Q4 2024 Yext Inc Earnings Call

Operator: [music].

Operator: BF-WATCH TV 2021 Good afternoon, and welcome to the Yext Incorporated fourth quarter fiscal 2024 financial results conference call. All participants will be in listen-only mode.

Good afternoon, and welcome to the Yexed incorporated fourth quarter fiscal 'twenty 'twenty four financial results conference call.

All participants will be in listen only mode.

Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad. To withdraw your question, please press star, then 2.

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.

Operator: Please note, this event is being recorded. I would now like to turn the conference over to Nils Erdmann, Senior Vice President, Investor Relations. Please go ahead. Thank you, operator. And good afternoon, everyone.

Please note.

This event is being recorded.

I would now like to turn the conference over to Nils Erdmann Senior Vice President Investor Relations. Please go ahead.

Nils L. Erdmann: Thank you operator, and good afternoon, everyone welcome to <unk> fourth quarter fiscal 2024 earnings Conference call with me today are CEO and chair of the board, Mike Wall, Ras and CFO Darryl bond.

Nils L. Erdmann: Welcome to Yext's fourth quarter fiscal 2024 earnings conference call. With me today are CEO and chair of the board, Mike Walrath, and CFO, Darryl 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 full year fiscal 2025, our strategy and estimates of financial and operating metrics, capital expenditures, and other indications of future opportunities, as further described in our fourth quarter shareholder letter. These forward-looking statements are subject to certain risks, uncertainties, and assumptions, including those related to Yext's 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 sections titled Special Note Regarding Forward-Looking Statements and Risk Factors.

Nils L. Erdmann: 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 full year fiscal 2025, our strategy and estimates of financial and operating metrics capital expenditures and other indications of future opportunities as further described in our fourth quarter <unk>.

Nils L. Erdmann: You're a holder letter.

Nils L. Erdmann: These forward looking statements are subject to certain risks uncertainties and assumptions, including those related to the X 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 you.

Nils L. Erdmann: Such changes that occur after this call further.

Nils L. Erdmann: 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.

Nils L. Erdmann: In our most recent quarterly report on Form 10-Q, for the three months ended October 31, 2023, and our shareholder letter 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 shareholder letter, which is available at investors.yext.com.

Nils L. Erdmann: In our shareholder letter that was issued this afternoon.

Nils L. Erdmann: 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 shareholder letter, which is available at investors <unk> Dot com.

Michael Walrath: We also provide definitions of these metrics in the shareholder letter. With that, I will now turn the call over to Mike. Thanks, Nils. Good afternoon, everyone, and thank you for joining us today.

We also provide definitions of these metrics in the shareholder letter.

Nils L. Erdmann: With that I will now turn the call over to Mike.

Michael Walrath: Thanks, Nils good afternoon, everyone and thank you for joining us today.

Michael Walrath: As we discussed last quarter, we have published our quarterly shareholder letter and financial commentary on our investor website, and we look forward to taking your questions here today. There are a few high-level themes I would call out from our letter before we dive into Q&A. First, we are pleased with the progress we made in fiscal year 2024, despite a very difficult operating environment.

Michael Walrath: As we discussed last quarter, we have published our quarterly shareholder letter and financial commentary on our Investor website, and we look forward to taking your questions here today.

Michael Walrath: There are a few high level themes I would call out from our letter before we dive into Q&A.

Michael Walrath: We are pleased with the progress we made in fiscal year 2024, despite a very difficult operating environment. We believe our record profitability increases in sales productivity and some of the difficult decisions. We made to be more focused will serve the company well in the future and drive more efficient growth.

Michael Walrath: We believe our record profitability increases in sales productivity, and some of the difficult decisions we made to be more focused will serve the company well in the future and drive more efficient growth. As I've talked about in the past, the recipe for efficient growth is a combination of increased sales productivity and the ability to measure qualified pipeline so that we can increase our investment in direct revenue-generating roles. We will continue to focus on efficient operations, but we have seen enough to be ready to direct more investment into direct selling and sales development to drive growth in the future. Second, we made great strides last year in shifting more of our focus to the core product offerings our customers value most, and we have reoriented our roadmap around our customers' highest priorities.

As I've talked about in the past the recipe for efficient growth is a combination of increased sales productivity and the ability to measure qualified pipeline. So that we can increase our investment in direct revenue generating roles. We will continue to focus on efficient operations, but we have seen enough to be ready to direct more investment into direct selling and sell development.

Michael Walrath: To drive growth in the future.

Michael Walrath: Second we made great strides last year in shifting more of our focus to the core product offerings, our customers value most and have reoriented, our roadmap around our customers' highest priorities we.

Michael Walrath: We have also reallocated our investment in customer support, services, and success to drive customer satisfaction and value. In fiscal year 25, we will continue to proactively deliver value-driving innovation in our core listings, pages, reviews, and search products, customer service, and support, and deliver new product functionality in adjacent product areas that are most valued by our customers. These include generative AI features, including a broader application of content generation technology, as well as much more robust social management and analytics features.

Michael Walrath: We have also reallocated our investments in customer support services and success to drive customer satisfaction and value.

Michael Walrath: In fiscal year 'twenty, five we will continue to proactively deliver value driving innovation in our core listings pages reviews on search products customer service and support and deliver new product functionality and adjacent product areas that are most valued by our customers. These include generative AI features including broader application of content.

<unk> technology as well as much more robust social management and analytics features.

Michael Walrath: The strength and breadth of our platform, particularly the advantage of our content knowledge graph system as a single data source of truth for our customers across all of the product use cases, will serve us well in an environment where customers want fewer partners and more ROI. We will continue to invest in R&D into high-potential areas such as chat and other generative AI technology. But these investments will be more measured and focused on customer priorities than in the past. Finally, we continue to take a conservative point of view on the market environment and the timing of the uptake of generative AI solutions at scale.

