Operator: Good afternoon, and welcome to the Yext Fiscal Second Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Nils Erdmann, Senior Vice President, Investor Relations. Please go ahead.

Nils Erdmann: Thank you, operator, and good afternoon, everyone. Welcome to Yext’s fiscal second quarter 2024 earnings conference call. With me today are CEO and Chair of the Board, Mike Walrath; President and COO, Marc Ferrentino; and CFO, Darryl Bond. During this call, we will make forward-looking statements, including statements related to our future financial performance, expectations regarding the growth of our business, our outlook for the third quarter and fiscal year 2024, our strategy and estimates of financial and operating metrics, capital expenditures and other indications of future opportunities, as further described in our second quarter earnings 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, 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. For further information on factors and other risks that could cause actual results to differ materially 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 July 31, 2023, and our press release that was issued this afternoon. During the call, we also refer to certain metrics, including non-GAAP financial measures. Reconciliations with the most comparable historical GAAP measures are available in the earnings press release which is available at investors.yext.com.

We also provide definitions of these metrics in the earnings press release. I will now turn the call over to Mike.

Mike Walrath: Thanks, Nils, and thanks everyone for joining us today. I’ll start by highlighting our continued momentum in Q2, followed by a discussion of progress we’re making with our sales and marketing initiatives, and then I’ll cover some of our expectations for the back half of the year. In Q2, we delivered results that were consistent with or slightly ahead of our expectations. We generated revenue of $102.6 million, non-GAAP EPS of $0.07, and $11.8 million of adjusted EBITDA. Our performance in the second quarter demonstrated a balance of operating efficiency and profitability consistent with the strategy we outlined last year. In Q2, total ARR grew 3% year-over-year and direct ARR was up 5%. Sales productivity and execution are continuing to show improvement and I’m pleased with the progress we’re making in our end-to-end demand generation efforts.

Our go-to-market transformation remains a work in progress where we are executing well and beginning to see increases in total and qualified pipeline production. Our midmarket team who calls on smaller enterprise customers continues to execute well consistent with the progress we saw from this group in Q1. We continue to believe this momentum will eventually carry over to larger enterprises so it is likely to take longer in the current macro environment. Customer buying trends, budget scrutiny and prolonged closed processes with multiple decision makers are still the norm and the larger the enterprise, the more of these factors repeat the sales cycle. Interest in our digital experiences solution is building. We see measurable increases in total pipeline year-over-year.

However, we have not yet seen buying trends from larger enterprise customers re-accelerating. Our assumption is that enterprise deal cycles, budget pressures and close rates will remain challenged through the rest of the year. Further, this budget scrutiny and caution impacts every renewal as well. RFPs, large buying committees and procurement engagement are more prevalent, and in some cases, cost-cutting efforts within customer accounts are severe. This coupled with headwinds and shedding unprofitable services revenue and the decisions we made last year to de-prioritize direct SMB sales and Japan market will continue to challenge our ARR growth and retention through the end of the fiscal year. A different dynamic is at play with our reseller channel.

We are seeing some positive indicators from our reseller partners and there continues to be interest from resellers in our non-listing solution. At the same time, there was a drop in ARR from our reseller business in Q2 that was attributable to a single customer churn from an M&A event. Absent this customer churn, our reseller ARR would have ticked up slightly from the first quarter. We continue to believe that there is an opportunity over the long-term to grow ARR in this channel, though our primary focus for the time being remains to optimize and accelerate our direct business. As we discussed in March, we expected to see improvement in our go-to-market execution first in sales productivity, then in qualified demand generation, which creates a framework for accelerating growth.

We are encouraged to see both an improvement in sales productivity and an increase in qualified demand. We will use these signals to determine the right time to invest in sales capacity. As of today, we do not feel constrained by our sales capacity and continue to be laser-focused on improving the performance of that organization. The value proposition of our DXP is resonating with customers. As we mentioned in previous quarters, our campaigns are helping open the door at smaller and large enterprises. Executives are interested in finding AI-enabled solutions to enhance their digital experiences, yet many businesses lack the highly specialized technical expertise to realize its transformational power. Yext summer release features DXP enhancements that leverage AI within chat, content and reviews, which Marc will discuss in more detail shortly.

