Good afternoon, and welcome to the Yext Second Quarter Fiscal 2021 Financial Results Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Yuka Broderick, Head of Investor Relations. Please go ahead..

Thank you, Andria, and good afternoon, everyone. Welcome to Yext fiscal second quarter 2021 conference call. With me today are CEO, Howard Lerman; CFO, Steve Cakebread; and revenue team leaders, Jim Steele, David Rudnitsky and Patrick Blair.

Before we begin, I'd like to remind everyone that this call may contain forward-looking statements, including statements about revenue and non-GAAP net income guidance, sales momentum and efficiency, expenses, hiring, market opportunities, business performance, capital expenditures, and other non-historical statements as further described in our press release.

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, including with Answers, general economic and business conditions such as the impact of COVID-19 pandemic.

These statements reflect the company's current expectations based on its beliefs, assumptions and information currently available to it. Although we believe these expectations are reasonable, we undertake no obligation to revise any statements to reflect changes that occur after this call.

Descriptions of these and other risks that could cause actual results to differ materially from these forward-looking statements are discussed in our reports filed with the SEC, including our most recent quarterly and annual reports, and our press release that was issued this afternoon.

During the call, we will also refer to non-GAAP financial measures. Reconciliations with the most comparable GAAP measures are also available in the press release, which is available at investors.yext.com. With that, I will turn the call over to Howard..

Thank you, Yuka. In 2016, we held our first user event and we hosted Mark Kelly, and you may know that Mark is a current Arizona Senate candidate, and that's following a long and distinguished career as a navy aviator and astronaut.

At LocationWorld in 2016, he shared a story about flying a two-person attack plane where his focus was flying the plane and dodging missiles. It was his partner's job to successfully hit the target with a bomb. Each person had a job to do and focus solely on that job.

And as he told us, we call that “Compartmentalization, focusing on the stuff you can control, and not worrying about the stuff outside of your control.” Who knew that advice would be still relevant four years later, stuck in my head, we are living in a highly chaotic and unpredictable time.

But in Q2, we learned that as a company, we can accomplish great things when we focus on what we can control. First, we're focused on top-line growth. We reported at $88.1 million in revenue, $2 million above the high end of our guidance range. And next, we are focused on efficiency and especially sales efficiency.

And so, we reported a $0.07 non-GAAP loss per share in the quarter which is a $0.04 beat to the high end of our guidance range. And finally, we're focused on our mission to help every business and organization around the world deliver official answers every time people search.

And we saw 30% of our enterprise North America new and upsell bookings as Answers led in the Q. We now got over 150 Answers customers live.

And in fact, if you follow us on Twitter, you will see our daily showcase of brands, it’s kind of like our daily doodle, like Verizon business, Cox Communications, Krispy Kreme, AutoZone, they've all upgraded their site search with the Yext Official Answers Engine. Let me take a minute to explain what exactly I mean by the Official Answers Engine.

We are witnessing a massive shift in search from keyword based document search to an era in which computers understand what people are asking. And at the root of this is a brain like database called a Knowledge Graph. We've been building that for over 10-years.

In fact, the very sentence of our S-1 says “Yext is a knowledge engine.” And so a couple years ago, we started to build our own search technology based off natural language processing. And last fall and onward, which by the way, feels like a decade ago, but was only three quarters ago we launched Yext Answers.

That is our site search engine that sits on top of a company's knowledge graph. And so when an end user wants official information about a business, they visit that business' website.

But when the site search is so poor that a business can't deliver an official answer on even the most basic query, that user bounces back to Google to seek the answers they couldn't get directly from the business.

And when this happens, the company loses control of the customer journey and got to bid on AdWords on their own branded keywords to win that customer back again, the same customer who is trying to find them organically.

We saw a better way with the full power of over 385 million stakes now contained in the Yext Knowledge Graph, which by the way, is a 71% year-over-year increase. We launched our own site search engine with Answers or as we like to call it the world's first official answers engine.

In the second quarter we expanded Answers to be available in French and Italian and German and Spanish. So we're helping now more and more websites around the world decisional -- deliver official answers to every customer question, using NLP.

It's our founding principle that the ultimate authority on official information about a business is the business itself. And with our Official Answers Engine powering the websites, our customers can drive higher conversion, lower customer support costs, and they can receive amazing customer intelligence about what people are asking.

In fact, in the quarter, we answered over 11 million searches. Remember, these are all commercial, valuable questions, searches from customers on a company's live website looking to transact. And also it turns out when you give people a great customer experience the first time, they remember it and they come back and it becomes a habit.

You can train a user to come back time and again by simply delivering official answers to their questions. In fact, early adopters of Answers on average see a 60% increase in site search volume within just 60 days of putting the Yext Official Answers Engine on their site.

When you give someone a great experience, they come back, and we can show that quantitatively. Every customer journey starts with the search. And it's our vision to make a business' website be the first and the last place people look when they have a question about that business.

And that's what the Official Answers Engine is designed to do to give every company in the world a Google-like experience on their own domain. The most exciting part is, we are only in the very top of the first half of the first inning in realizing this huge vision. That's the first area we are focused. Next, we are laser-focused on sales efficiency.

The best SaaS companies today use premium or free trial acquisition model. And so that's what we rolled out in second quarter in the form of our Answers free trial. In the quarter, we received thousands of Answers free trial requests, and accepted as many as we could support.

And the next phase is to make Yext totally self-serve for Answers, so that anyone can integrate our Answers Engine into their own website and see the power and positive ROI opportunity for themselves. And we are already seeing the positive results from this new sales motion in terms of sales efficiency.

GAAP sales and marketing as a percentage of revenue went from 72% in the year ago quarter to 64% in the second quarter of this year. We are duly focused on both sales efficiency and growth and are excited about the results that we're already seeing with this new model.

Now, none of this would have been possible without the incredible leadership of Jim Steele. And I want to thank him for his amazing contributions to Yext. Four years ago, I recruited Jim to the Board and shortly after that -- see that was my recruiting technique.

And then shortly after that, I talked him into assuming an operating role as our President. Jim came in, he built a world class sales team, and he laid the foundation for future success with incredible sales executives, including Dave Rudnitsky and Patrick Blair.

Now, for those of you who know Jim, he is not just a salesman, but he is a tremendous human being and I have learned, we all have so much from him. I’m fortunately continue to learn from him as he will continue on and he acts as an advisor for the next year.

And I'm also super excited to promote the next generation of sales leadership at Yext with Dave Rudnitsky and Patrick Blair, serving as Co-Chief Revenue Officers. David, who joined us nearly four years ago, will keep leading enterprise North America. And Patrick, who joined us a year and a half ago, is going to lead our CBU international businesses.

Jim has trained them well. And I am confident in Dave and Patrick's ability to work with me, and to continue building and leading our world class sales machine. Now, it is my pleasure to turn it over to Jim for a final sign off. Take it away, Jim..

Thanks, Howard. As Howard mentioned, it was almost four years ago when I joined the Board at Yext. And it was only a few months later that Howard and the Board asked me to step in as President and Chief Revenue Officer.

I was excited to join my former colleagues from Salesforce with the opportunity to help Yext go public and to build a world class revenue organization. I recruited my go to team, Dave Rudnitsky, whom I worked with for 20 years, four years ago, and also Patrick Blair two years ago to help me on this endeavor.

I have tremendous respect and confidence in this team and I believe knowing the company in great shape and has a bright future. And I'm honored to stay on this journey to help Yext as an advisor.

This is the perfect time for me to turn it over to David and Patrick, whom I have so much respect for and who have been so critical in building the sales team to what it is today. They'll walk you through our strong quarter.

Dave?.

Jim, thank you very much for your mentorship, partnership, and most importantly, friendship over the last 20 years. Through your leadership, I'm certain you're leaving the sales organization in great shape. I wish you and your family the best of luck wherever the future takes you.

Needless to say, I'm very excited to take over this role as Co-CRO, partner with Patrick and Howard and continue to move the business forward. I certainly feel prepared for it. And now for a review of Q2. The sales organization had a solid Q2 given the unprecedented circumstances. Momentum in new and upsell ACV picked up throughout the quarter.

We're seeing more customers engaging again, either working on new projects, or picking up on temporary paused projects. In Q2, Yext overall closed 114 new and renewal deals with at least $100,000 of total contract value. This includes nine deals with more than $1 million of total contract value.

The total number of Yext bid market and enterprise customers increased 27% year-over-year to nearly 2,200. This excludes our SMB and third-party reseller customers. Our quota carrying sales rep count for the company was roughly similar to last quarter.

We continue to target ending this fiscal year at 265 quota carrying sales reps consistent with our original plan. Specifically for the enterprise, expansion deals this quarter included T-Mobile MetroPCS, CNO Bankers Life, The UPS Store, the Medical University of South Carolina, and [indiscernible].

Enterprise new logo signings included Guaranteed Rate and Cinemark. Land with Answers is driving significantly more opportunities for the enterprise sales team. As Howard said, 30% of Q2 enterprise new and upsell bookings ACV were Answers-led.

And there are many Answers-led deals we're working on now that weren't in the pipeline at the beginning of the year. We believe there's a huge attach rate that comes with Answers. It's a product that inherently brings along with it a lot of other revenue opportunities for listings, pages and services.

We're helping enterprise customers solve complex problems, and our solution based offerings leverage all of Yext innovative products. I want to tell you about a big expansion deal we had in Q2 with a major U.S. financial institution. This company has four subsidiaries and we started working with one of them, an insurance company a couple of years ago.

They were a customer for listings, pages and services for its branch locations and some of its agents. As their COO mentioned in a shareholder letter, they're going through a customer centric transformation. And customers today expect to be serviced in all channels, and across all access points.

We play right into the heart of this digital transformation. And we show them how Yext can drive value and ROI. This culminated in an upsell deal in Q2 that expanded within the insurance subsidiary and into the company's other three subsidiaries. More than doubled ACV and included listings, reviews, pages, answers and services.

We think is a great example how Yext can provide a broad solution against an enterprise's need to accelerate digital transformation efforts to solve business problems. And now I'll turn the call over to Patrick, who will share color on what he is seeing with his team. .

Thanks, Dave. I’d also like to take a minute and thank Jim for his mentorship, support and friendship over the last 10 years. I know he'll stay close to Yext and I wish him the best of luck in his next endeavor. I'm also thrilled to continue building the sales team, Dave and Howard.

In terms of results, we had a strong quarter in both the CBU and international business in Q2, given the circumstances. Because of the fast sales cycle in CBU, those teams contributed most of the Answers free trial conversions.

We signed new logos including CubeSmart and PetIQ, and had great expansion deals like Fazoli's and ENT and Allergy Associates as they begin to embrace our full platform. Answers is a great solution for Yext CBU accounts.

While enterprise accounts have multiple teams in an organization focused on their website, commercial accounts generally have a more nimble decision tree and a shorter sales cycle. We have hundreds of companies participating on our Answers free trial program, and every day we're implementing and turning on more of those trials.

One example of the fast sale cycle is Tower Loan, a loan company headquartered in Mississippi. As coronavirus hit the U.S. this spring Tower saw a spike in website visits and customer service calls, creating both an opportunity and a pain point. We quickly worked with them to launch an Answers free trial.

Just six weeks after we launched Answers on their website Tower could see the value of deeper customer insights, higher lead conversion and lower support costs. And they became a paying Answers customer. In EMEA, we saw business activity begin to pick up from the COVID-19 shutdown and furloughs.

We did expansion deal with Philip Morris International, and we signed a master service agreement with Louis Vuitton. We also signed new deals with Pret and Superdry. In Japan, we signed new deals with GEO Holdings and R Corporation, had an expansion deal with the Yamato Transport and had a renewal with SMBC.

At a time when so many companies are searching for solutions to provide their customers with accurate, reliable answers, it's motivating for our sales team to be able to provide a solution that can show a measurable return on investment. I'm more excited than ever about our ability to capture this expanding market opportunity.

And with that, I'll turn the call over to Steve..

Hey. Thanks, Patrick. For second quarter revenue grew 22% year-over-year to $88.1 million. Unearned revenue increased 20% year-over-year $147 million. Annual recurring revenue or ARR at the end of the quarter was $338 million, growing up 22% year-over-year from the $277 million in the year ago quarter.

Trailing 12 months net dollar based retention, which excludes our SMB customers, was 105%. And our trailing 12 month net dollar based retention for direct to enterprise, which excludes our SMB and third-party reseller customers, was 106%. This is slightly lower than last quarter because of the impact we saw from muted upsells.

But we saw our retention rates and upsells start to improve during Q2. Before turning to margins and expenses, I'd like to point out that I'll be discussing both GAAP and non-GAAP results. And we've provided a reconciliation of GAAP to non-GAAP financials in our earnings release. Q2 GAAP gross margins were 75% this quarter.

That's compared with 73.4% in the year ago quarter. Q2 non-GAAP gross margin was 76.5% and compares to 74.7% of the year ago quarter. The change in gross margin is primarily driven by leverage on higher revenue with some higher data center costs, but publisher costs remained stable.

Year-to-date non-GAAP gross margin was 76.6% and that compares to 75.9% a year ago. Q2 GAAP operating expenses were $90.3 million and that's up 8% from the $83.4 million in the year ago quarter. Q2 non-GAAP operating expenses were $74.4 million or 84% of revenue compared to the $67.8 million or 94% of revenue in the year ago quarter.

Compared to the year ago quarter the primary drivers of this was an increase in overall headcount and it was offset by reduced spend on travel and other events. Year-to-date, non-GAAP operating expenses were $151.6 million, or 87% of revenue. That compares to $126.9 million or 90% of revenue a year ago.

So given uncertain business conditions, we're continuing to be thoughtful with respect to our operating expenses while making investments to deliver TAM expanding products, generate revenue growth and drive sales efficiency.

We'll continue to be conservative with our hiring, while keeping our goal of 255 quota-carrying sales reps by the end of the fiscal year. Q2 GAAP net loss was $25.1 million, that’s compared to $29.3 million in year ago quarter.

On the basis of 118.4 million weighted average basic shares outstanding, Net loss per share of $0.21 this quarter compares to $0.26 loss a year ago, that on a basis of $111.8 million weighted average basic shares outstanding. Q2 non-GAAP net loss excluding stock-based compensation was $7.9 million.

This compares to $12.7 million loss in the year ago quarter. And our Q2 non-GAAP net loss per share of $0.07 compares to an $0.11 loss in the year ago quarter. Cash and cash equivalents were $223 million at the end of the quarter. And we continue to believe our balance sheet is strong and positions us well to weather the current economic environment.

Net cash flow from operations for Q2 was a negative $15.6 million and that's compared to negative $11.4 million in the year ago quarter. CapEx was $18.8 million compared to $3.6 million in the year ago quarter, but we continue to make progress with our building projects in New York, Washington D.C., Tokyo and Paris.

We expect remaining CapEx related to these projects to be about $32 million. And based on updated schedules, we expect nearly all of this amount to occur within fiscal year '21.

We've successfully completed the exit of our 1 Madison Avenue headquarters location, saving four months of lease expense relative to our original lease and our operating expenses going forward will no longer have the impact of lease expenses at 1 Madison Avenue. Turning to our outlook. We expect Q3 revenue to be between $86 million and $88 million.

We anticipate non-GAAP net loss per share between $0.07 and $0.09. We expect a weighted average basis share count of approximately 120.4 million shares in Q3. We're excited about our progress in Q2, however, the business environment remains uncertain. And as such, we'll continue to provide only quarterly guidance, not full year guidance.

We're still in early days with Answers free trials. We have a growing group of customers moving through their 90-day trials. We expect these trials to begin to convert towards the end of the year. However, we're going to be appropriately conservative in reviewing these opportunities. To wrap things up, I'm pleased with our performance for the quarter.

There are early signs that Answers is driving additional opportunities, faster sales cycles, and greater sales efficiencies. We're also pleased to have executed on our plan to manage cost effectively. One more time, Jim, all the best. It's been great working with you yet again.

And I agree with Howard, the team we have in place has the knowledge and experience to take us to the next level. With that, I'll turn the call back to Howard..

Thank you, Steve. We had a strong second quarter and our Land with Answers sales motion and our focus on sales efficiency are already showing promising results. We've got new logos using Yext to power their site search with our Official Answers Engine every day.

And that means we are getting closer to realizing our vision to make every business in the world the official source of information about themselves. Thank you all for your continued support. And we are looking forward to updating you on our progress next quarter and make sure to follow us on Twitter so that you can see it live and in real time. .

Thank you, Howard.

Andria, can we please open to questions?.

We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Ryan McDonald of Needham. Please go ahead..

Yes, thanks for taking the questions. Good afternoon, Howard, Steve and team. Congrats on a great quarter. We've definitely been following along with the Twitter feed and definitely some interesting logos that are popping up on there for Answers. Great to see.

Howard, can you sort of frame for us sort of the success that you're seeing with Answers versus in other areas of your business.

And maybe help provide a little bit more context on the top-line guide for third quarter, represents a bit of a deceleration in the growth rate there, despite some really positive commentary that you're seeing in various parts of the business? Thanks..

Thanks, Ryan. Answers is really an amazing new product for us because it opens up our TAM significantly. The number of verticals that we can go after when it relates to Answers, every business can need to answer questions. And that's not necessarily the case for the previous product, which we led with, which is Listings.

It's all still built on the Knowledge Graph. And I think quantitatively, the most encouraging thing was that we saw 30% of -- in North American enterprise new deals of our ACV was led by Answers. So this is already beginning to have an impact.

As we also said, thousands of free trial requests we saw in the quarter of which we took those that we could put up and we got them up, and we were working towards making this totally self-serve, that's the next generation here. The first stage was making this free trial.

But today, we still have to set them up with our hitchhikers with our Yext admins. Going forward we want to move towards a free trial model. And so a complete premium model where customers are able to set them up themselves self-serve and then we'll go from there. So we're feeling really good about the inbound demand for this.

And we saw quantitatively some results, we have 150 customers live. The brands that you see, you go to Answers at verizon.com. That's a pretty amazing set of sort of first initial customers.

And the results are from a user perspective, amazing too, and that you put up an answers box and all of a sudden your site search volume on your own site goes up 60%. And the intelligence that the customers can see from what people are asking is nothing short of extraordinary.

As it relates to the guide, we're cautiously optimistic about Answers, about our business, and the opportunity to put Official Answers everywhere. At the same time, we continue to take a conservative approach given the uncertainty we see in the world as it relates to the pandemic and the economy..

Excellent. And as a follow up, when you talk about the funnel of interest in free trials, as you're seeing that come through, can you talk about the role that the Adobe partnership is playing in that? How is that progressing? And I know you've sort of trained the Adobe salesforce sort of during the quarter.

Just give us a sense of what the progress is there. And is that starting to contribute at all? Thank you..

We have an active pipeline with Adobe. Just as a context, we have a great partnership with Adobe. They’ve sunset their search and promote product last year, that's their site search product. There's a lot of excitement in that, they're the best company in digital experience with their customer experience and their experience cloud.

And I think they’ve more than $3 billion of ARR as a huge percentage of their revenue. And they in their product offering don't offer a site search right now. That's our opportunity to partner with Adobe to provide a totally different way.

And as a context their search and promote product, with sunset it was a document based -- keyword-based document search. So if you search the old way, when you want to think about what that looks like, that's -- think like those -- think AltaVista, think Yahoo in 1999. That's what keyword-based search is.

Our site search the Yext Official Answers Engine is a knowledge based search using NLP that gives answers. And so the ability to combine that with the Adobe experience offering is very powerful. Because every customer journey starts with a question, every customer journey starts with a search, we're able to complete that.

We have an active pipeline with Adobe, we have great connection points with them all over the globe, and we have closed deals already, some significant ones that we've been working with them on..

Our next question will come from [Spencer Chen] of RBC Capital Markets. Please go ahead..

Hey, everyone. Thanks for having me on and congrats on this quarter.

Just wanted to see kind of your thoughts on what needs to be done to get to your sales quota carrying reps of 255 by the end of the fiscal year? And then also last quarter you hinted on kind of having exposure to 25% to 30% of kind of heavily impacted industries, just wondering if this allocation has changed this quarter and how you're thinking about adding new accounts under this environment through the rest of the second half? Thank you..

Thanks for that, Spencer. First off, we're constantly recruiting to build our quota carrying headcount up, I still believe we can get to our targeted 255 by the end of the year. I would also like to remind you that those reps that we have right now is the most tenured set of reps we've ever had.

Tenure really does matter when it comes to productivity and efficiency.

And I'd also like to point out, we did see an incredible improvement in efficiency year-over-year 72% to 64% of revenue went to sales and marketing, which we feel really great about in large part due to this new motion, due to the tenure of the reps and due to our improvements in our new product.

A big part of Answers is going after new industries and new verticals. The tale of two cities that we talked about last quarter as it relates to the ARR from different industries, it's about the same this quarter. And so, we had that base, it's still there. That said, with Answers, we can really go after new kinds of customers.

And I do expect that mix to continue to evolve over time as we target new verticals and get out there to be able to bring Answers to industries like education, right? We never could sell listings to a university. Yet, if you follow us on Twitter, you'll see that there's education, universities that have put Yext answers up.

And that's a big opportunity for us. There's all kinds of new industries that we've never been in before, CPG. We could never work with Campbell's Soup on listings yet. Nowadays, if you look at their site, you can see like, they're using Answers and we're answering questions about them.

So, we've used our new product to help shift the industries and our proactive sales approach can help us do that as well..

Our next question will come from Stan Zlotsky of Morgan Stanley. Please go ahead..

Hey, guys, this is Hamza Fodderwala for Stan Zlotsky. Congratulations, Jim, on your next chapter. I wanted to dig in a little bit more on the Co-CRO structure between Patrick and David. How is that going to work, how is the role is going to be split-up? Because obviously, Co-CRO structure, it is somewhat unique within software.

So, just curious how that structure is going to work going forward?.

Thanks for the question. I'm pretty confident that this is a structure that we've seen in other companies before, Patrick has got the international and the CBU, and Dave has got North America and the EBU. This is really a just continue to recycle and repeat. You saw the improvement last quarter.

And I believe that with the team that we have in place, we're going to continue to do that, continue to go forward.

Also Dave and Patrick if you want to talk about your experience in working together and co-sharing?.

So this is Dave Rudnitsky. We've done this at scale before, both of us have spent quite a few years at Salesforce. I had responsibility for the -- good part of the enterprise, Patrick for the CBU.

And I think as you look at how we segment our business, it's pretty clear as to what our responsibilities are, and how we're going to go after each market segment. .

Yes, the only thing I would add to that, as Dave said, we work together for a long time, we collaborate every day. I've been here for a year and a half and Dave and I talk every single day. So we're both very excited about this next chapter in our transformation, and I am really looking forward to it.

And I think the way that we've divided things up gives us both the ability to concentrate on the businesses we have, but also collaborate in a way that’s just going to make this company even more powerful..

That's helpful. Maybe as a quick follow up. It seems like from the commentary that the demand kind of really picked up throughout the quarter.

And I'm wondering if you could give any color on what you're seeing into the pipeline going into the back half of the year, especially as some of the restrictions around the pandemic start to get lifted, maybe those impacted verticals start to see some improvement in demand as well.

So any color you could give there would be really helpful? And that will be it for me. Thank you..

Yes, I mean, I think you heard us say that our business momentum picked up throughout the quarter. We finished with a super strong July, no major changes in August except typical seasonality. So I think, look, overall, we're seeing companies are adjusting to changes from remote working business environments.

They're having conversations, there is demand. And we look forward to seeing what we can do for the back half this year. .

Yes, Howard, if I can jump in here to a little bit. Like Howard said, we've seen a lot of strong demand, kind of back to Ryan’s question at the start about kind of the growth rates look like they're slowing in Q3 and Q4. Well, that may be mathematically true. I just want to remind everybody, our big business comes in Q3 and Q4.

Last year was not impacted macroeconomically. Still had very strong quarters last year. So I think you're naturally going to see some of the math and macroeconomic challenged environment reflect more of that than the strength of our business. And I think all of us feel very good about where we're going here.

But I’d just caution you to look at the growth rates in the second half, it's a challenged economy versus one that we just boomed in Q3, Q4 last year..

Our next question comes from Koji Ikeda of Oppenheimer. Please go ahead. .

Hi guys. This is Chad Schoening on for Koji. Thanks for taking our questions. We've seen kind of the official branding of the Yext search bar online, something you guys talked about. And really some premarketing so to speak.

But if you could dig a bit deeper on that in terms of branding and kind of customer awareness, wondering if you guys have shifted or reconfigured your marketing budget at all time during the pandemic.

And does that shift more towards getting the word out on kind of the Answers free trials or just thinking about where those dollars are being focused? Thanks. .

Well, Jim, and Dave and Patrick are amazing salespeople, amazing, but there is no better salesperson than your own product. And that is why we proudly put our logo right in front. And say go to krispykreme.com. Just go right there. By the way, don't necessarily buy too many donuts. I only had a dozen yesterday when they brought them into the office.

My personal favorite is the strawberry iced donut. It was just off the hook. That is the best marketing we can have and that's part of our product. So, when the user gets a great experience, there's really twofold there. There's training the consumer that when they see the ex-official answer seal, they're going to get the official answer, not a link.

They're not going to get a Lycos like AltaVista 1998 experience off of a site. They're going to get a Google like experience off of the site. I think a good way to think about this is just like Shopify has given every company their own Amazon. What we're trying to do at Yext is give every company their own Google.

It used to be go to a site and see a Google search box on the site, but you don't see that anymore because they exited that place search business in that way.

That's our opportunity to go in and put the Yext box up there to help the consumer get a great answer, a great experience that they stay with that customer, they don't bounce out, so that customer has to buy them back. And from a marketing perspective, putting that up there is a great way for us to generate free trials.

It's a great way for us to generate awareness among consumers and our target audience who are really marketing and digital experienced folks within the company..

Our next question comes from Mark Murphy of JPMorgan. Please go ahead. .

Yes, thank you. Jim, we will miss you. And I want to say best wishes for everything in the future. And it's also great to know that you have someone as talented as Dave stepping in and also Patrick. So, Howard following up on….

I have trained them well. .

Yes, you did train -- you've trained everyone well. Howard, just following-up on what you were just talking about.

The question that’s crossing my mind is when a customer deploys Yext Answers, what is the search technology that they are replacing? What is the incumbent technology that they're pulling out?.

Well, there's a lot, but you've got Endeca, which is an Oracle technology, you have often a custom in-house solution which has been built. This is a sort of site searches in existing market that has a bunch of legacy players.

And we've just taken a totally different approach in showing up with Answers based technology that starts with having a structured knowledge graph, where they use -- where the customer puts in their knowledge in a structured way, as opposed to a technology focused on crawling, and ingesting, and then generating document links that match a keyword.

So the fundamentally different approach often you're replacing something that the IT team built.

But we've got such a different unique way that starts with the knowledge graph and in many cases for our customers as an upsell we already have a ton of their information in the knowledge graph, right? So, we might have a bank's locations or their ATMs or their advisors. That's all sitting in there.

Think we said we had 385 million facts in the knowledge graph, which is a 71% year-over-year increase. That is the structured knowledge that makes this search possible, that makes it easy to kind of get going. And we're just taking a new and unique approach leveraging that huge differentiator..

Okay. And so I guess, Howard as they're doing that, I think the reason historically they've had the crawling and adjusting and matching document link is because it leaves a pretty open ended, right, they don't have to define what can be asked. They can sort of handle a huge array of questions on the website.

So, I guess I'm just wondering what happens to that element of it when they put in Yext Answers?.

Well, if you run a search on a site that uses Yext Answers engine, what you'll see are the results that we'll have on the top, there'll be tabs kind of like Google is got their main results. And then maybe they have tabs by entity like a map for, let's say, doctors or let's say, it's a different type of tab for a different type of entity links.

That is the old search. So, when you use the Yext Answers, just like when you search on Google. Google is a blend of knowledge-based answers and keyword-based document search. The keyword-based document search are the third-party sites that they send you to.

But the knowledge-based answers are the answers that appear directly in the Google search from their own knowledge graph.

We're that first part for every company, and then we'll either blend whatever they're using today with the links part of our experience on the back end so that's always able to catch that sort of, as you pointed out long-tail question, if it's there.

But remember, Mark, what we mainly see are for most of these companies, the intelligence that they get from putting up Yext Answers, they're able to -- for the first time really get and be able to see what are people asking right now. And the volumes are huge. The search volumes are huge. People ask a ton of questions when they can get an answer.

And as we see questions pop up, the admins of that company if they're unanswered, will simply add the answers to the Knowledge Graph. So that the next time someone asks that question, there's a beautiful feedback cycle and they will get that answer.

So the most commonly asked questions quickly get populated, quickly end up in the knowledge graph as something pops up out of nowhere, they'll see that pretty fast and make sure that, that question is met that, that answer is there. .

Okay. And then one final one -- thank you. That's a great explanation, Howard. I guess I wanted to ask either for Jim or Dave or Patrick. The thinking through what Steve was just describing, just kind of a little dose of just the economic reality, and then having the tough comp in Q3 and Q4.

When is the next opportunity to grow your net new ARR year-over-year? In other words, to grow the bookings year-over-year? Is there -- do you see that opportunity around the corner, maybe by the April quarter or sometime around next summer?.

Steve, I'll let you take that question. .

Yes. Mark, that’s a good question. It's really a function of macroeconomics right now. I mean, every country, every city has its some different stage of opening. Big businesses are more advanced than some smaller businesses. So we can't really answer that.