Michael Walrath: The strength and breadth of our platform, particularly the advantage of our content knowledge graph system as a single data source of truth for our customers across all of the product use cases will serve us well in an environment, where customers want fewer partners and more ROI.

Michael Walrath: We will continue to invest R&D into high potential areas, such as chat and other regenerative AI technologies, but these investments will be more measured and focused on customer priorities than in the past.

Michael Walrath: Finally, we continue to take a conservative point of view on the market environment and the timing of uptake of generative AI solutions at scale.

Michael Walrath: Our customers include some of the largest brands in the world, and they continue to digest and optimize their technology stack after over a decade of investment. Our outlook anticipates that this trend will continue this year as uncertainty around the economy, inflation, and interest rate environment continues. We believe this is prudent and will support our customers' work to identify areas to do more with our platform and be more efficient. We are highly positive about the future of generative AI to drive efficiency for the enterprise, and we are seeing signs of early adoption as evidenced by increased adoption of generative AI review response features. This week marks the two-year anniversary of my taking the CEO position. I'd like to take a moment to acknowledge that the last two years have been challenging on many levels for our team.

Michael Walrath: Our customers include some of the largest brands in the world and they continue to digest and optimize their technology stack after over a decade of investment.

Michael Walrath: Our outlook anticipates that this trend will continue this year as uncertainty around the economy inflation and interest rate environment continues. We believe this is prudent and will support our customers work to identify areas to do more with our platform and be more efficient.

Michael Walrath: We are highly positive on the future of generative AI to drive efficiency for the enterprise and we are seeing signs of early adoption as evidenced by increased adoption of generative AI review response features.

Speaker Change: This week marks the two year anniversary of my taking the CEO position I'd like to take a moment to acknowledge that the last two years have been challenging on many levels for our team I'm.

Michael Walrath: I'm incredibly proud of our global team's willingness to take on the difficult tasks of reshaping Yext's operating profile, adjusting to a difficult operating environment, and recommitting the company to our customers. I believe the work has been harder than we would have anticipated two years ago, and the work will continue as we finish our transformation. I'm incredibly grateful to our team for their resilience and commitment in the past couple of years and for the future.

Speaker Change: I'm incredibly proud of our global teams willingness to take on the difficult task of reshaping X operating profile adjusting to a difficult operating environment and Recommitting the company to our customers.

Speaker Change: I believe the work has been harder than we would've anticipated two years ago and the work we'll continue to finish our transformation.

Speaker Change: Incredibly grateful to our team for their resilience and commitment in the past couple of years and for the future.

Operator: With that, I'd like to open the line up for questions. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key.

Speaker Change: With that I'd like to open it up for questions.

Speaker Change: We will now begin the question and answer session.

Speaker Change: To ask a question you May press Star then one on your telephone keypad. If you were using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.

Operator: To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question is from Arjun Bhatia with William Blair. Please go ahead.

Speaker Change: The first question is from Arjun Bhatia with William Blair. Please go ahead.

Arjun Rohit Bhatia: Perfect. Thank you, guys. Mike, maybe one for you to start.

Arjun Rohit Bhatia: Perfect. Thank you guys.

Arjun Rohit Bhatia: Mike maybe one for you to start.

Michael Walrath: On the product roadmap, it sounds like there's a little bit of a refocusing going on on the core with listings. And I think in the shareholder letter, you also talked about some new capabilities like social media management. Can you maybe just give us a sense of, Where are some of these investments on the product front are focused? How do you plan to build some of these new capabilities like social media management? And what might the platform look like if we're talking in December versus in March right now? Sure. Yeah.

Arjun Rohit Bhatia: The product roadmap it sounds like there's a little bit of a refocusing going on on the core with with with listings and I think in the shareholder letter you also talked about some new capabilities like social media management can you, maybe just give us a sense of where.

Arjun Rohit Bhatia: Where some of these investments on the product front, our focus how do you plan to build somebody.

New capabilities like social media management, and you know what might the platform look like if we're talking in December versus in in March right now.

Speaker Change: Sure Yeah. Thanks for the question so.

Michael Walrath: And thanks for the question. So, I think we talked about this when we started this journey. We talked about the need to refocus on the core, to deliver the value that our customers were paying us for in listings and pages and reviews and search. And like everything, it takes longer than you think to get things going in the right direction. I do think one of the things we've seen over the last couple of years is that as businesses focus on less, how do I add new technologies to my stack? How do I experiment with new things, and more importantly, am I getting the value that I'm paying for in my various vertical or multiproduct software solutions?

Speaker Change: I think we talked I mean, we talked about this when we when we started this journey, we talked about the need to refocus on the core to deliver the value that our customers are paying us in listings and pages and reviews and search.

Speaker Change: And it's like everything it takes longer than you think to get things going in the right direction I do think one of the things we've seen over the last couple of years is as businesses focus on.

Speaker Change: Les how do I add new technologies to my stack, how do I experiment with new things and more am I getting the value.

Speaker Change: That I'm paying for in my various.

Speaker Change: You know vertical or or or multi product software solutions.

Michael Walrath: We need to demonstrate, and I think we are demonstrating to them that there's a lot of product innovation happening inside the core, and where I think previously our focuses were a little bit further out. When it comes to social, we've always had social features in the product, but I think it's an area that we've heard really clearly from our customers that they want to see more of this. They want fewer vendors. They want more cross-platform, I'd say, cross-platform visibility.

Speaker Change: You know, we we need to demonstrate and I think we are demonstrating to them that there's a lot of product innovation happening inside the core.

