for the question Daryl.

The customer churns on December 31, so we will have.

One month of revenue impact in this Q4, and then obviously a full quarter of impact in Q1 of next year and it will be the full $11 million will be out of our when we report Q4.

Okay got it that's helpful. And then I wanted to touch on and Mike I. Appreciate your comments that you're focusing on innovation that your customers want to buy and based on some of the recent reports we've seen some from peers, we're starting to see generative AI application interest translate into purchases, especially later in the year and deal cycles are you seeing any.

Similar dynamic.

And your end market and if not do you see that as more of an end market education issue or more of our sales.

Sales productivity or education challenge.

Yes, so so the distinction I would draw here and I think it's a really important one is that the.

The question I think enterprises are asking when there.

Looking at different AI.

<unk> solutions.

Is what's the level of risk of deploying.

Different AI solutions right, so to the extent that utilizing.

Generative AI solution as an internal tool to create content or something like that that has human intervention. Then I think there is there is an appetite there because the risk is limited to the extent that.

We're talking about.

Letting the AI deliver the customer experience I think theres, a lot more reticence, especially from larger enterprises and regulated industries about kind of setting the AI free in talking to the customer directly.

So.

We have we believe huge advantages.

Over the long run because of the nature of our content system and our knowledge graph storing authoritative information, which makes the allowing the generative AI do too.

Generate the customer experience.

But.

And I think the Bud is important here.

When the AI is talking to the customer theres going to be more scrutiny. There is going to be more legal and regulatory and compliance review on those solutions and so.

I think the railcar question here is at what level is the AI being set free to interface with the customer and are you relying on the safety mechanism versus using tools internally in our tools just tend to lean more to the customer experience because thats, what we do.

Does that makes sense.

Yeah, I think that makes sense.

Thank you.

Again, if you have a question. Please press Star then one.

The next question is from Arjun Bhatia with William Blair. Please go ahead.

Hi, This is Chris on garage and thanks for taking our questions.

Unpack a bit what youre seeing in terms of the.

Go to market I know you mentioned some deals slipping kind of falling out are there deals getting stuck in a certain part of the funnel or our deal kind of progressing the way you would expect based on everything <unk> seen so far this year, but then dropping out towards the end.

Is this getting better or worse.

That's right yeah.

Yes sure.

Zinc.

Generally speaking right and this is it's hard to be generally descriptive when you are talking about hundreds of deals or even thousands of deal opportunities.

There are some trends that we see so so one trend is that there is generalized budget budgetary pressure and so what we're this is.

This is one of the things I think youre hearing and I hear it from other software Ceos as well as.

There's a lot of pipeline, there's a lot of opportunity and there are a lot of customers, saying I want to do X and I want to do Y and sometimes what theyre, saying is look I wanted to do X Y and Z right and then when you, but but theres more budget pressure inside the enterprise and there has been previously and so what's happening to deal sometimes is that.

<unk>.

The buyers are saying I want to do X y and Z and then.

Once you get it later in the deal cycle and you get procurement and finance involved in the deal it turns out that theres not budget for X y and Z.

The X Y Z deal turns into just the ex deal or just the XY deal and so what that causes is that causes slippage.

Slippage in terms of deals late in the cycle, where they get smaller right.

Thank you see the same trends in subscription software renewals where budgets are.

Budgets are pressured the extreme version is this isolated churn, we're talking about where budgets for pressure to the tune of 80% plus.

And so when you when you layer all of this stuff on together what you get is you get this picture of really robust pipeline that actually on a dollar basis closes at a lower percentage than we've seen historically.

And the signal here can be really confusing because you can you can you can go into quarters with very robust pipeline and then find that youre sort of consider your model that you have relied on for the last let's call. It 10 or 11 years since the last.

Software anything like a software a recession that we've seen in terms of projected close rates is just not as reliable as it once was and I think that that's kind of what we're seeing.

Would describe the environment.

Typically I think part of the problem is that the expectation is that this environment, usually gets better in Q4 because of the natural sort of upwelling of the financial planning process and we all know this is the case in software and so if you if you've expected things to get better in Q4, and they've really just.

Let's say stay stayed the same pressures that we've seen throughout the year, then that's going to introduce softness that that may not be in the models.

Hopefully that makes some sense.

No it does not.

Really helpful color on the other thing I want to touch on I think you kind of on this a little bit with your last answer but high from the singular large mega trend that we've obviously talked about quite a bit.

Is there any other.

Increase in logo churn that you would call out or is a lot of the MLR pressure still kind of coming through downtowns at this point.

I wouldn't call it any other like singular large churns or anything like that we don't see we don't see that in.

In fact, I think in our larger customer base, we see strong stronger retention trends, we havent seen anything.

We talked about in March are.

Our.

Trailing 12 months gross retention rates were in the high eighties, we were going to call out if that change we haven't seen that change.

We'll update that number in Q4 and it may be affected by this this singular customer churn.

But now Theyre steadiness there just.

Like everything it is it is pressured in the environment.

Just as our just as our new bookings.

Got it. Thank you that's all from me.

This concludes our question and answer session I would like to turn the conference back over to Mike <unk> for any closing remarks.

Thanks, everybody for joining and look forward to talking to you next quarter if not sooner.

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

[noise].