Our continued focus on margin improvement has enabled us to grow our bottom line and execute with a greater level of consistency. The total of our expenses in the second quarter, including both non-GAAP cost of revenue and operating expenses decreased roughly 9% year-over-year. Overall, we experienced business conditions in Q2 that were similar to the previous several quarters, if not a bit more challenging. We achieved year-over-year growth with a smaller sales organization which indicates that our emphasis on productivity is having the desired effect. We’ve made steady progress in Q2 despite a continuing cost-conscious demand environment. And as our go-to-market and demand gen engines begin to ramp, we’re looking forward to picking up momentum, but remain very cautious about the environment in the back half of the year.

Our team remains committed to growing our business profitably and managing efficiently. Considering the continued macro uncertainty, our outlook remains the same as it was when we reported our first quarter results. But given the improvements we’ve made across the organization, we remain confident in our long-term growth opportunities. Pleased to announce that our Board has approved an increase of $50 million to our share repurchase program. This is an addition to the $100 million that we have been utilizing to buy back our stock since March of last year. Our ability to manage the growth of our business while also generating value for our shareholders, highlights the strength of our balance sheet and our ability to generate cash flow. Once again, I would like to thank our entire global team for their commitment in bringing about these results, and I’m grateful to our customers, partners and our shareholders for their ongoing trust and support.

With that, I’d now like to turn the call over to Marc.

Marc Ferrentino: Thanks, Mike. We continue to innovate and deliver powerful solutions across our digital experience platform to new and existing customers looking to meet new market demands and customer expectations. A big accomplishment during the quarter was our summer ’23 release, which featured DXP enhancements to simplify how companies generate experiences for any customer across, both owned and third-party channels at scale. As part of the summer release, we changed the name of the knowledge graph to Yext Content. We believe Yext Content is the first headless CMS built on a foundation of AI and knowledge graph technology. Content includes enhancements to expand how companies can use AI to generate any experience across both owned and third-party channels all from a single headless content management system.

We also added AI-generated responses to reviews. Consumers make buying decisions based on reviews and search engines use them as a critical input for ranking results. AI-generated review response is a new capability within the product that enables businesses to use AI to scale small teams and respond to reviews. Now using their own unique data, companies can automatically generate individualized responses that are on brand and contextually appropriate according to analyzing tone and sentiment up-post across any channel. The general availability of the summer ’23 release was announced on July 31, and while still early, the responses from customers across a range of verticals and regions has been extremely positive. Interest in our suite of AI-enhanced services has opened doors with new and existing customers and awareness of our DXP platform and its capabilities continues to build.

To add to this, during the second quarter, our marketing team launched DX new annual global campaigns targeting key personas in marketing, support and IT. The three fully integrated global campaigns focus on the importance of having a modern, composable, best-of-breed architecture powered by headless CMS and showing the possibilities of what customers can build with our AI-led digital experience platform. We are already seeing a positive impact. For instance, we have seen 500% more event registrations in the first six months than we had all of last year, and over 70% of the contacts engaging with our campaigns are new DX. Initiatives such as these campaigns are driving measurable impact on our marketing pipeline while also creating more efficient alignment across our various teams to deliver content with coordinated messaging and targeting.

On the go-to-market side, in the second quarter, we closed several significant upsells and had several boomerang customers returning to Yext. Here are a few examples. Benefit Cosmetics, which is an existing Yext customer who we began renewal conversations with over nine months ago to help understand how we could help them to get the most out of the Yext platform. Leveraging Yext analytics, we were able to show them increased value from their locations using reviews and ultimately expanded our relationship globally across the Yext platform with an upsell that included a combination of listings, pages and reviews. Guaranty Bank & Trust is another terrific example of our team starting conversations months in advance to identify and solve customer pain points.

We were able to win back the listings and reviews business of Guaranty Bank & Trust from our competitor with a full platform solution that also includes pages and search. A preeminent international postal service provider expanded their relationship with Yext for new directory pages following a pages rebuild, new store locator, and a new pages launch. We were able to help a global provider of diagnostic information enhance their customer experience by upgrading our partnership to include location pages. Over a period of 12 months, our team showcased how Yext could provide incremental value by enabling them to optimize their pages, enhance their search rankings and help their customers more easily identify the right providers and facilities.

An international CPG company was another renewal that developed into full platform adoption. Through our unique integration of search, we were able to show how our DXP platform can help the customer expand in to new markets, enhance communication across organization and quantify the business value driven by Yext through our analytics tools. [indiscernible], an existing healthcare client leveraging Yext solutions to help customers find providers and facilities expanded their relationship with Yext to include a third division after we won two divisions earlier this year and added universal search as part of their increased adoption of our platform. In addition to these upsells, we had several new logo wins during the quarter. Columbia Sportswear needed a more accurate listings provider, and we were able to create a full solution and win the business by providing additional data-driven insights and analytics to help improve their customer experience.