Speaker Change: Well I think our you know previously our focus is we're a little a little bit further out.

Speaker Change: When it comes to social we've always had social features in the product, but I think it's a it's an area that we've heard really clearly from our customers that they want to see more of this they want fewer vendors they want more.

Speaker Change: Cros are I'd say you know.

Michael Walrath: The other thing they really want, and I mentioned this in the letter also, is a data structure that makes sense and allows them to do more with all these different functions. This is something we continue to work on, and we expect as we get into the second half of the year, there will be a lot more coming through the product innovation cycle on all of the products, but increasingly on the social media side as well. Okay, I got it.

Speaker Change: And cross platform.

Speaker Change: Visibility and then the other thing they really want and I mentioned this in the letter also as a is it a data structure that makes sense and allows them to do more with with all these different functions and so.

Speaker Change: This is something we continue to work on and we expect as we get into really get into the second half of the year that there'll be a lot more coming through the product innovation cycle on all of the products, but increasingly on the social media side as well.

Speaker Change: Okay got it and then.

Michael Walrath: And then, you mentioned right, increase in sales capacity and this being the right time to invest given some of the trends that you're seeing in the pipeline. I would be curious to hear what you're seeing in terms of sales productivity and how you're kind of benchmarking what's best in classes, both for Yext and, you know, just as you compare yourself to the industry. I think it's the pipeline trends certainly are promised or seem promising. But talk about where you're hiring, why it's the right time, and how much incremental expense we can expect on sales and marketing. Yeah, so, you know, like, I'm. We are at the highest direct sales productivity that we've seen in the last four years, I believe, as stated in the letter. I'm not going to tell you we're best in class because we're not best in class yet.

Speaker Change: I you mentioned rate increase.

Speaker Change: The increase in sales capacity and this being the right time to invest given some of the trends that you're seeing in the in the pipeline and I would be curious to hear what you're seeing in terms of sales productivity and and and and how you're kind of benchmarking what best in classes both for.

Speaker Change: Her yaks, then you know just as you compare yourself.

To the industry I think it's.

Speaker Change: The pipeline trends certainly are.

Speaker Change: Our our promise our seem promising.

Speaker Change: But talk about where you're hiring why it's the right time and how much incremental expense, maybe we can expect on the on the sales and marketing side.

Speaker Change: Yeah. So so you know.

Speaker Change: Hum.

Speaker Change: We are at the highest direct sales productivity that we've seen it I believe in the last four years was the what we stated in the letter.

Speaker Change: I am not going to tell you we're best in class because we're not best in class yet.

Michael Walrath: But we've seen marked improvement there, and this is something I've talked about a lot over the last four or five quarters, is when you're seeing, consistent improvement in sales productivity and the qualified demand which obviously you know over the last five six quarters we've seen a really nice increase in our ability to both create but also to measure our pipeline that that's when we can start growing our sales capacity again and so we'll be doing that in a pretty measured way over the first half of the year and that's where we expect to start to see contribution from actually growing our direct revenue generating headcount in the second half of the year at the same time you know to your question about incremental expense we continue to find areas of efficiency and optimize the cost structure of the business and so, The cost of the additional revenue generating capacity, which is really mostly in the form of quota carrying heads and sales development or business development representatives is all baked into our outlook for the year. So there's not a sort of unbudgeted incremental expense there. We're really just focusing a lot of our, you know, investment and efficiency work back into what drives the highest revenue generating roles. Perfect. Appreciate the color.

Speaker Change: Yes.

Speaker Change: But we've seen marked improvement there and this is something I've I've talked about a lot over the last four or five quarters is when youre seeing.

Speaker Change: Consistent improvement in sales productivity and the qualified demand, which obviously you know over the last five six quarters, we've seen a really nice increase in our ability to both create but also to measure our pipeline. That's when we can start growing ourselves capacity again, and so we'll be doing that.

Speaker Change: Got it.

And a pretty measured way over the first half of the year and that's where we expect to start to see contribution from <unk>.

Speaker Change: Actually growing our direct revenue generating head count in the second half of the year.

Speaker Change: At the same time to your question about incremental expense, we continue to find areas of efficiency and optimize the cost structure of the business and so.

Speaker Change:

Speaker Change: The the the cost of the additional revenue generating capacity.

Speaker Change: This is really mostly in the form of quota carrying heads and self development or <unk>.

Speaker Change: On the development Representatives is all baked into our outlook for the year, So there's not a sort.

Speaker Change: Sort of on budget at incremental expense there, we're really just focusing a lot of our <unk>.

Speaker Change: Investment and efficiency work back into what drives.

Speaker Change: The highest revenue generating roles.

Speaker Change: Perfect I appreciate the color. Thank you.

Thomas Cauthorn White: Thank you. The next question is from Tom White, with D.A. Davidson.

Speaker Change: The next question is from Tom White with D. A Davidson. Please go ahead.

Thomas Cauthorn White: Please go ahead. Great, thanks for taking my questions. Two, if I could, Mike, in the letter you mentioned a significant increase in year-over-year lead volume in the quarter and higher pipeline creation. Curious to what degree, you know, that's being driven by some of the various initiatives around demand generation that you guys have been working on. And maybe you could just give a few examples of the sort of most successful kinds of channels or tactics on that front.

Oh, great. Thanks for taking my questions two if I could.

Thomas Cauthorn White: Mike in the letter you mentioned significant increase in year over year lead volume in the quarter and higher pipeline creation curious to what degree that's being driven by some of the various initiatives around kind of demand. Gen that you guys had been working on and maybe you could just give a few examples of like that.

Thomas Cauthorn White: Sort of the most successful kind of channels or tactics on that front and then.

Michael Walrath: And then, or is there, you know, kind of an uplift from just maybe the client spending environment perking up a little bit at the end of the year versus maybe, you know, kind of earlier in the year? And then I have a follow-up on the guidance. Yeah, no problem.

Thomas Cauthorn White: Or is there you know kind of an uplift from just maybe the plant spending environment perking up a little bit exiting the year versus may be you know kind of earlier in the year and then I have a follow up on the guidance.

Speaker Change: Yeah, No no no problem.

Michael Walrath: So the first thing I'll take the last of the last thing you said first, which is, you know, I don't think that we're necessarily calling or seeing an uptick in the spending environment. And I think, you know, our outlook on this. We've been accused of being slightly more dour, maybe, than some of our peers, but our outlook on this is that we expect, you know. I think we've seen, if anything, we've seen some stabilization, and our expectation, as laid out in the letter, is that the environment will be, you know, will be like this for a while. And I think as long as we have uncertainty around macroeconomics and inflation and interest rates and all that stuff. I just don't expect that there will be a big snapback in spending.

Speaker Change: So the first thing I'll take the last the last thing you said first which is I don't think that we're necessarily calling or seeing a uptick in the spending environment and I think you know our our outlook on this.

Speaker Change: We've been accused of being slightly more dour, maybe than some of our peers, but.

Speaker Change: Our outlook on this is that we expect.

Speaker Change: I think we've seen if anything we've seen some stabilization.

And our expectation.

Speaker Change: It out in the letter is that the environment will be what will be like this for a while and I think as long as we have uncertainty around the macro and.

Speaker Change: Inflation and interest rates and all that stuff.

Speaker Change: Don't expect that there's a big snapback in and spending.

Michael Walrath: You know, I think when it comes to developing a really efficient demand generation machine, and we've been talking about this since we brought Raianne in as CMO, and really, her sort of core expertise and her team's core expertise around this is that you have to get a few things right. So structurally, you have to get the machine right so that you can use various channels like content and paid media to obviously drive traffic into the top of the funnel. And then you need the mechanisms to take that top of the funnel and move it through a qualification framework. So there are a whole bunch of operating mechanisms that have to be done right in order to trust that what you're seeing coming in at the top of the funnel is going to convert into qualified pipeline and ultimately into bookings. And that's all kind of, you know, structural and very hard work. And the teams have done an amazing job of building that machine.

Speaker Change: I think when it comes to.

Speaker Change: Developing a really efficient demand generation machine and we've been talking about this since we since we bought ran in as CMO and really you know her sort of core expertise and our teams core expertise around this as you have to get a few things right. So structurally you have to get the machine right. So that you can use various channels like <unk>.

Speaker Change: And paid media.

Speaker Change: To to obviously drive into the top of the funnel and then you need the mechanisms to take that top of the funnel and move it through a qualification framework. So there are a whole mess of operating mechanisms that have to be done right in order to trust that what youre seeing.

Speaker Change: Coming in the top of the funnel is going to convert into a qualified pipeline and ultimately into into bookings.

And that's all very kind of structural and very hard work and the teams have done an amazing job of building that machine, but the second thing you have to get right is you have to match your campaigns to the environment and so I think that's it's probably one of the things that we didn't do quite as well last year as we could add is I think we were marketing a lot of more.

Michael Walrath: The second thing you have to get right is that you have to match your campaigns to the environment. And so I think that's probably one of the things that we didn't do quite as well last year as we could have been, you know, I think we were marketing a lot of, you know, more future state use cases for our platform at a time when, you know, I think we're still, I think maybe the market was expecting that the snapback would come faster. And so what happened there, and it was really interesting to watch, is that because we have the demand generation machine built, we can see the demand coming in at the top of the funnel through campaigns that were geared around, you know, products that weren't really as much part of the core. So, you know, we were leading with AI messaging and more, you know, transformational CMS messaging. And then what we were finding was that a lot of those things were converting more in the core. And so that is, you know, I would call it, like, a halfness in terms of the marketing execution.

Speaker Change: Future state.

Speaker Change: The use cases for our platform at a time when you know I think we're still.

Speaker Change: You know I think maybe the market was expecting that the snapback would come faster and so on.

Speaker Change: What happened there and it was really interesting to watch is because we have the demand generation machine belt, we can see the demand coming in the top of the funnel through campaigns that were geared around products that werent really as much part of the core.

Speaker Change: So you know, we were leading with AI and messaging in and.

Speaker Change: <unk>.

Speaker Change: More.

Speaker Change: Since formation, all CMS messaging and then what we were finding was that a lot of those things we're converting more than in the core.

Speaker Change: And so so that is a that is a I would call like a half Miss in terms of the marketing execution.

Michael Walrath: As we've shifted to more value-based messaging around the things that you are, that are the breadth and capability of our platform can do, you start matching campaigns more to where the buying centers are interested today, which is much more about how do I either do more with what I have or how do I improve a set of, you know, fragmented vertical solutions into a broader one. And so that's another thing that we expect as we run better campaigns this year. We think that the matching of what our customers are really interested in today and the areas of expansion that they're most interested in, through our marketing campaigns and ultimately the demand generation machine, is part of making that whole system work better. Hopefully, that makes some sense. Yeah, that was a very helpful call; thank you. Just maybe a follow up on the guidance for this year. I guess it is at the midpoint.

Speaker Change: As we have shifted to more value based messaging around the things that you're that are the breadth and capability of our platform can do you start matching campaigns up more to where the buying centers are interested today, which is much more and how do I either do more with what I have are how do I improve.

