Good day, and welcome to the Yext First Quarter Fiscal 2022 Financial Results Conference Call. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Dominic Paschel, Senior Vice President. Please go ahead..

Thank you, Gary; and good afternoon, everyone. Welcome to Yext fiscal first quarter 2022 conference call. With me today are our CEO and Founder, Howard Lerman; President and Chief Revenue Officer, David Rudnitsky; CFO, Steve Cakebread.

Before we begin, I would like to remind everyone that this call may contain forward-looking statements, including statements about revenue, non-GAAP net income, operating margins, product roadmap getting timing, demand for our products, net dollar retention, 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 growth, the evolution of our industry, our product development and success, including with Answers, and general economic and business conditions, such as the impact of COVID-19 - the COVID-19 impact.

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 quarter and annual reports and other press release that was issued this afternoon. During the call, we 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..

Thanks, Dom. I am pleased to report we're kicking off the new fiscal year with a very strong quarter as the world gets back to business.

Revenue of $92 million exceeded the high end of our guidance by $3 million and non-GAAP EPS exceeded the high end of our guidance by $0.03 as we continue to reduce our operating costs, while increasing our business efficiencies and strength of our cash position.

Non-GAAP sales and marketing expenses decreased by 500 basis points as a percentage of revenue from 59% in Q1 last year to 54% this year, driving continued leverage, and net cash flow from operations for Q1 was a positive $35 million. Yext is in a great position to bring AI search to the enterprise as the world begins to reopen and return to normal.

There is a renewed sense of energy here at Yext. We've opened a number of our offices back up including our new headquarters in New York City. It's been amazing seeing teams off Zoom and working together in person. The excitement is palpable.

We've also expanded our Answers platform and have an absolutely incredible product roadmap that will allow us to deliver our AI search solutions everywhere across the enterprise.

As we said at Investor Day, we intend to solve five specific search use cases; Marketing Answers, Support Answers, Developer Answers, e-commerce Answers, and Workplace Answers. We continue to lead closing deals with Answers. During the first quarter, we closed 69 Answers led deals, up from 14 a year ago as we see momentum building.

With Answers search queries growing to more than 25 million, Yext is well along its way to becoming a global leader in search and specifically AI search. Enterprises are increasingly selecting Yext for AI search for three reasons. First, we are natural language and knowledge graph-based.

Nearly every other search technology is based on legacy index-based keyword search and while others serve blue links, kind of like Yahoo or Lycos from the '90s. We understand questions and offer a Google-like experience with Answers. Speaking of Google, the second reason customers choose Yext is because of our federated architecture.

For each query, we run multiple algorithms and return multiple sets of results. Think of a Google search results page that may contain featured snippets and maps and knowledge cards and more, that's exactly how Yext works. And it presents the user with several potential Answers that change depending on context.

Third reason that customers are choosing Yext is because of our low code easy set up. Anyone can easily set up a search engine without building their own. We continue to make rapid progress in advancing our Answers platform. And, during the quarter, we announced one of our most significant platform updates in history.

Our spring update added features like Extractive Q&A, a website crawler, data connectors and developer tools for Answers. These features have enabled us to expand into support search with our Support Answers offering. Support Answers is a game changer and our timing couldn't be better. Take a look at some third party reports.

Forbes noted that $75 billion is wasted on poor customer service every year. By 2022, Gartner estimates 85% of customer service interactions will start from self-serve, up from 48% in 2019.

But the most exciting data point is the Harvard Business Review estimates 81% of all customers attempt to take care of matters themselves, because they don't want to reach out to a live representative.

Who wants to call 1-800-Amtrak? Having advanced support search means customers and support agents can swiftly find direct answers to questions and increase call deflection. They can reduce support tickets and lower costs, all while driving up customer satisfaction.

They will also give support teams more confidence as only 36% of service professionals feel fully prepared to handle a surge in service and support cases and just 39% feel fully prepared to handle increased case complexity. AI-powered support search solves a real pain point for the enterprise and our sales team have already begun closing deals.

In fact, in Q1, we closed two large Support Answers deals with Altice and Samsung. Altice added Support Answers to their existing Answers marketing solution set and now they have an internal and external search solution. Samsung, it's a new logo and they've included Support Answers in their first deal with Yext.