In another instance, we went head to head with two competitors in a bid for the listings business of a European leader in electric vehicle solutions. DX ultimately won the business due to our understanding of their back-end systems and our ability to submit accurate data to our leading publisher network. A code hosting platform for version control and collaboration was a unique new logo deal during the quarter. They ran their own search evaluation via a free trial and self-directed implementation via our hitchhiker training community. Yext was selected out of a number of competitors due to the clear and easy-to-follow documentation and low-friction sales process. And finally, a large public university medical school was working with a different listings provider but switched to Yext because of our ability to improve their current patient experience through our superior technology, transparency and control.

I am very pleased with how our teams are executing, particularly given the pace of innovation. We are prioritizing the development of solutions that will help companies keep abreast of the latest in digital experiences enabling our customers to provide best-in-class services. Now, I’ll turn the call over to Darryl.

Darryl Bond: Thanks, Marc. I’ll start with a review of our second quarter results before moving on to our guidance for Q3 and the full year fiscal ’24. Revenue for our second quarter grew to $102.6 million, up 2% on an as-reported basis, or 1% in constant currency. Our growth in Q2 was driven by continued demand in our direct business. As of the end of Q2, our customer count for direct excluding SMB was approximately 2,980. Annual recurring revenue or ARR was $397.7 million, up 3% year-over-year, or 2% in constant currency. Direct customers represented 82% of total ARR. Direct ARR at the end of Q2 totaled $327.2 million, an increase of 5% year-over-year, or 4% in constant currency. Third-party resellers, which represented 18% of total ARR at the end of Q2 delivered ARR of $70.5 million, a decrease of 6% year-over-year, or 7% in constant currency.

As Mike mentioned earlier, a significant portion of the decrease was the result of the merger of two of our reseller partners. This accounted for roughly half of the year-over-year decrease, and without this churn, ARR would have increased sequentially compared to the first quarter. As of the end of Q2, our net retention rate, which is calculated on the basis of IRR was 98% for direct customers and 92% for our third-party resellers. Turning to non-GAAP results, which are reconciled to GAAP in our earnings press release. Q2 gross profit was $81 million, representing a gross margin of 78.9% compared to 74.5% in the year-ago quarter. As we’ve mentioned previously, the improvement relative to last year was largely attributable to the organizational changes within our services organization, which was a process we kicked off in Q4 of last year.

We expect our gross margins for the remainder of this fiscal year to remain at the high end of our 75% to 80% range. Our operating expenses in Q2 were $73.6 million, or 72% of revenue compared to $78.6 million, or 78% of revenue in the year-ago quarter. The key part of our operating expense discipline has been the realignment of our sales and marketing team. And our sales and marketing costs as a percentage of revenue were 42% in Q2 compared to 48% in the second quarter of last year. Our Q2 net income was $8.1 million compared to a net loss of $3.9 million in the year-ago quarter. Our Q2 net income per basic share was $0.07 compared to a net loss of $0.03 per basic share in the second quarter of last year. Cash and cash equivalents were $201 million at the end of Q2 compared to $217 million at the end of the first quarter.

The decrease in our cash balance was driven in part by continued share repurchases in Q2, which totaled $6.4 million, or 700,000 shares. Since the commencement of the program, our share repurchases have totaled $88 million, or 15.1 million shares. With the additional $50 million authorization, we intend to continue buying back our stock at attractive prices. Net cash used in operating activities for Q2 was $7 million compared to $25.2 cash used in the year-ago quarter, and our CapEx was $600,000 compared to $2.2 million in Q2 last year. Turning to our outlook for the third quarter and full fiscal year 2024. Our guidance assumes that the challenging macroeconomic environment and its effects will persist throughout this year. As of today, for the third quarter, we expect revenue in the range of $101.5 million to $102.5 million.

Adjusted EBITDA in the range of $11.5 million to $12.5 million, and non-GAAP EPS in the range of $0.06 to $0.07, which assumes a weighted average basic share count of approximately 125.1 million shares. For the full year fiscal ’24, we expect revenue in the range of $405 million to $407 million, adjusted EBITDA in the range of $50 million to $52 million and non-GAAP EPS in the range of $0.29 to $0.30, which assumes a weighted average basic share count of approximately 124.8 million shares. We are now ready to open up the line for questions.

Operator: [Operator Instructions] Our first question is from Tom White with D.A. Davidson. Please go ahead.

Tom White: Great. