Q1 2025 Yext Inc Earnings Call

Operator: Good afternoon, and welcome to the Yext Inc. first quarter fiscal 2025 financial results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star 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. Please note, this event is being recorded. I would now like to turn the conference over to Nils Erdmann, Senior Vice President of Investor Relations. Please go ahead.

Good afternoon, and welcome to the Yex, Inc. First quarter fiscal 'twenty 25 financial results Conference call all participants will be in listen only mode.

Speaker Change: Should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

Speaker Change: After today's presentation there'll be an opportunity to ask questions.

Speaker Change: To ask a question you May press Star then one on your telephone keypad to withdraw your question. Please press Star then two please.

Speaker Change: Please note this event is being recorded.

Speaker Change: I would now let's turn the conference over to Nils Erdmann Senior Vice President of Investor Relations. Please go ahead.

Nils L. Erdmann: Thank you, operator, and good afternoon, everyone. Welcome to Yext's first quarter fiscal 2025 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, statements regarding the timing and expected effects of our pending acquisition of Hearsay Systems, expectations regarding the growth of our business, our outlook for the second 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 first quarter shareholder letter.

Nils L. Erdmann: Thank you operator, and good afternoon, everyone. Welcome to <unk> first quarter fiscal 2025 earnings Conference call with me today are CEO and chair of the board, Mike Wallrath and CFO Darrell bond.

Nils L. Erdmann: These forward-looking statements are subject to certain risks, uncertainties, and assumptions, including those related to Yext's growth, the evolution of our industry, our product development and success, our ability to compete, our acquisition of hearsay systems and integrated business with ours, 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.

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 sections 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 April 30, 2024, and our shareholder letter that was issued this afternoon. During the call, we will also refer to certain metrics, including non-GAAP financial measures.

Speaker Change: During this call we will make forward looking statements, including statements related to our future financial performance statements regarding the timing and expected effects of our pending acquisition of hearsay systems expectations regarding the growth of our business our outlook for the second quarter and full year fiscal 2025, our strategy and estimates of financial and operating metrics capital.

Nils L. Erdmann: Reconciliations with the most comparable historical GAAP measures are available in the shareholder letter, which is available at investors.yext.com. We also provide definitions of these metrics in the shareholder letter. I will now turn the call over to Mike.

Speaker Change: <unk> and other indications of future opportunities as further described in our first quarter shareholder letter.

Speaker Change: 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 ability to compete our acquisition of hearsay systems and integrated business with ours, our management performance and general economic and business conditions. These forward looking statements represent our beliefs and as.

Speaker Change: <unk> 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.

Speaker Change: Factors and our most recent quarterly report on Form 10-Q for the three months ended April 32024, and our shareholder letter that was issued this afternoon.

Speaker Change: During the call. We also refer to certain metrics, including non-GAAP financial measures reconciliations to the most comparable historical GAAP measures are available in the shareholder letter, which is available at investors Dot Yexed Dotcom. We also provide definitions of these metrics in the shareholder letter.

I will now turn the call over to Mike.

Michael Walrath: Thanks Bill.

Michael Walrath: Good afternoon, and thank you for joining us today.

Michael Walrath: Good afternoon, and thank you for joining us today. Hopefully, by now, you've read both the press release announcing our definitive agreement to acquire Hearsay Systems, as well as our first quarter letter to shareholders, which was posted to our website after the close of market. I'm very excited to discuss the news with you today, and our first quarter earnings call is the perfect forum to discuss recent events. I hope it was clear from reading our shareholder letter that we feel the opportunity to combine Hearsay's client engagement solutions with Yext's industry-leading digital presence platform is a game changer.

Hopefully by now you've read both the press release announcing our definitive agreement to acquire hearsay systems as well as our first quarter letter to shareholders, which was posted to our website after the close of market.

Michael Walrath: I'm very excited to discuss the news with you today in our first quarter earnings call as the perfect Forum to discuss recent events I.

Michael Walrath: I hope it was clear from reading our shareholder letter that we feel the opportunity to combine hearsay as client engagement solutions with <unk> industry, leading digital presence platform is a game changer.

Michael Walrath: As a trusted global leader in digital client engagement for financial services, Hearsay Systems empowers over 260,000 advisors and agents to proactively guide and capture the last mile of digital communication in a compliant manner. The world's leading financial firms rely on Hearsay's compliance-driven platform to scale their reach, optimize sales engagements, grow their business, and deliver exceptional client service. Yext and Hearsay are both trusted by leading financial firms and insurance providers who rely on our platforms to manage their digital presence and compliant customer engagement. Combined, we have helped empower over 3,000 global brands.

Michael Walrath: As a trusted global leader in digital client engagement for financial services Hearsay systems empowers over 260000 advisers and agents to proactively guide and capture the last mile of digital communication in a compliant manner. The.

Michael Walrath: The world's leading financial firms rely on hearsay, it's compliance driven platform together reach optimized sales engagements grow their business and deliver exceptional client service.

Operator: Yext and Heer say are both trusted by leading financial firms and insurance providers who rely on our platforms to manage their digital presence and compliant customer engagement. Combined, we helped empower over 3,000 global brands. Yext is proud to work with nine of the ten largest U.S. banks and the four major wirehouses. Here says customer base includes the top five US life insurance firms and four of the top five global wealth management firms. Our joint customers will benefit from seamless access to new tools and capabilities to strengthen their management of the complete customer journey.