I've set of fragmented vertical solutions into a into a broader one and so that's another thing that we expect as we run better campaigns. This year, we think that the the matching of what our customers are really interested in today.

Speaker Change: And the areas of expansion that they're most interested in with our marketing campaigns and ultimately the demand generation machine is part of making that whole system work better.

Speaker Change: Okay.

Speaker Change: Hopefully that makes some sense.

Yeah that was it.

Speaker Change: Very helpful color. Thank you.

Speaker Change: Maybe a follow up on the on the guidance for this year I guess at the midpoint.

Thomas Cauthorn White: You know, the full year outlook implies that adjusted EBITDA expenses are down about $10 million a year over a year. Can you maybe just parse out a little bit more of the drivers, and maybe Darryl can weigh in here too if he wants, but you talked about adding some heads, which will take a little bit of time to ramp, but then I guess you have sort of the full year impact of some of the operational changes you made last year, and just trying to understand like how much more kind of further rationalization of the cost base is kind of baked into the outlook, or is it just kind of like the full year kind of benefit, if you will, from some of the stuff you implemented last year?

You know the full year outlook implies that adjusted EBITDA expenses are down about 10 million Bucks year over year can you, maybe just parse out a little bit more of the the drivers and maybe Daryl can weigh in here too if he wants but.

Daryl: You talked about adding some heads, which will take a little bit of time to ramp.

Daryl: But then I guess you have the sort of the full year impact of some of the operational changes you made last year and just trying to understand like how much more.

Daryl: Kind of further rationalization of the cost base is kind of baked into the outlook.

Daryl: Or is it just kind of like the full year kind of benefit if you will from some of the stuff you implemented last year.

Thomas Cauthorn White: Yeah, so I'll start, and I'm sure Darryl will do a better job talking through some of the numbers, but principally, I think what we're doing, and by the way, this is something we see, you know, our customers doing, it's part of the thing that colors our view of the environment is that, you know, once you start getting the organization really focused on efficient operations, you continue to find opportunities to, you know, So that can be spans and layers that can be, you know, duplication within organizational silos. And we've been talking about all this for a couple of years. I think in a perfect world, it never really ends.

Speaker Change: Yeah, So I'll start and I'm sure Gerald will do a better job talking through some of the numbers, but like principally I think what we're what we're doing and by the way. This is something we see in our customer is doing its part of the thing that colors. Our view on the environment is that what.

Speaker Change: Once once you start getting the organization really focused on efficient operations you continue to find opportunities to you know.

And in various ways to to be more efficient so that can be spans and layers that can be <unk>.

Gerald: Duplication within the organization silos and we've been talking about all of this for a couple of years.

Gerald: I think in a perfect world It never really ends, but obviously the lifting gets gets gets a lot less heavy as we get into finer and finer optimization.

Michael Walrath: But obviously, the lifting gets gets a lot less heavy as we get into, you know, finer and finer optimization. So I really think that's probably the phase that we're in, you know, for the course of this year. It's just, you know, it's become part of the culture here to think about the efficiency impact and the opportunities to be more efficient across the board. And that allows us to continue to show improvement in the expense line and on the EBITDA line while making really critical investments that are going to be, you know, product investments and, and revenue-driven. Yeah, Tom, the only thing I'd add to that is, you know, when you look at the EBITDA number in Q1, we've got some seasonal spend that happens in Q1 for certain sales events that don't happen in other quarters of the year.

Gerald: So I really think thats, probably the phase that we're in you know for the course of this year is just you know it's.

Gerald: Become part of the.

Gerald: The culture here to think about the efficiency impact and the opportunities to be more efficient across the board and that allows us to continue to show improvement in the on the expense line and on the EBITDA line, while making really critical investments that are going to be.

Gerald: Product investments in revenue driving.

Speaker Change: Yes, Tom the only thing I'd add to that is when you look at the EBITDA number in Q1, we've got some some seasonal spend that happens in Q1 for for certain sales events that that don't happen in other quarters of the year and then to the point that Mike was making earlier about our marketing campaigns and us being able to.

Michael Walrath: And then, you know, to the point that Mike was making earlier about our marketing campaigns and us being able to really attack that area, we pulled some marketing spend on demand gen into Q1, which is also going to impact the quarterly number when you sort of look at the rest of the year. Appreciate it, guys. Thank you. The next question is from Naved Khan with B. Reilly. Please go ahead. Hi, thanks for taking my question. This is Ryan on for Naved.

Speaker Change: You know to really attack that area, we pulled some marketing spend up on demand Gen up into Q1, which is also going to impact.

Speaker Change: The quarterly number when you sort of look at the the rest of the year.

Speaker Change: Okay. Appreciate it guys. Thank you.

Speaker Change: The next question is from Naveed Khan with B Riley. Please go ahead.

Naved Ahmad Khan: Hi, Thanks for taking my question. This is Ryan on for Nevada.

Naved Ahmad Khan: I was wondering if you could talk about the customer budgets for the upcoming year and whether there's room to drive upsells into the customer base. And then, related to that, I was also hoping to get some clarity around the opportunity for mid-tier customers versus enterprise customers. And then I have a follow-up after that. Thanks.

Naved Ahmad Khan: I was wondering if you could talk about the customer budgets for the upcoming year and whether there's room to drive up sells into the customer base and then related to that I was also hoping to get some clarity.

Around the opportunity for mid tier customers versus enterprise customers.

Speaker Change: And then I have a follow up after that thanks.

Speaker Change: Sure.

Michael Walrath: Sure. So, I think we see it as, you know, we expect to see a lot of similar discussions this year that we've been having over the last, you know, kind of six to eight quarters, which usually start with, "What's the value that I'm getting from the platform today?". And I think that that's a great place to start the conversation.

Speaker Change: So.

Speaker Change: I think.

Speaker Change: As.

Speaker Change: We see it as you know we expect to see a lot.

Speaker Change: Of similar discussions this year that we've been having over the last kind of six to eight quarters, which is they they usually start with.

Speaker Change: What's the value that I'm getting from my my the platform today.

And I think that that's a that's a great place to start the conversation then it becomes what are the other things that this platform can do potentially more efficiently than other things. So we.

Michael Walrath: Then it becomes, what are the other things that this platform can do potentially more efficiently than other things? So we still continue to see a lot of interest from customers, particularly larger customers, in having less vertical software and less very specialized software doing lots of different things in their marketing departments versus more versatile, broader solutions that can do more. And I think what that does is it clearly creates an opportunity to bundle and package more things together in the form of upsells, and it advantages companies who have broader offerings. And I just think that that cycle will continue. You know, I'm not going to predict whether it gets, you know, a little bit, whether there's a little bit less or a little bit more focus on the efficiency work in the enterprise this year. I just, you know, I don't think it's done yet.

Speaker Change: We still continue to see a lot of interest from customers, particularly larger customers and having less vertical software and less you know kind of you know very specialized software doing lots of different things in their marketing department versus.

Speaker Change: More versatile.

Speaker Change: Broader solutions that can do more.

Speaker Change: And so I think what that does is it it clearly creates an opportunity to bundle and package more things together in the form of of Upsells.

Speaker Change: And it advantages companies, who have brought our offerings and I just think that that that cycle will continue.

Speaker Change: I'm not going to predict whether it gets.

Speaker Change: A little bit.

Speaker Change: Whether there's a little bit less or a little bit more focus on the enterprise.

Speaker Change: On the efficiency work this year.

Speaker Change: You know I don't think it's done and I think we'll continue to see smart management teams will think about how to just the same way we are how do I operate more efficiently and whereas the whereas whereas the opportunities.

Michael Walrath: And I think we'll continue to see smart management teams think about how to just the same way we are, how do I operate more efficiently? And where are the where's, where are the opportunities? For us, those are really, really, those are actually better conversations than, you know, I think some of the competitive challenges we face when, you know, you know, kind of every vertical software was competing for, you know, what, you know, a budget that was, I think, a lot more elastic than it is today. As far as your question about the kind of smaller versus what we would call the mid market and the enterprise,

Speaker Change: For us those are really really those are actually better conversations than I think some of the competitive challenges we face when.

You know kind of every vertical software was competing for.

Speaker Change: A budget that was that was I think a lot more elastic than it is today.

Speaker Change: As far as your question about the kind of smaller versus what we would call the mid market and the enterprise.

Michael Walrath: I think we see similar dynamics now across those different groups. We are certainly focused on the higher end of the mid-market and the enterprise, and, you know, one of the benefits of having a really robust reseller channel, which is primarily how we access SMBs, is that the area between SMBs and the smaller end of the mid-market can get pretty blurry. And so, you know, we're very much focused on enabling our partners to access, to move up the market from just pure SMBs and into more of the mid-market because that allows us to focus our resources and our time much more on what we would call the higher end of the mid-market and the enterprise. Okay.

Speaker Change: I think we see similar dynamics now across across those those different groups. We are certainly.

Speaker Change: Focusing on.

Speaker Change: On the higher end of the Midmarket and the enterprise and one of the benefits of having a really robust reseller channel is that.

Speaker Change: It's primarily how we access them SMB is is that the the area between SMB and in the smaller end of the mid market can get pretty blurry and so you know we're very much focused on enabling our partners to access them to move up market from just pure smbs and into more of the mid market because that allows us to focus our resources.

Speaker Change: Our time much more on the.

Speaker Change: What we would call the higher end of the mid market and enterprise.

Speaker Change: Okay got it. Thank you and then also I guess my next question is you had talked about it in the last earnings call. You also mentioned it in the prepared remarks, but the impact of the churn from the large customer in fourth quarter. I was wondering if that's going to impact our fiscal year 'twenty five the next few quarters growth.

Darryl Bond: And then also, I guess my next question is: you talked about it in the last earnings call. You also mentioned it in the prepared remarks, but the impact of the churn from the large customer in the fourth quarter. I was wondering how that's going to impact fiscal year 25, you know, the next few quarters, growth, and competition. Yeah, so I think we mentioned it was about an $11 million customer, and their contract ended at the end of December. So we saw, you know, one month of impact on revenue in this Q4. And then, you know, as we get into this Q1, we'll see a full three months of impact. And, you know, obviously, it comes out of ARR; it comes out of revenue for the fiscal year.

Speaker Change: Comps.

No.

Speaker Change: Yeah. So I think we mentioned it was a it was about an 11 million dollar customer.

Speaker Change: And their contract ended at the end of December. So we saw one month of impact to revenue in this Q4, and then you know as we as we get into this Q1, we will see a full three months of impact.

Speaker Change: Obviously it comes out of there or it comes out of revenue.

The fiscal year.

Speaker Change: Yeah.

Darryl Bond: I think it'll, just to add to that, it'll impact a lot of metrics, you know, that we'll do our best to, you know, share the effect of, you know, this sort of X that singular customer churn. So, you know, for example, our net, I'm sorry, our gross error retention, you know, we've mentioned that we have been in the high 80s for, you know, since we started giving this metric, and we said we're going to let you know if it changes. With the effect of that large churn, it would have dipped into the mid-80s when we took that out. We were still sitting in the high 80s there, so it will certainly be a headwind, you know, in terms of revenue growth, revenue, which you can see in Q1, and in terms of things like net retention and gross error retention as we go through the year until we lap that again at the end of next December. But all of that is baked into our guidance, and we do anticipate that, in spite of that, we'll see a re-acceleration of ARR growth into the high single digits by the end of the year. The next question is from Ryan MacDonald with Needham. Please go ahead.