I will say that, when you look at our pipelines and inbound free trials, and what's going on, it feels very good. And if we were in normal circumstances we have I think much better opportunities here. But, you're asking us to look out into next year. We've got elections coming up, clearly this is going to be more challenged.

So, we're definitely going to take a look at things at the end of our Q4 because we'll be into next year, but it's going to take a little bit of time to see that coming. It's hard to say. .

Our next question comes from Naved Khan of Truist. Please go ahead. .

Yes, thanks a lot. On the self-serve launch timing.

Maybe can you give us some sense of when that might become available? Or if it already has?.

Well, since -- you can go ahead and sign up for it now. It launched late last night. .

Understood..

Yes, it's not perfect yet but you -- if you go and do it, it is self-serve as of late last night..

And maybe just to follow-up on the on the Answers.

So, is it fair to assume that a majority of the customers that tried it are opting to become paying customers? And of those who may not be, what is the typical reason, is it budget or is it something else?.

We are definitely seeing very strong for those that try it, a very strong inclination to convert to paying customer as you might expect because the value prop of lower support costs, increased revenue, and customer intelligence is super strong and immediately quantifiable within -- so that within -- first off there's a screen in the account you can log into and it shows we use our classifier to classify keywords, is revenue generating and are cost savings and they can see the number of searches and clicks and conversions as customers hook-up the conversion tracking to Yext, and they can see exactly how much money they're making from the transactions.

And so they're either saving money or making money and invariably, usually, it looks the ROI is extremely compelling. So, we see a continuation.

I don't know Patrick, do you have something to add there?.

No, I think I would agree with everything that Howard said. And I think for the customers that are turning away, we're not seeing much of that yet. We started, in Q2, incredibly positive. We've actually even seen people moving to paying customers even prior to the end of the 90-days.

So, so far, so good, and we're very, very excited about how it's been going..

I'm going to watch for your -- I’ll watch for your sign up through the self-serve..

Yes, I’ve changed my name. So, you'd have to guess. A follow-up for Steve, just on the guide please.

So if I look at where Q2 guide was versus where it came out, should I think about Q3 the same way, conservatism and the fact that your renewal activities is obviously skewed towards the back half and that's reflected in the guide?.

Naved, do you mind repeating the question? We didn't hear you for a second there, must have been a Zoom blip?.

Yes, so just on the outlook for third quarter. Should we look at it the same way as your second quarter guide? Meaning there's obviously macro uncertainty and the fact that a bunch of your -- actually majority of your renewals are in the back half of the of the year. So, that's also reflected in the guide.

Is that fair?.

This is Steve, sorry, my line got dropped here. Can you just give me a quick redo on your question, you're looking at Q2 guide versus where we came out? Yes, we did good. Q3, I think it's, this is where we have a large quarter, like I said, in Q4. So, we're just going to be conservative in how we think about the quarter.

The macroeconomics have a bigger play at this in our pipeline or opportunities right now. .

But in terms of deal activity, did Q2 benefit from any deal sort of moving from Q3 into Q2, or anything like that?.

No, not really. I mean, keep in mind, you kind of all forget this because we have such a strong Q2, a majority of the trials simply got started in Q2.

So, the manifestation is probably in Q3 and Q4 of those conversions, but macroeconomic headwinds, haven’t -- they haven't really cleared and there's still a fog and we've got a lot of things to get through. But to Patrick's point and David's point earlier, our customers are understanding the benefit.

And I do think over time, we'll continue to see increased bookings. But right now, we're just going to be conservative and thoughtful about what we're trying to do here and make sure we can execute. .

Our next question comes from Arjun Bhatia of William Blair. Please go ahead. .

Hey, guys. Great job on the results. And Jim, best of luck to you in the future. It was good working with you, although it was brief. .

Thanks Arjun. .

Absolutely. Howard, maybe I just want to follow up on Answers and some of the kind of narrative that you've talked about already. One of the biggest values of Answers is that it's going to extend you to new markets that you didn't have access to in the past.

When you look at the customers that are trying Answers that are going through the free trial that are in the pipeline, or maybe those that have converted already, what can you tell us about, how much of that is cross selling to the existing base versus growing the pie with new accounts that you didn't have before?.

Our free trial offers are mainly focused on new logo acquisition. The point of the free trial is to be able to get to new accounts. So by definition, we're going for those new accounts. We're going for new logos. You don't necessarily approach an existing customer for a free trial.

That free trial is trying to get folks to come in that you've never talked to before. So that's the point of it. There's no question that when you look at the mix of free trials and Answers experiences going live, you can see it, there's just a different type of business that you see here.

And by the way, that includes even the World Health Organization in the first quarter, the State Department. You didn't approach them before and sell them your listings product.

But we have this amazing official Answers Engine and as people need to be able to travel around the world or they need to answer questions about where they are allowed to travel, they go to the official source itself and that comes from the Yext Official Answers Engine.

So there is unquestionably a shift in the mix of our market, not just those that are focused on being able to leverage listings. .

Got it. Okay. And then maybe a question either for Jim or Pat or Dave, anybody wants to take it. But it's great to see the sales efficiency pick up here in Q2. Undoubtedly some of that is due to lower travel and expenses.

But when you think about kind of how your long-term go to market motion has been changed either as a result of the pandemic or just the introduction of Answers.

How should we think about the sales efficiencies sticking around on the other side of the pandemic and into 2021? Is this a fundamental change, or there's some temporary items in there that might come back once the pandemic has subsided?.

Hey, Arjun, it's Dave Rudnitsky. I think a couple answers there. One, it's become pretty apparent that we're comfortable with our sales motion and work from home. I think it was more awkward for our clients in the beginning of this in early March where they were more uncomfortable working from home.

Many of my folks, particularly on the enterprise, have done this a lot in their career. And so we quickly adapted to it, but what I'm really happy about is the motion that we have, where we can be as productive. And I will tell you one thing and I've talked to my leaders about this.

Once we get past all this craziness, and it gets to some sort of sense of normalcy, we don't need to load the bus up anymore or the plane up anymore to do our jobs. We feel really comfortable with it. And I think the other part of your question was in terms of how it's changed particularly with Answers, we’re just getting a hell of a lot more fast.

I look at my pipeline for the AFTs and it goes across a bunch of industries that six, nine months ago, on this call, we would have been talking about, there's a number of professional services companies, there's state and local government, there's public sector, hardware companies, software companies, several professional sports franchises.

These are targets that we didn't have available without Answers. So, we get more of that. We have a reason to have conversations with industries we haven't done business with before. And as Howard mentioned in the opening comments, it brings along a huge attach rate for our existing customers. .

The only thing, I would add to that on the efficiency side as Howard mentioned earlier, we have the highest tenure than we've ever had in the sales organization. So, our team now is -- I've spent a lot of time since I've been here bringing in team and growing the team and now we have a tenured team. We've got an excellent enablement organization.

And so I think the efficiencies are definitely going to continue..

Our next question will come from Rohit Kulkarni of MKM Partners. Please go ahead. .

Hey, thanks and nice quarter guys. A couple of questions on the Answers, ROI and pricing.

Can you just talk about what's the feedback that you're getting from them? How is the ROI and how you feel about pricing Answers as a standalone or like a add on product to new customers or existing ones? I know you have mentioned in the past like capacity based or click based or usage based pricing.

Can you just walk us through your pricing right now?.

Sure, let's start with ROI. Because I think that's the most important. The ROI, like I mentioned before, what we do is we classify every question that a company gets as either revenue generating or cost savings. So, one of the ways that companies make a ton of money from Answers is by saving money from support questions.

Every time someone calls up customer support it can [Audio Gap] user by answering their question online, without a chatbot, by the way, without a live person to answer on live chat, by the way, which also has a cost. We're just talking about catching as many as possible with Answers.

And we can classify a question as doing so and then estimate how much they say whenever the user engages in clicks and show a cost savings. And then in addition to that, we also can classify queries based off of the industry that a company is in as revenue generating, it's a little bit like AdWords where you can see how many queries you got.

And you know what you're paying for those. But obviously, you don't pay for specific keywords here, but we show you those questions. And then we show you exactly how many clicks you got in those questions.

And then the user can either hook up conversion tracking where they can ascribe direct revenue through a specific query that they see through their e-commerce engine. Or alternatively, they're able to look in to assign what a click is worth.

And then they can see the total amount of revenue that they believe generated in the addition of those two numbers, the cost savings, plus the revenue generated is the economic impact. And the economic impact is typically very, very, very high relative to the pricing of what we charge for Answers, which is the model is capacity based.

So, it's based off of -- you get a bucket based off a number of queries that that you want to use. And for the customer since they get the free trial, we're able to see how many queries that the user -- that how many queries if you search is flat, meaning that when people start using Answers, there's a bump that goes up.

But then they know how many questions that they're going to need to -- how many searches they're going to need to buy. So it's obvious which bucket they should pick based off of the trial sample. What we see usually is between somewhere between 3x and like 100x economic impact versus the cost of keeping Answers. It's a very clear cut compelling case.

And that's just on a quantitative basis, it doesn't even contemplate the extraordinary customer intelligence and insights that the customer gets by knowing what people are asking them for. .

Okay, awesome.

And do you feel that from the conversations you're having, is the budget for Answers coming from the CIO's office or the CMO's office? Are you transcending kind of the budget set, otherwise would have been smaller now? You're getting into the -- more of a CMO's office budget that clearly has put into for upsell as such?.

Hey Rohit, it’s Dave Rudnitsky. We're seeing the budget come from a lot from the CMO, a lot from the CDO, the Chief Digital Officer. Answers brings us right to the heart of the conversation about a digital transformation, which is on the top of mind for all of those executives right now. .

This concludes our question-and-answer session. I'd like to turn the conference back over to Yuka Broderick for any closing remarks..

Thank you for your time, everybody. And we're looking forward to updating you next quarter. Have a good day. .

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