Speaker Change: Yes, and hearsay or both trusted by leading financial firms and insurance providers, who rely on our platforms to manage their digital presence and can block compliant customer engagement combined.

Speaker Change: Combined we helped them empower over 3000 global brands.

Michael Walrath: Yext is proud to work with nine of the ten largest U.S. banks and the four major wire houses. Here Say's customer base includes the top five US life insurance companies and four of the top five global wealth management firms. Our joint customers will benefit from seamless access to new tools and capabilities to strengthen their management of the complete customer journey. Here are a few important points regarding the financial terms of the deal. First, the purchase price is $125 million.

Speaker Change: <unk> is proud to work with nine of the 10 largest U S banks and the four major wire houses.

Speaker Change: <unk> customer base includes the top five U S life insurance firms and four of the top five global wealth management firms.

Our joint customers will benefit from seamless access to new tools and capabilities to strengthen their management of the complete customer journey.

Speaker Change: A few important points regarding the financial terms of the deal.

Michael Walrath: Subject to customary adjustments as set forth in the merger agreement, Yext may be required to pay additional contingent consideration of up to $95 million in cash or Yext common stock based on the achievement of certain milestones over a two-year period. Second, while the final audit of Hearsay's financial statements is still pending, we believe Hearsay generated approximately $60 million in revenue during its prior fiscal year ended December 31, 2023. Third, we believe Hearsay's operations are highly compatible with Yext, and though unaudited, they currently operate around free cash flow breakevens.

Operator: Few important points regarding the financial terms of the deal. First, the purchase price is for $125 million. Subject to customary adjustments that are set forth in the merger agreement. Yext may be required to pay additional contingent consideration of about 95 million in cash or Yext common stock based on the achievement of certain milestones over a two-year period. Second, while the final audit of your state's financial statements is still pending, we believe here say generated approximately 60 million in revenue during its prior fiscal year ended December 31, 2023. Third, we believe here says operations are highly compatible with Yext, and though unaudited, they currently operate around free cash flow break even.

Speaker Change: First the purchase prices for $125 million subject to customary adjustments as set forth in the merger agreement <unk> may be required to pay additional contingent consideration of up to $95 million in cash or common stock based on the achievement of certain milestones over a two year period.

Speaker Change: Second while the final audit of <unk> financial statements is still pending we believe hearsay generated approximately $60 million revenue during its prior fiscal year ended December 31 2023.

Speaker Change: Third we believe hearsay as operations are highly compatible with yes, and though unaudited. They currently operate around free cash flow breakeven.

Michael Walrath: Fourth, and finally, we estimate Hearsay's business is growing on the basis of ARR. Hearsay has approximately 300 employees worldwide, and we will be working in the coming months to finalize the plan for the integration of the two companies. Execution of the integration plan will begin after the transaction closes. We are not in a position to comment further on integration plans at this time, except to say that with Hearsay Systems, Yext will be able to provide even more ways for brands to connect with their customers one-to-one.

Operator: Fourth, and finally, we estimate here says business is growing on the basis of ARR. Here say has approximately 300 employees globally and will be working in the coming months to finalize the plan for the integration of the two companies. Execution of the integration plan will begin after the transaction closes. We are not in a position to comment further on integration plans at this time, except to say that with your say systems, we believe Yext will be able to provide even more ways for brands to connect with their customers one to one. This acquisition will advance the efforts to deliver the products and solutions our customers value most.

Speaker Change: Fourth and finally, we estimate here, saying business is growing on the basis of IRR.

Speaker Change: TSA has approximately 300 employees globally.

Speaker Change: And we will be working in the coming months to finalize the plan for the integration of the two companies.

Speaker Change: Execution of the integration plan will begin after the transaction closes.

Speaker Change: We are not in a position to comment further on integration plans at this time, except to say that with hearsay systems. We believe yes, they'll be able to provide even more ways for brands to connect with their customers wanted to one.

Michael Walrath: This acquisition will advance our efforts to deliver the products and solutions our customers value most. We look forward to welcoming the Hearsay team to Yext once the transaction closes.

Speaker Change: This acquisition will advance our efforts to deliver the products and solutions our customers value. Most we look forward to welcoming the hearsay team Dx once the transaction closes.

Operator: We look forward to welcoming the Hearsay team to Yext once the transaction closes.

Operator: And with that, we'd like to open it up 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're using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two.

Speaker Change: And with that we'd like to open it up for questions.

Operator: 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. To withdraw your question, please press star, then 2. Our first question today is from Tom White with D.A. Davidson. Please go ahead.

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 speaker phone. Please pick up your handset before pressing the keys.

Speaker Change: To withdraw your question. Please press Star then two.

Speaker Change: Our first question today is from Tom White with D. A Davidson. Please go ahead.

Thomas White: Our first question today is from Tom White with the A. Davidson. Please go ahead.

Thomas Cauthorn White: Thanks for taking my question. Congratulations on the hearsay deal. I guess maybe it was a little more sizable than maybe we would have thought you guys were considering, you know, as it related to kind of your social capabilities specifically. Mike, maybe you can comment. Like, was this something that this size sort of always... you know, maybe your intention or just any color on how the process evolved, and then I have a quick follow-up on the guidance.

Thomas White: Great. Thanks for taking my question. Congrats on the hearsay deal.

Thomas Cauthorn White: Oh, great. Thanks for taking my question congrats on the hearsay deal.

Thomas Cauthorn White: I guess, maybe it was a little more sizable than maybe we would've thought you guys were considering you know as it related to kind of your social capabilities specifically.

Thomas White: Maybe it was a little more sizable than maybe you would have thought you guys were considering, you know, as it related to kind of your social capabilities specifically. I guess what might maybe you can comment like was this something that this size sort of always.

Mike maybe you can comment like was this something that the size sort of always.

Operator: Maybe you're in tension or just any color on how the process evolved, and then I have a quick follow-up on the guidance.

Thomas Cauthorn White: Maybe your intention or just any color on how the process evolved and then I have a quick follow up on the on the guidance.

Operator: Yeah, so as far as I mean, we think the size of the business is, you know, it's a great compliment for our business.

Michael Walrath: Yeah, so as far as I mean, we think the size of the businesses is, you know, a great compliment to our business. You know, we, as I've said many times over the last three quarters, we think that consolidation is going to be a key theme as we look forward. And we have looked at a number of things, obviously, as opportunities, and we've been talking about this.

Speaker Change: Yeah, so as far as I mean, we think the size of the businesses as you know it is a great complement for our business.

Operator: You know, we, as I said many times the last three quarters, you know, we think that consolidation is going to be a key team as we look forward. And we, you know, we have looked at a number of things, obviously, as opportunities we've been talking about this.

Speaker Change: We we as I've said, many many times in the last few quarters. You know, we we think that consolidation is going to be a key theme as we look forward.

And we you know we we have looked at a number of things obviously as opportunities and we've been talking about this.

Speaker Change: <unk>.

Michael Walrath: I think we're more focused on how complementary the set of solutions is. How important is it to our customers that we be bringing solutions together? I think that's a more important question for us than, very specifically, size.

Speaker Change: Well what were primary you know I think we're more focused on how complementary is the set of solutions.

Speaker Change: You know how important is it to our customers.

Speaker Change: That we'd be bringing solutions together I think that's a more important question for US then very specifically size.

Michael Walrath: We have a lot of confidence that the solutions and products that Hearsay offers are highly, highly complementary. We're having a highly overlapping set of customers already. We have a lot of intelligence about the value that is being driven by these products. I'd say any time we look at an acquisition opportunity, we're going to look first and foremost at how complementary it is and how much synergy there is in being able to combine the platforms. We'll continue to look across the size spectrum and opportunities for consolidation.

Speaker Change: We have a lot of confidence that.

Speaker Change: That the solutions and products that hearsay offers are highly highly complementary having a highly overlapping set of customers already we have a lot of intelligence about the value that is being driven by these products and so I would say anytime we look at an.

Thomas Cauthorn White: Okay, great. Thank you for that.

Speaker Change: An acquisition opportunity, we're gonna look first and foremost it how complementary is it and how much synergy is there and being able to combine the platforms.

Speaker Change: And we will continue to look across the size spectrum and opportunities for consolidation.

Michael Walrath: And just on the full-year revenue guide, I think it came in a little bit. I mean, can you just provide a little bit more color on kind of what's changed? Is that purely related to maybe kind of slower conversion of the pipeline related to the longer sales cycles and kind of budget scrutiny, stuff that you guys have been and a lot of people have been encountering? Or is there anything kind of else to maybe call out, you know, just kind of in the existing book of business? Yeah, I don't think we're seeing any.

Speaker Change: Okay, great. Thank you for that and then just on the on the full year revenue Guide I think it came in a little bit I mean can you just provide a little bit more color on kind of what's changed is that is that purely related to maybe kind of slower conversion of the pipeline related to you know the the longer sale.

Speaker Change: Cycles that and kind of budget scrutiny stuff that you guys have been and a lot of people who've been encountering.

There anything kind of else to maybe call out you know just kind of in the existing book of business next.

Michael Walrath: Yeah, I don't think we're seeing anything that you're not seeing elsewhere. When we gave the guide for the full year, we talked about assuming a level of stability or even some level of recovery. I think what we're seeing and what we hear from our peers is it's certainly not getting any easier to convert demand, budget constraints, deal cycles. It's all still there.

Speaker Change: Yeah, I don't think we're seeing anything that you know isn't that youre not seeing elsewhere.

Speaker Change: Yeah.

Speaker Change: When we gave the guide for the full year, we talked about you know assuming.

Speaker Change: You know a level of stability or even some level of recovery I think you know what we're seeing and what are what what we.

Speaker Change: We hear from our peers as you.

Speaker Change: It's certainly not getting any easier to convert demand budget constraints deal cycles, it's all still there.

Speaker Change: You know and.

Michael Walrath: The other thing that's happening there is that as we go through renewal cycles, we're being very intentional about making sure that we're solidifying the relationship with the customer, that we're setting ourselves up for future upsells, and that we're building a stronger relationship with the customer. So all of those things are going to challenge bookings, and they're going to challenge retention. You know, one of the things we talked about in March is that we had planned a pretty significant sales capacity ramp early in the year.

Speaker Change: The other thing that's happening there is as we go through renewal cycles, we're being very intentional about making sure that we're solidifying our relationship with the customer that we're setting ourselves up for future Upsells.

Speaker Change: And that we're building a stronger relationship with the customer. So all of those things are going to challenge bookings and theyre going to challenge retention.

Speaker Change: You know one of the things we've talked about in.

Speaker Change: In March is that we had planned to pretty significant.

Speaker Change: Sales capacity ramp early in the year as we saw how the quarter was playing out and how you know.

Michael Walrath: As we saw how the quarter was playing out and, you know, how, you know, sort of challenging some of these headwinds were, we did grow our sales capacity, but we certainly slowed down the pace of hiring a bit, and I think part of what's flowing through for the full year is just a different set of assumptions about how fast we build that sales capacity and how fast we can convert demand. You know, it's a big deal, I talk about this all the time, but you don't want to build sales capacity ahead of the ability to convert demand because then you take a step backward on productivity, and we haven't taken a step backward on productivity.

Speaker Change: What sort of challenging some of these headwinds where we are we did grow our sales capacity, but we certainly slowed down the pace of hiring a bit and I think.

Speaker Change: Part of what's flowing through on a full year. It's just a different set of assumptions about how fast we build that sales capacity and how fast we can convert the demand.

Speaker Change: It's a big.

Speaker Change: Talk about this all the time, but you don't want to build the sales capacity ahead of the ability to convert the demand. Because then you take a step backward on productivity and we haven't taken a step backward on productivity, we're still seeing the productivity improvements so.

Michael Walrath: We're still seeing productivity improvement, so that's good. It's just, you know, I think it's really a question of how quickly do we hire that sales capacity and how quickly do we start to see the demand conversion.

Speaker Change: So that's good it's just that you know I think it's really a question of how quickly do we hire that sales capacity and how quickly do we start to see the demand converting.

Speaker Change: Okay. Thank you very much.

Operator: The next question is from Rohit Kulkarni with Roth Capital Partners. Please go ahead.

Speaker Change: The next question is from Rohit Kulkarni with Roth Capital Partners. Please go ahead.

Rohit Rangnath Kulkarni: Hey, thank you. A couple of questions. First, on the acquisition, I guess any more color, Mike, you can provide on that overlap with Yext. How large is financial services at Yext? And perhaps the other way around, how applicable is your say is a kind of value prop to some of the core verticals at Yext, be it retail, restaurants, hospitality, where do you see that those kind of synergies manifest over time?

Hey, Thank you couple of questions first on the B.

Rohit Rangnath Kulkarni: Acquisition, I guess any more color you can provide on that.

Rohit Rangnath Kulkarni: The overlap well with.

Speaker Change: Yeah. It doesn't hold launch it as a financial services that yes, then and perhaps the other way around a whole lot to cable as you're seeing.

Speaker Change: Value prop to ease some of the core.

Speaker Change: Yes.

Speaker Change: D D in west La and hospitality.

Speaker Change: Hum.

Where do you see that.

Speaker Change: It was kind of the manifest over time.

Darryl: Hey, Rob it's Darryl I'll I'll I'll take a couple of parts of that and then hand off to Mike.

Darryl Bond: Hey, Rohit. It's Darryl. I'll take a couple of parts of that and then hand it off to Mike. In terms of financial services, a little over a year ago, we did an Investor Day, and we included in that deck some of our largest...

Michael Walrath: In terms of financial services, a little over a year ago. We did a investor day are included in that deck. Some of our largest verticals and I think health care and and and things were around the 'twenty. One 'twenty, 2% Mark does continue to be our our two largest and strongest verticals. We feel really good about the complementary nature of hearsay given their strength in fins.

Michael Walrath: And the ability for us to you know to have some common customers, but also customers you know they have that we don't and vice versa. So we think there's certainly some some opportunities for revenue synergies just within fins and I think you wont even look broader into into the rest of our most of our verticals I think theres opportunities there, particularly as we can.

To build out our own social product, then and flush out that roadmap.

Michael Walrath: Yeah, I think it's important to think about, you know, understanding the overlap in clients. So, you know, in our financial services vertical, Yext is very strong with wealth management verticals within the financial services verticals, agent-based businesses, and insurance. And part of the reason for that is that you have this complexity of kind of how do you market local agents or local wealth management. It's very similar to the way that you try to, you know, that you want to market a local retail store, a local restaurant, a local doctor's office, and dentists.

Michael Walrath: I think it's important to think to understand that the overlapping in and clients. So we in our financial services vertical is very strong with with wealth management verticals within the final service verticals agent based businesses insurance and part of the reason for that is that you have this complex.

Michael Walrath: City of kind of how.

Michael Walrath: How do you market local agents or local wealth management, it's very similar to the way that you try to you know that you want to market a local a local retail local restaurant local doctor's office dentists.

Michael Walrath: That problem is similar in financial services; you have a completely, you know, you have a higher bar with the compliance and measurement elements. And so I think where Yext is really strong there is on the listings, the pages, and the reputation management components, as well as the internal search use cases. And, you know, butting right up against that are things like social media management, text and voice communications, and all the compliance features and functionality there.

Michael Walrath: That problem is similar and in finally in financial services you have a completely you know you have a higher bar with the compliance and measurement elements and so I think where where you ask is really strong there is on the listings pages.

Michael Walrath: Pages, and the reputation management components as well as the internal search use cases.

Michael Walrath: And you know putting right up against that are things like social media management text and voice communications and all the compliance features and functionality there.

Michael Walrath: The opportunity is to bring those things together and bring together a single data layer, a single set of workflows, and analytics that creates a flywheel around content generation, analytics, and ROI for our customers. And this is not, you know; this is something we've been thinking about and working on for quite some time. The synergies with Hearsay are really no-brainer-ish when it comes to how we service and bring value to those customers. Okay, thank you, and sorry.

Michael Walrath: The opportunity is to bring those things together and bring together a single data layer a single set of workflows and analytics that creates a flywheel around content generation analytics rois for our customers and this is this is not and you know this is something we've been thinking about and working on for quite some.

Time.

Michael Walrath: The the the synergies with hearsay or really no no brainer ish when it comes to how we service and bring value to those customers.

Michael Walrath: Okay.

Speaker Change: I'm, sorry, it's a bit of a long answer, but I think the second part of your question was about the ability to take these solutions outside of Fnf's service Gerald touched on it.

Speaker Change: We we have a roadmap for social which is really very focused on non financial services institution. So this is a massive accelerator of our ability to.

Speaker Change: To be in the in the from a social media management standpoint in the financial services vertical we still think there's an enormous opportunity for a best in class social media management, and particularly around that local social use case.

Speaker Change: But you know one thing that may be underappreciated is just how strong <unk> product is from a texting and communication standpoint, and so while other other verticals may not have the same compliance hurdles as financial services. They certainly have a lot of the same communication hurdles and so the ability to one.

To one text customers to engage in and ultimately to do that and brand compliant and and more trackable ways for larger corporations. We we feel is a underappreciated opportunity.

Speaker Change: And as you know this acquisition.

Speaker Change: It really introduces a new set of product opportunities there.

Rohit Rangnath Kulkarni: Okay, okay, awesome. I guess another question is just about your ARR growth outlook. Maybe talk about this mid single-digit growth rate by the end of the year and high single digits by the first half of next year. May we talk through what gives you confidence that we are going to see that level of acceleration in the next six to nine months, perhaps particularly given the recent six months ARL growth is kind of going in the wrong direction. Sorry to ask you a tough question, guys, but we'd love to hear what your thinking is.

Speaker Change: Okay, Okay awesome I guess so.

Speaker Change: Another question is just on your growth outlook.

Speaker Change: Maybe you're talking about this mid single digit.

Speaker Change: Gross crude by end of 'twenty five in high single digits by first half of next year maybe.

Speaker Change: Maybe talk to what gives you confidence that we're going to see that kind of level of acceleration in the next six to nine months.

Speaker Change: So are there any given the recent six months growth is it's kind of going in the wrong direction. So so real kudos question days, but you noted you had what your thinking is.

Michael Walrath: Yeah, no, I think it's a fair question. I mean, I think the thing that's clearly challenging us right now is the large customer churn that we had at the end of Q4. So that has obviously challenged us year over year. The other thing that's challenging us more sequentially is what I talked about up front, which is we're proactively engaging with renewals to make sure that we're doing everything we can to solidify those partnerships. And I don't think this is unique to us. I think this is going on across the board.

Yeah, No I think it's a I think it's a fair question I mean, I think the thing that's clearly challenging US right now is the large customer churn.

Speaker Change: That we had at the end of Q4, so that is obviously challenge the year over year.

Speaker Change: So that the other thing that's challenging us more sequentially is what I talked about upfront, which is we're you know proactively engaging with renewals to make sure that we're doing everything we can to solidify those partnerships and.

Speaker Change: I don't think this is unique to us I think this is going on across across the board it creates a.

Michael Walrath: It creates headwinds, either it can be license counts, it can be pricing, it can be various headwinds, it can be budgetary pressures inside our partners. And we try to take all those things in account as we restructure partnerships at the time of renewal. And so those all create headwinds.

Speaker Change: Either it can be license counts it can be pricing it can be various various headwinds it can be budgetary pressures inside or our partners and we tried to take all of those things into account as we restructure.

Speaker Change: Partnerships at the time of renewal.

Speaker Change: And so those all create headwinds.

Michael Walrath: The reason why we're optimistic about the back half of the year is that we have visibility into demand, and we're, I think, ahead of the curve in terms of addressing a lot of the renewals. And we're much further ahead than we have been historically on addressing renewals in the back half of the year. And so our estimates, I think, remain conservative, but it's pretty clear to us that we'll see ARR growth in the second half of the year, even if the market stays challenging like it has been.

Speaker Change: You know the reason why we're optimistic about the back half of the year is because we had visibility into demand and where you know I think ahead of the curve in terms of addressing a lot of the renewals in the you know we're much further ahead than we have been historically on addressing their renewals in the back half of the year and so.

Speaker Change: Our estimates I think are remain conservative but.

Speaker Change: It's pretty clear to us that we will see the air our growth in the second half of the year, even if the market stays challenging like it has been.

Rohit Rangnath Kulkarni: Okay. Okay. Thank you. I'll go back in the queue. Thanks, Mike. Thanks, Darryl.

Speaker Change: Okay. Okay. Thank you I'll go back into queue. Thanks, Mike Thanks, Dan.

Speaker Change: Thanks.

Operator: The next question is from Ryan MacDonald with Needham. Please go ahead.