Got it Okay, I think ill just add to that it'll it'll impact a lot of metrics you know that will we will do our best to.

Speaker Change: You know to share the effect of this.

Speaker Change: It's sort of ex that that singular customer churn. So for example, our net Oh, I'm, sorry, our gross error or retention.

Speaker Change: Uh huh.

Speaker Change: We've mentioned that we you know this has been in the high eighties.

Speaker Change: Four.

Speaker Change: Since we started giving this metric and we said we're going to let you know if it changes with the effect of that large churn it would have dipped into the mid eighties. When we when we take that out we were still sitting in the high eighties. There. So it will certainly be a headwind.

Speaker Change: In terms of revenue growth in terms of revenue, which you can see in Q1.

And in terms of things like net retention in and then the gross IRR retention.

Speaker Change: As we go through the year until we lap that.

At the end of next December.

Speaker Change: But all of that is baked into our into our guidance and we do anticipate.

Speaker Change: Yet in spite of that we will see.

Speaker Change: Re acceleration of our growth into the high single digits.

Speaker Change: By the end of the year.

Speaker Change: Yeah.

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

Ryan Michael MacDonald: Thanks for taking my questions. Mike, maybe to start on the sort of strong pipeline commentary, can you just talk about perhaps sort of what products you're seeing the most demand for, you know, whether it's listings, search pages, reviews, you know, if there's any new verticals that maybe you've been able to sort of unlock with some of the marketing and demand generation? And then, you know, as you're getting through the early stages of the year here, are you seeing better signs or maybe signs of quicker progression through that pipeline that's giving you some of the confidence on, I think, the idea of reaccelerating growth in the back half of the year? Yeah, sure, I'm happy to get into that. I think there are a bunch of different things there.

Ryan Michael MacDonald: Alright, Thanks for taking my questions, Mike maybe just start on the sort of.

Strong pipeline commentary can you just talk about perhaps sort of what products you're seeing the most demand for you know whether its listing search pages reviews.

Ryan Michael MacDonald: If there is any new verticals that maybe you've been able to sort of unlock with some of the marketing and demand generation and then.

Ryan Michael MacDonald: As you're getting through the early stages of the of the year here are you seeing better signs or maybe signs of quicker progression through that pipeline. That's giving you some of the confidence on I think the idea of re re accelerating growth in the back back half of the year.

Yeah sure I'm happy to get into it I think theres a bunch of different things there. So one of the things we mentioned in the letter is boomerang customers. So.

Michael Walrath: So one of the things we mentioned in the letter is Boomerang customers. So, you know, we're seeing, you know, and it's well, I think it's well documented that, you know, there was a lot of competition around listings and some of the other products, but particularly listings over the last few years. So we saw, you know, we're seeing an acceleration of Boomerang customers, we're seeing, you know, I think we said we called out 20 direct customers last year, and 10 of those were in Q4. You know, I think some of that is the way that we're engaging with former customers and the commitment that we're making to, you know, to focus on the things that are important to them, as well as, you know, what they're, you know, I think some of the dynamics I've described, which is they're seeing that, you know, they can do more with with us than they can with some of the smaller, more vertical solutions in an environment where they want to, they want to be able to do more.

Ryan Michael MacDonald: Where we're seeing you know and as well I think it's well documented that there was a lot of competition around listings and some of the other products were particularly listings over the last few years.

Ryan Michael MacDonald: So we saw you know, we're seeing an acceleration of boomerang customers were seeing.

Ryan Michael MacDonald: You know I think we said that we called out 20 direct customers last year and 10 of those were in Q4.

I think some of that is the way that we're engaging with former customers and the commitment that we're making to you know to focus on the things that are important to them as well as you know what there you know I think some of the dynamics I've described which is they're seeing that they can do more with with us and they can win some of the smaller more vertical solutions.

Ryan Michael MacDonald: In an environment, where they want it they want to be able to do more.

Michael Walrath: You know, I also think it's, you know, partly what I talked about on the demand generation side of things, which is when you really start matching up marketing campaigns and messages and content, and, you know, we just had a great virtual customer summit with, with, you know, I think record attendance numbers for virtual events at Yext, all of these things create opportunities that you can actually action faster, because the kind of the prospect is ultimately, you know, coming in through a door where they understand, you know, what it is when I, when I juxtapose that against some of the campaigns that we ran last year that were maybe a little bit mismatched with what the customer's sort of, you know, near term need is, it's not that you don't, you know, that you don't have the opportunity with that customer, it's just that more of your time goes into, into, into requalifying that customer and reestablishing the customer needs. And so, you know, this is, this is not really surprising, but we've now been at, at it with this, with our, with Ran and Tom and their, and their teams for, you know, whatever it is, five or six quarters now, and the machine is getting better, it's getting more efficient, and we're getting, we're figuring out what's working better, and I think when you combine that with messages and, and discussions with customers that, that feel much more focused on their, their needs and what they need next, right?

Ryan Michael MacDonald: I also think it's partly what I talked about on the demand generation side of things, which is when you really start matching up marketing campaigns and messages and content and you know, we just had a great virtual customer summit with with.

Ryan Michael MacDonald: Record attendance numbers for virtual events.

Ryan Michael MacDonald: Yes.

Ryan Michael MacDonald: All of these things create opportunities that you can actually action faster because the kind of the the the prospect.

Ryan Michael MacDonald: Is ultimately coming in through the door, where they understand what it is when I when I juxtapose that against some of the campaigns that we ran last year that were maybe a little bit mismatched with what the customers sort of <unk>.