We are really excited about the new opportunities this solution will unlock now that we've officially rolled it out to the market. I couldn't be prouder of this company's focus and adaptability over the last year. We vastly expanded Yext opportunity with our advancements in AI search. We did all this while becoming more efficient.

We have an incredible team and innovative platform and great momentum. I've never been more excited about our company and I am confident that Yext will play an important role in helping businesses accelerate their growth through AI search in a post-pandemic world.

With a successful Q1 and with our marketing and support search solutions in market, we're just that much closer to fulfilling our mission to transform the entire enterprise with AI search. With our Marketing Answers and Support Answers solution, we've now established our presence in two of the five AI search categories.

And you should stay tuned for the rest as they launch throughout the summer and the rest of this year. And, with that, I will turn the call over to David Rudnitsky, our President and Chief Revenue Officer, to share more details from the first quarter..

Thanks, Howard. I'm pleased to share that we're off to a strong start to the year. Many regions and channels across milestones experiencing early signs of back to business tailwinds and momentum.

We're leading from the front with our Answers platform and we're in a really good position to bring AI search to our customers and prospects as the world reopens. As we like to say, we're back to biz with new logos, the Answers platform adoption and notable upsells. Despite Q1 being a seasonally low quarter, we saw a strong performance.

Now, I'll take you through the details and share some highlights. The total number of Yext direct customers, excluding SMB and third-party reseller customers, increased 22% year-over-year to over 2,500. This is a very good indicator that customers and prospects are starting to map their post-pandemic strategies, which include Yext and the reopening.

Last quarter, we shared a new metric for deals that closed during the quarter with ARR over $100,000. Our direct, excluding SMB and reseller customers, with ARR over $100,000 totaled 570 at the end of Q1, up 19% year-over-year, reflecting continued success with larger customers.

Our new logo signings included Focus Brands, GNC, REEF Technologies, Samsung, Publix and Constellation Brands. As Howard mentioned, Samsung and Focus Brands were among the first new logos to include Support Answers. Both of these deals were more than five times larger than the average new logo Marketing Answers deal.

Also, of note, we signed our largest mid-market new logo deal ever in the history of the company. Enterprise Support is a big-ticket item and I would expect that our entry into Support Answers will lead to a larger deal sizes and upsells. Howard also mentioned as an early example, Support Answers drove significant upsells from Altice and Asda.

In terms of upsells, although not back to pre-pandemic levels, we see customers leveraging the entirety of our platform to drive their key initiatives. For example, in Q3, we talked about a top three financial services institution signing a multi-year multi-million-dollar deal.

This past quarter, they signed yet another multi-million multi-year deal for Intent Pages. Other notable upsells during the quarter included Toronto-Dominion Bank, UK-based Boots Pharmacy, international logistics and delivery company DHL, Baylor Scott & White Health, and Vodafone.

Notable renewals included one of the largest hotel chains Choice Hotels International as well as Kroger's, Salvatore Ferragamo, QDOBA Restaurant Corporation, Jiffy Lube, The United States Postal Service, KFC and Verizon. Verizon also had a substantial upsell. We're especially proud of supporting our customers and industries hit hard by the pandemic.

Yext work together with them during the depths of the lockdowns and now standby to support them as they get ready to fully open their doors again. We continue to see momentum with the Answers platform with 69 Answers led deals closed in the first quarter, up from 14 deals last first quarter when Answers first became generally available.

This included one of our first Answers deals in Japan with Casio, where Answers was only recently released in the second half of last year. Casio is using the Yext to deliver answers to questions accurately in five languages reducing support costs. Following a challenging 2020, the team is starting 2021 with renewed enthusiasm and confidence.

As I mentioned in my opening comments, we're in a really good position as the world reopens. With that, I'll turn the call over to Steve..

Hi, Dave. Thank you. As Howard mentioned, we had a strong quarter with revenue above our guided range, strong cash flow and continued operating efficiencies. But let's keep in mind, Q1 is our seasonally low quarter and there still are macroeconomic headwinds with continued geographic lockdowns through now.