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

Ryan Michael MacDonald: Thanks for taking my questions. Maybe just adding on with the hearsay questions, can you just talk about the general growth rate of the business or the end market that they're operating in, maybe in the context of last year if you're not given updated guidance to include it yet? And then as we think about the efforts that you took recently with the workforce reduction in the core business and sort of pairing that with the expected integration of hearsay, you know, how should we think about sort of what the integration of this business does for the margin profile of the business, and is it accretive or dilutive to sort of the core Yext business at this point?

Ryan Michael MacDonald: Alright, Thanks for taking my questions, maybe just adding on what hearsay questions can you just talk about general growth rate of the business or the end market that they're operating maybe in the context of last year, if youre not giving updated guidance to include it yet and then as we think about the efforts that you took recently I with the workforce reduction.

And then in the core business and sort of pairing that with with expected integration of hearsay.

Ryan Michael MacDonald: How should we think about sort of what the integration of this business does for the margin profile of the business and is it accretive dilutive to just sort of the core business at this point.

Darryl Bond: Yeah, so Ryan, thanks for the questions. When it comes to hearsay, you know, we'll obviously be updating. None of the guidance that we're giving today takes anything into account with respect to the hearsay acquisition, so it's entirely organic. Once we get the acquisition closed, we will certainly be updating all of the financial outlooks and providing a lot more information around things like our expected growth rate and expected revenue. We're just not ready to talk about it yet, and I think, you know, it wouldn't be wise to get into speculating about it.

Speaker Change: Yeah. So Ryan thanks for the questions. When it comes to hear say, we'll obviously be updating that none of the guidance that we're giving today. It takes any of anything into account with respect to the hearsay acquisition. So it's entirely organic once we get the acquisition closed we will certainly be updating all of the.

Speaker Change: Financial outlooks, and providing a lot more information around things like our expected growth rate.

Speaker Change: Unexpected revenue, we're just not ready to talk about it yet and I think you know it wouldn't be wise to get into speculating about it.

Darryl Bond: As far as the, you know, I think you had a question, you mentioned the end markets that they operate in. They're businesses entirely today operating in the financial services vertical, and so, you know, we're really, you know, we're incredibly bullish on that opportunity, but we also think, you know, where we have an entire go-to-market system built around a much broader set of verticals, theirs is very much built around the financial services vertical, and so we see some real opportunities ultimately to bring their products to bear as well as to merge their products with our products on the social side of things as they, as we move more aggressively into that in the back half of the year in order to, you know, attack a much broader market.

Speaker Change: As far as the you know I think you got a question that you mentioned the end markets that they operate in their businesses entirely today operating in the financial services.

Speaker Change: Vertical and so you know we're really you know we're we're incredibly bullish on that that opportunity, but we also think you know where we have an entire go to market system built around a much broader set of verticals. There there isn't very much built around the financial services vertical and so we see some real opportunities ultimately to bring their products to bear.

Speaker Change: <unk> as well as to merge their products with our products on the social side of things as they as we move more aggressively into that in the back half of the year in order to Oh attack a much broader market.

Speaker Change: Yeah.

Ryan Michael MacDonald: Well, maybe as a follow-up, maybe just asking about some of the newer AI modules, obviously, starting to get in the hands of customers and getting some positive feedback there. As you think about sort of the expectations for sort of an acceleration of growth in the back half of the year, what's being contemplated, if anything at all, on the AI side? Do we think that the monetization opportunity is in the near term or is it still sort of wait and see as the market develops?

Speaker Change: Super helpful. Maybe as a follow up maybe just asking about the new than some of the newer AI modules, obviously, you're starting to get in the hands of customers.

Speaker Change: Getting some positive feedback there as you think about sort of the expectations for sort of a.

Acceleration of growth in the back half of the year are what's being contemplated if anything at all on the AI side as we think that the monetization opportunities in the near term or that's still sort of a wait and see as the market develops.

Michael Walrath: Yeah, well, you remember I made myself pretty unpopular about a year ago by saying that the AI bookings wave that everyone was expecting in the second half of last year wasn't going to materialize. I don't think I made a lot of friends with that statement.

Speaker Change: Yeah, well you remember I made myself pretty unpopular about a year ago by saying that the the AI bookings wave that everyone was expecting in the second half of last year wasn't going to materialize.

I don't think I've made a lot of friends in that statement I think we still see it the same way, which is it's coming.

Michael Walrath: I think we still see it the same way, which is it's coming. We see less of a tidal wave and more of a rising tide, but you know when it comes to the larger enterprises, they're going to be cautious, and there's not going to be as much of a, you know, giant cresting wave as there's just going to be a slowly rising tide over time. The way we think that plays out is that, you know, and this is a little different, I think, than the sort of prevailing narrative that there are going to be just sort of binary winners and losers when it comes to software and AI.

Speaker Change: We see less of a tidal wave in more of a rising tide.

Speaker Change: But you know when it comes particularly to the larger enterprises, they're going to be cautious and there's not going to be as much of a giant.

Speaker Change: Giant cresting wave is there's just going to be a slowly rising tide over time, but the way. We think that plays out is that you know and this is what it is a little different I think than the sort of prevailing narrative of they're going to be just sort of binary winners and losers when it comes to software and AI.

Michael Walrath: That may be true when it comes to purely productivity-based pieces of software, but I think where we're combining the data layer with the workflow layer with the analytics and the content generation flywheel, what winds up happening is all of these AI technologies get built into the platform, and they get used in lots of different ways that make the platform more valuable. And so we're not necessarily thinking about it so much as selling AI as we are thinking about it as what are the things that AI makes better inside the platform.

Speaker Change: May be true when it comes to purely productivity based just on the software, but I think where we're combining data layer with workflow with analytics and our content generation flywheel, what winds up happening is all of these AI technologies get.

Speaker Change: Getting built into our into the platform and they get used in lots of different ways that makes the platform more valuable and so we're not necessarily thinking about it so much as selling AI as we're thinking about it is what are the things that AI. It makes better inside the platform. So we gave a couple of these examples.

Michael Walrath: So we gave a couple of these examples; managed review response, and ultimately, AI-generated review response, is a great example of something that there's, you know, I think increasing adoption and increasing comfort with the idea that you can save a ton of time having your review responses written in a brand voice and then, in most cases, still be reviewed by a human being. On the listings recommendation side of things, what we're starting to see is that bringing the combination of data science and AI to bear in the form of automated recommendations around today, things that you can do within your listings configuration, but ultimately more broadly across the platform, are going to be really exciting ways that we bring those technologies into the platform.

Speaker Change: <unk> managed review response.

Speaker Change: And ER and ultimately AI Generative review response is a great example of something that there's you know I think increasing adoption and increasing comfort with the idea that you can save a ton of time, having you know your your review responses written in our brand voice and then in most cases still be the.

Speaker Change:

Speaker Change: <unk> reviewed by a human being on the listings recommendation side of things what we're starting to see is that bringing the combination of data science and AI.

Speaker Change: To bear in the form of automated recommendations around.

Speaker Change: Today things that you can do within your listings configuration.

Speaker Change: And ultimately more broadly across the platform are going to be really exciting ways that we bring those technologies into the platform.

Speaker Change: And so we're still incredibly bullish about this and you know our end and as we see our customers using it we're probably even more bullish than ever.

Michael Walrath: And so we're still incredibly bullish about this, and, you know, as we see our customers using it, we're probably even more bullish than ever, you know, and I probably will continue to make myself somewhat unpopular by not predicting that there's going to be a massive tidal wave of bookings for this in the second half of the year. And right around the time people give up on AI driving bookings is probably when we'll start to see that the tide is rising across the board.

Speaker Change: And I, probably will continue to make myself somewhat unpopular by not predicting that theres going to be a massive tidal wave of bookings in the second half of the year for this and right around the time people give up on AI driving bookings is probably when we'll start to see that the tightest as rising across the board.

I appreciate the color thanks, Mike.

Ryan Michael MacDonald: I appreciate the call. Thanks, Mike.

Operator: Again, if you have a question, please press star then 1. The next question is from Naved Khan with B. Reilly. Please go ahead.

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

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

Naved Ahmad Khan: Yeah, hi, thanks a lot. So maybe just on the ARR trend, if I look at the Direct and third-party AR, they are sequentially both JPEGs. Is that related to maybe some give back, or as you said, maybe solidifying a relationship, reviewing the number of licenses and so on? What's the driver of that?

Speaker Change: Yeah, Hi, Thanks, a lot so.

Speaker Change: Maybe just on the on the Iraq trend if I look at the dinner.

Speaker Change: Direct and third party air are sequentially.

Speaker Change: That is that related to.

Michael Walrath: Maybe some some give back on as you said, Mike maybe solidifying that relationship.

Michael Walrath: The number of licenses and so on what's what's the bad one of that.

Speaker Change: Yeah, I think that you know there there are different drivers there I think the biggest driver that we see is as we go through renewal cycles and again, we're I don't think we're remotely alone enough. There's you know there's budgetary pressures there as you know and find out there there are business realities to our customers, who you know who might have signed the last contract two years ago and maybe they have.

Michael Walrath: Yeah, I think there are different drivers there. I think the biggest driver that we see is as we go through renewal cycles. And again, I don't think we're remotely alone in this. There are budgetary pressures, there are business realities for our customers who might've signed their last contract two years ago, and maybe they had more stores or more agents and things like that. And so, I don't think that this type of pressure is particularly different for us than it is for other software businesses that sell licenses.

Speaker Change: You know more and more stores or more agents and things like that and so I don't think that this this type of pressure is is particularly different for us than it is for us.

Speaker Change: You know for for for other software businesses, that's all licenses.

Michael Walrath: And in some cases, it's potentially less intense for us because less of our software is sold on a seat-license basis. But at the end of the day, what we're going to do is we're going to make the right decisions for our customer relationships over the long haul because we see so much opportunity. And certainly, with an acquisition like Kearsay, we see even more opportunity for us to grow those relationships over time.

Speaker Change: And in some cases, it's it's potentially less intense for us because less of our of our software is sold on a seat license type type basis, but yeah.

Speaker Change: You know at the end of the day, what we're gonna do is we're going to make the right decisions for our customer relationships over the long haul because we see so much opportunity.

Speaker Change: And certainly with an acquisition like hearsay, we see we see even more opportunity for us to grow those relationships overtime and so optimizing for very near term are you know are our increases you know, which you know we we get annoyed when vendors trying to do it to us.

Michael Walrath: And so optimizing for very near-term, you know, ARR increases, you know, which we get annoyed when vendors try to do to us. We certainly, you know, try not to annoy customers too much as we go through this.