<unk> term need is.

Ryan Michael MacDonald: It's not that you don't.

Ryan Michael MacDonald: You don't have the opportunity with that customer is just more of your time goes into into into re qualifying that customer and reestablishing the customer need and so the you know this is this is not really surprising but we've now been at at it with this with our with ran and Tom in there and their teams for.

Ryan Michael MacDonald: You know whatever it is five or six quarters now and the machine is getting better it's getting more efficient and we're getting we're figuring out what's working better.

Ryan Michael MacDonald: And I think when you combine that with the messages and in discussions with customers that feel much more focused on their their needs and what they need next stride. So when we talk about social.

Michael Walrath: So, when we talk about social management and those capabilities, one of the things we're hearing consistently from customers is, I don't necessarily want to have multiple systems doing these different things. And so that, combined with the productivity that we've seen, which is all related to that, gives us confidence that we can start increasing once again. I think we have quota carrying and direct revenue generating headcount, which we're not disclosing numbers for, but has been decreasing for most of the last four or so years. I think we're ready to start increasing that again because we finally have the signal that we need to feel really confident there. Okay, that's super helpful. Um, maybe just on the topic of the boomerang customers, the ones that you were able to win in the fourth quarter. How was the initial land trending?

Ryan Michael MacDonald: Social management and those capabilities. It's one of the things were hearing consistently from customers is I don't necessarily want to have multiple systems doing these different things.

Ryan Michael MacDonald: And so that that combined with the productivity that we've seen which is all related to that gives us confidence that we can start increasing once again.

Ryan Michael MacDonald: Our quota carrying and direct revenue generating head count, which we're not disclosing numbers, but has been decreasing for most of the last four or so years.

Ryan Michael MacDonald: We're ready to start increasing that again, because we finally have the signal that we need to feel really confident there.

Speaker Change: Okay. That's super helpful. Maybe just on the topic of the Boomerang customers of the of the ones that you were able to win in fourth quarter.

Speaker Change: How has the initial land trending or how did the initial and trend in fourth quarter relative to the size of customer. They were when they left you and then as we think about fiscal 'twenty five.

Michael Walrath: Or how did the initial land trend in the fourth quarter relative to, you know, the size of the customer they were when they left you? And then as we think about fiscal 25? You know, what's the rough mix of the pipeline that's from boomerang customers versus sort of net new? Yeah, I don't know that I would be able to tell you the mix of boomerang versus net new. And again, because our product has become so broad, you know, the boomerang customer could be multiple products or single products. And so we're, you know, we're not, I wouldn't be able to quantify it for you that way.

Speaker Change: What's the rough mix of the pipeline, that's from Boomerang customers versus sort of net new.

Speaker Change: Yeah, I don't know that I would I would be able to tell you that the mix of boomerang versus net new and again, because our product has become so broad you know the the boomerang customer could be multiple products or single product and so we're you know we're not I wouldn't be able to quantify it for you that way.

Speaker Change: You know I think there's a lot of trends that drive Boomerangs I think in a lot of cases, what we're seeing with boomerang.

Speaker Change: Boomerang customers is that they are.

Speaker Change: Left for a for a for a less.

Speaker Change: A less costly solution that didn't deliver the return on investment. They wanted they were no promises were made that weren't that werent caps.

Speaker Change: And also on a lot of cases, you know the the you know.

Speaker Change: As you know the platform that these customers may have.

Michael Walrath: You know, I think there are a lot of trends that drive boomerangs. I think in a lot of cases, what we're seeing with boomerang customers is that, you know, they left for a less, you know, a less costly solution that didn't deliver the return on investment they wanted; promises were made that weren't kept. And also, in a lot of cases, you know, the, you know, the platform that these customers may have, have, you know, we haven't stood still. So, you know, the innovation that we've driven through our platform creates more additional value as well. I think one of the big shifts is that our overall approach to how we deal with customers and how we bundle, how we package, and how we deliver services has become, and will continue to become, more customer-friendly, as we've really gotten our arms around the types of services and support that our customers want. So that's another area that I anticipate will just continue to improve the overall customer experience, the amount of support that they get, and the proactive nature of that support, as we've been doing a lot of really hard work on that front over the course of the last year and a half.

Speaker Change: We haven't stood still so you know the innovation that we've driven through our platform.

Speaker Change: <unk> creates more additional value as well I think the one of the big shifts is that our overall approach to how we deal with customers and how we how we bundle and how we package and how we deliver services as has has become and will continue to become more customer friendly.

Speaker Change: As we've really got our arms around the types of services and support that our customers want. So that's another area that I anticipate that we'll just continue to improve the overall customer experience the amount of support that they get the proactive nature of that support.

Speaker Change: As we've been doing a lot of really hard work on that front over the course of the last year year and a half.

Speaker Change: I appreciate the color. Thanks.

Speaker Change: As there are no further questions. This concludes our question and answer session I would like to turn the conference back over to Mike Wallrath for any closing remarks.

Michael Walrath: We just like to thank everybody for joining and we look forward to speaking with you next quarter.

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

Michael Walrath: Yeah.

Michael Walrath: I appreciate the call. Thank you. As there are no further questions, this concludes our question and answer session. I would like to turn the conference back over to Mike Walrath for any closing remarks. We'd just like to thank everybody for joining, and we look forward to speaking with you next quarter. The conference is now concluded. Thank you for attending today's presentation.

Michael Walrath: [music].

Michael Walrath: Okay.

Michael Walrath: [noise].

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Michael Walrath: Yeah.

Michael Walrath: [music].

Michael Walrath: Okay.