Our first quarter revenue grew 8% year-over-year to $92 million, unearned revenue increased 22% year-over-year to $187 million, and we feel we have seen the trough given the pandemic over the last year, hence are anticipating the increased growth going forward.

Annual recurring revenue at the end of Q1 was $370 million, that's up 14% year-over-year from the year ago quarter. Our total trailing 12-month net dollar retention, which excludes our SMB customers, was 99% and our trailing 12-month net dollar retention for direct business, which excludes SMBs and third-party resellers, was 101%.

Keep in mind, our net dollar retention in Q1 reflects muted upsells over the last year, which is something we've spoken about on prior calls and in our Investor Day. And also note that our net retention is a trailing 12-month number and includes the onset of the pandemic.

Monthly net retention seem to have bottomed out in February and we'll be looking for signs of improvement going forward. Turning to non-GAAP results, which are reconciled to our GAAP in our press release, Q1 gross margin was 77.8% this quarter. That compares to 76.6% in the year ago quarter, improving 120 basis points.

The increase in gross margin was primarily driven by leverage from lower publisher fees that was partially offset by higher employee and data center costs. Q1 operating expenses were $74.2 million or 81% of revenue, and that's down from the $77.2 million or 90% of revenue in the year ago quarter.

We continue to execute on cost management and efficiencies this quarter and drove year-over-year margin leverage and OpEx line items.

Sales and marketing expenses decreased 500 basis points as a percent of revenue from 59% in Q1 last year to 54% in Q1 fiscal year 2022, and G&A expenses decreased as a percent of revenues from 19% in Q1 last year to 16% in Q1 this year.

Compared to the year ago quarter, the primary drivers of our operating expense decreases continue to be leverage on our employee cost, we do spend on travel events. As we've said previously, these are sustainable changes that will drive our operating margins higher over time.

These efforts include reduced selling cycles, productivity enhancements through-system and process improvements, and we're encouraged by the stabilization of business and improving demand environment and we will continue to invest in innovation and revenue growth opportunities.

Our Q1 net loss was $3 million compared to $11.9 million loss a year ago and our Q1 net loss per share of $0.02 compares to a $0.10 loss in the year ago quarter. Cash and cash equivalents were $272 million at the end of the first quarter. That compared to $230 million at the end of fiscal year 2021.

We continue to have a strong balance sheet and we're well positioned to invest in our growth that we expect going forward. Net cash flow from operations for Q1 was a positive $35 million. That's compared to a negative $1 million in the year ago quarter. And CapEx was $7.5 million. That compares to $21.3 million in the year ago quarter.

And keep in mind, $6 million of that is for 61 Ninth. Fiscal year 2022, we expect total CapEx to be about $15 million. As a percent of revenue, we expect CapEx to return to more normalized run rates closer to our historical levels. Now turning to our outlook. We expect Q2 revenue to be between $94 million and $96 million.

We expect non-GAAP net loss per share to be between $0.07 and $0.09 loss having a weighted average basic share count of approximately 127 million shares in Q2.

For the full year, fiscal year 2022, we expect now revenues of $381 million to $386 million, and our non-GAAP loss per share range remains as we guided last quarter and is expected to be between $0.17 and $0.22 loss. This assumes a basic weighted average share count of approximately 128.2 million shares.

As the economy begins to reopen, we stand to benefit from both the return of our cordless teams growth as part of our Marketing Answers solution, but even more excited for the future and our other solutions like Support Answers. We are optimistic about our roadmap and our new Answers solutions coming to the market.

We believe we're well positioned for future growth and plan to reinvest our Q1 upside back into the business as we increase our brand and market awareness and build on our strong start to fiscal year 2022. With that, operator, let's open the call to questions..

[Operator Instructions] Our first question is from Ryan MacDonald with Needham. Please go ahead..

Hi. Good afternoon, Howard and Steve. Congrats on a nice start to the new year.

As it relates to the Support Answers and some of the early momentum you're seeing, you talked about the ability to upsell the existing customer base and some pretty impressive numbers in terms of larger deal sizes, can you talk about how we should think about the potential uplift as Support Answers matures within the marketplace?.

Thank you, Ryan. We did have a strong quarter and Support Answers we launched sort of in beta throughout the quarter and then in the last couple of weeks we've begun to roll it out into the market. There are five categories of search. We have Marketing, Support, e-commerce, Developer, and Workplace.

And presently, we participate in Marketing Answers in a big way with our listings product underneath that. And Support Answers, we just kind of got going here. And one of the neatest things about Support Answers is, first off, every company needs to be able to offer digital customer support.

Some of the stats we shared, the demand for support is exploding.

I was talking to the CEO of one of the biggest support clouds on the planet a couple of months ago or actually last month, and he told me that just the number of tickets is exploded and anything a company can do to deflect the number of tickets coming in is very important and there's various tactics you can do that - to do that, but search or being able to answer a question at that moment where the consumer is looking for something is a huge way to deflect calls or deflect tickets.

And so there is a few different sub-solutions within our Support Answers solution, but the first thing is a search on the health side to be able to say, hey, I'm looking for how to log in. Well, I can easily get an answer to how to log in, that's a basic question. What's my password. How do I reset it.

These are basic things that people are asking all the time. A second place and this is kind of cool is a case call deflection. That is when the user is filling out a support ticket.

We are scanning the text, we're taking in and we are automatically suggesting answers that may be relevant to them on the right, so that as they do that, as the user is filling this out, they might decide not to fill in the ticket, because they can see the answer right in front of them.

So every company needs to offer support and every company we believe ought to be offering Support Answers. We're really excited about this application. And just one more point. The technology that made it possible for us to be able to do this is our Extractive Q&A, which we've launched in the quarter.

An Extractive Q&A essentially is our - it's a new algorithm. What it does is, it can take unstructured text and deliver an answer from unstructured text.

And here is the example, if you go to help.yext.com, you can see our own support site there using our own Support Answers and you can type in a query like how often does the Yext suppress duplicates? And you will see us pull up once a month. It's kind of like a featured snippet in Google.

So that data once a month is not sitting in Yext in the knowledge graph in a structured way, we're sucking that out of the Answers, sucking that out of a support article which is in the knowledge graph and showing the user where we think the answer is in answering the question, even though the data was not structured in the first place.

This is a huge breakthrough, because most of the answers in support are living in the knowledge base which are long articles that company has published to their help sites and we think that with Yext you can one click and bam, you'd be able to add a Support Answers box to the top, deflect calls, increased customer satisfaction, give users the answer that they want..

Ryan, this is Steve. I think, as Dave said, the contract sizes look exciting, because they seem to be a little bit bigger than what we experienced in the past, which is great, because we do have now a broader solution to sell.

The second point I'll just point out is, this is a SaaS model, so we're excited about the products and certainly we've got some really name brand customers like Samsung coming on board. But just keep in mind, it is going to take some time to manifest these into revenue over the next year and Support Answers just came out. So we're excited about it.

It's going to sustain the longer-term growth trajectory. In the near term though, it's still going to - we've got a lot of work to do to make sure this product is successful going forward with our customers..

Super helpful. Thanks. As a follow-up, you talked about listings a little bit, but just curious what you're seeing in terms of trajectory of conversations and pipeline for that offering? I noticed you offered or offering the back to biz program to enable some special pricing for customers.

What sort of feedback and sort of action are you getting off of that sort of promotional opportunity? Thanks..

Hi, Ryan. It's Dave Rudnitsky. We are seeing a real strong reception to it. The fact is a lot of companies are saying they want to get back to biz, but you have to be prepared to get back to biz and what does that mean.

And they've come to us for a whole bunch of things, and one of the thing that we've seen with the promotion is, it's gotten their interest but they've also taken a look at our platform and said, well, there's a lot of other things you could do for me.

For example, it's not only making sure that all your information digitally is up to date, because they haven't engaged with their customers in a while.

And so there is a - they take - the lot of them haven't taken a look at our reputation management and the ability to start to manage reviews and get feedback and generate views, they haven't tested their brand with their customers, some for almost 18 months, and the interaction they've had with their customers has been very different over that period of time.

So what we're seeing is a strong interest. It's opening up a lot of opportunity for us. They are opening up doors that we hadn't opened up before. And, for us, the exciting part is, it's quickly evolved in a lot of those cases into a platform discussion for other things that can help them as they really do get geared up to get back to biz..

The next question is from Naved Khan with Truist Securities. Please go ahead..

I have few questions. So maybe wanted to touch on the upsells. So, Steve, you talked about how upsells has been muted during the pandemic, just curious in terms of reopening and the effect on upsells if you're starting to see an uptick here in the recent month or two? Any color would be helpful..

Yes. I think - and Dave can add to this. I think we're starting to see that, yes, but keep in mind through our first quarter things were pretty much shut down. Now things are starting to come back. People have to get back and get their businesses set up, as Dave described, and get going. So I would anticipate both.

And keep in mind, our listings business with franchises and others that will take a while for them to get going to where they're adding more franchise locations, et cetera, to their businesses. So on the Marketing Answer side, that upsell might be a little bit longer.

The flip side has been able to go in with Support Answers and talk to customers will start to help us. But those deals do take a little bit of cycles. And so, I think, going forward, we'll see it, but we're going to be thoughtful about not expecting a two quickest businesses have to regroup a little bit to get going again..

Yes. And, now, I would just - it's David, just add to that. We are starting to see particularly those Answers customers start to add more capacity, the original Answers site search customers, because they were well prepared for this digital transformation.

They really started laying the groundwork and we're starting to see, if you look at some of our upsell deals, some of them are really exciting in terms of what we're starting to add to it and it's not just - really literally it's across the board in terms of product offering. So we're seeing a renewed sense of enthusiasm.

Everyone wants to get back there. They're not all back yet, but I can tell you there is a real desire to get there and we're there to help them as they start to on-board their way to get to that - nearly get back to biz..

A follow-up question I had was maybe just the outlook and what's kind of baked in there. So, Steve, you increased the outlook somewhat, but you still sounded a little bit cautious.

So what are the different puts and takes? And how should we think about that from the outside looking in?.

Sure..

And with respect to the impact from the reopenings, it seems like that's a tailwind.

How should we think about that both for the US and international as that also starts to reopen?.

Yes. No. That's the challenge here is, we're all sitting here with vaccines and openings, et cetera, but business has to do more than that. And so, we've been very thoughtful about our guidance right now.

We want to see the business continue to grow and expand and come to us, but we also know there is a number of people that I know in the restaurant business that really believe in openings, but they are also cautious about the government has done this before.

I don't think that's going to be the case this year, but we're just going to be really thoughtful on our guidance about how quick our business and our customers can come back. Certainly the Support Answers is on a different trajectory, but we've got to see that happen.

And so, I think, you'll just see us continue to be thoughtful about our guidance here. But, as I said, ready to invest as we see the growth coming at us, and that's reflected in our spend guidance for this year. So feel good about the year, but we're also going to tiptoe into this somewhat cautiously and wait for the businesses to come to us..

And if I could, maybe in terms of the reopening and how you shouldn't be thinking about that.

So have you seen sort of a perceptible change in the duration of the sales cycle, things kind of closing more quickly or is any of that happening?.

Dave, you want to speak to that?.

Yes. Here we have - there is - we have started to see some customers come back and some prospects come back and want to spin it up very quickly to get going.

One of the things that we've done to help them do it as we've published a checklist by industry of things that we know they need to do digitally to help with the reopening and I've gotten feedback from both customers and prospects. It would be very helpful as they thought about accelerating the reopening plans..

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

I wanted to just maybe touch on the Samsung win in a little bit more detail.

I would love to hear if there was anything that Support Answers actually replaced or if this is kind of a net new area of investment for them? And then just broadly, maybe, as you think about the Support Answers, do you think of that as a vehicle for net new logos to Yext or should we expect there to be more of a cross-sell either into Marketing Answers or are you going into Listings?.

Thanks, Arjun. I'll take the question. As we said at Investor Day, there are five categories of search; Marketing, Support, Developer, e-commerce, and Workplace. Workplace search is internal. That's looking up an employee or looking within assistance. Developer enables developers to add search to their apps.

If you're using a popular app or not a popular app and you're developer and you're building one, you might want to add a search function or feature to your own product. e-commerce is self-explanatory, that's looking up products to buy.

And then Support is looking up when you're a customer, looking up answers and that's sold generally to a customer support or support solution type of company, head of success, customer success. And when we compete, our vision is to compete against every company that has - well, let me actually take a step back. We said this at the Investor Day too.

All the key - all the searches that you use today are all based off a technology called Lucene. Unless you are using Google, which is not participating in the enterprise like this or you are using Yext. With the open source platforms like, for example, Solr, you are based off a technology called Lucene, which is an index-based keyword search.

So we typically disrupt any search box that returns blue links with our natural language AI-powered answer search and we can understand questions, we can deliver multi - a universal search result with multiple components from a federated architecture that comes back.

If you think about when you run a Google search for something like McDonald's, you'll see a bunch of different things they give you back.

They give you rich snippets, they give you People Also Ask, they give you maps, they give you knowledge cards, these - every time you want to search on Google, it doesn't run one algorithm, it runs multiple algorithms.

And so who we fundamentally are competing against is in old way, it's a keyword search, which is based on Lucene which powers open source things like Solr, open source things like Elastic, and the Yext is a better and a faster and cheaper solution.

We're able to stand up off the knowledge graph, a supports box or marketing support search or marketing search box really easily with low code. You can easily push facts into your knowledge graph.

You can now look unstructured text, I've talked about our Extractive Q&A algorithm and then you get a universal search result that has different components back to it.

And that as compared to what was there usually before, which is a keyword-based search is kind of night and day, and it's night and day in terms of CTR click rates transactions and call deflections and customer satisfaction. So we are competing with keyword search.

Everywhere in the world, you see a box that returns you blue links, that's where an AI-powered search firm Yext opt to replace it..

Okay. Understood. And then maybe one for Steve.

I noticed that the RPO number kind of had a nice pop in Q1 and the growth, which is already at a much faster rate than we saw in ARR or revenue even, how should we just think about that delta and what it represents here in Q1?.

Yes. Well, certainly, we had a good bookings quarter, that helps, but also we're seeing our contract life get out a little bit farther than we've typically seen, which is also good, so we're getting signing non-recurrent contracts and, as you know, that plays a part of this as well.

So I think it's a combination of a strong quarter, but also we're seeing longer contracts on renewals..

The next question is from Stan Zlotsky with Morgan Stanley. Please go ahead..

Actually it was the follow-up to that question just now. Similarly, and there is a pretty big disconnect in the growth of billings and ARR.

What are the dynamics of the billings? That showed obviously a pretty massive inflection in the quarter, is there some kind of catch-up in some of the billings from last quarter or anything else that we need to be mindful of?.

Yes. Stan, unfortunately, you know this from the past, but I'm not a big fan of your billings calculations methodologies. That's why we want to ARR. I think ARR clearly is a better reflection of our business and our growth going forward..

And just as far as like the Answers product, obviously, you're seeing very strong momentum there.

When you think about the Answers products, how are you thinking about it as far as thinking directly versus getting partners involved and how do you think that partner-centric strategy evolved as you move forward?.

Well, first, Stan, thanks. We have a great partnership with Adobe.

As I think we've said before and you know, we partnered with them, with pretty much most of the major CMS partners that are hosting websites and Yext is capable of being able to bring in a search solution that's knowledge-based and AI-based and natural language based on top of any unstructured content or unstructured CMS.

And so, Adobe is a partnership. You should also stay tuned to see some partnerships in the Support Answers world. It is obvious that there is a few big players that we think we can suck in their articles into our help sites and - I'm sorry, their help sites into our knowledge graph and help our customer, joint customers succeed with Support Answers.

So you should stay tuned for some product partnership announcements coming soon..

This concludes our question-and-answer session. I would like to turn the conference back over to Dominic Paschel for any closing remarks..

Awesome. Thank you, Gary. We appreciate every one's time today. We understand it was a busy night and we are looking forward to the coming announcements that we have around the future product road map. If you have any questions, please email ir@yext.com, and we look forward to chatting with you in the coming quarter. Thank you, Gary..

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