Speaker Change: We certainly you know try not to annoy customers too much as we as we go through this and you know in a lot of cases, what that does is it increases the level of downgrade pressure.

Michael Walrath: And, you know, in a lot of cases, what that does is it increases the level of downgrade pressure. And, you know, I think we've been saying for a long time that we'd rather have downgrades than logo insurance. And if you become very inflexible about the downgrades, then you get the logo.

Speaker Change: And I you know I think we've been saying for a long time that we'd rather have downgrades than logo churn.

Speaker Change: You'd become very inflexible about the downgrades and you get the logo churn.

Naved Ahmad Khan: All right, so your outlook for, I'll call it mid-single digit growth by the end of this year. Is that just based on the pipeline, the conversion rates, as well as the fact that you might be anniversarying some of these changes as they exit the year? How should we think about that?

Speaker Change: So your outlook for.

Speaker Change: I'm, just gonna Quanta, a mid single digit kind of growth.

Speaker Change: By the end of this year is that just based on.

Speaker Change: The pipeline.

Speaker Change: The conversion rates as well as the fact that you might be I know were sitting some of these.

Speaker Change: It changes as you exit the year, how should we think about that.

Michael Walrath: Yeah, I mean, we don't get into, you know, we don't get, obviously, we don't lap the big churn from last year until we get to the end of Q4. And, but yeah, I think it's, what we're constantly doing is evaluating the pipeline, the amount of capacity we have to convert that pipeline. And then, you know, and then renewals, you know, for renewals, a big part of it. And so, when we look at that whole picture, and we apply a pretty conservative lens to it, we still see growth in the back half of the year and a return to a more permanent state of growth in the back half of the year.

Speaker Change: Yeah, I mean, we don't get into you know, we don't get obviously, we don't lap the big churn from last year until we get to the end of Q4, and but yeah. I think it's what we're constantly doing is evaluating the pipeline the amount of capacity, we have to convert that pipeline and then and then the renewals.

Speaker Change: Perennial is a big big part of it and so when we look at that whole picture and we apply a pretty conservative lens to it we still see growth in the back half of the year.

Speaker Change: And our return.

Speaker Change: For a more permanent state.

Speaker Change: State of growth in the back half of the year.

Naved Ahmad Khan: Okay, and then one final question, maybe on the hair. Say you mentioned 300 employees. Are most of the people in the sales function or technology or any kind of color on that? [inaudible]

Speaker Change: Okay and then one final question maybe on the on hearsay.

Speaker Change: You mentioned 300 employees.

Speaker Change: Most of the people in the sales function our technology.

Speaker Change: Any kind of color on that.

Speaker Change:

Michael Walrath: Yeah, I mean, it's a diverse company, and they have all the functions, so we don't see anything out of line with the way that they're organized, and, you know, they operate in a very similar way that we do. So, you know, that's actually, you know, we'll talk more hopefully on the next call; hopefully, we'll have closed the acquisition, and we'll be able to talk a lot more about how it's going to impact our various functional financial areas and things like that.

Speaker Change: Yeah. So I mean, it's a it's a it's a diverse company and they have all the functions. So we didn't we don't see anything out of line with the way that they're organized and where they operate in a very similar way that we do so you know that's actually you know what we'll talk more hopefully in the next call we will be.

Speaker Change: Hopefully, we'll have closed the acquisition I won't be able to talk a lot more about how it's going to impact our various functions.

Speaker Change: Functional and financial areas and things like that.

Michael Walrath: But, yeah, I mean, it's a great business today. It's a business that, as we mentioned, it has ARR growth, you know, I think they faced their challenges over the last few years and, you know, from what we've seen, their execution has been brilliant, they've introduced new products, they've got growth drivers in the business and it's a business that's operating around cash flow break even today, so we feel really good about the financial profile of the business and the ability to find synergies as we integrate it.

Speaker Change: But again I mean, it's a it's a great business today, it's a it's a business that as we mentioned it's it's.

Speaker Change: It is AOR growth you.

Speaker Change: You know I think they face their challenges over the last few years and you know from what we've seen there execution has been has been brilliant they've introduced new products they've got growth drivers in the business.

Speaker Change: And and it's a it's a business that's operating around.

Speaker Change: Cash flow break even today so.

Speaker Change: We feel really good about the financial profile of the business and the ability to find synergies as we integrate it.

Speaker Change: Thank you.

Michael Walrath: This concludes our question and answer session. I would like to turn the conference back over to Michael Walrath for any closing remarks.

Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Michael Wallrath for any closing remarks.

Michael Walrath: Well, we'd just like to thank everybody for joining us today and for your questions, and we look forward to speaking with you next quarter. The conference is now concluded. Thank you for attending.

Michael Walrath: Well, we'd just like to thank everybody for joining us today and for your questions and we look forward to speaking with you next quarter.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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

Operator: ?? ?? ?? ??

Speaker Change: Yeah.

Speaker Change: [music].

Speaker Change: Yeah.

Speaker Change:

Speaker Change: [music].

Yeah.

Yeah.

Speaker Change: [music].

Rohit Kulkarni: Kulkarni, Arjun Bhatia, Ryan MacDonald, Naved Khan, Ryan MacDonald, Naved Khan, Arjun Bhatia.

Speaker Change: Yeah.

Speaker Change: [music].

Yeah.

Speaker Change: [music].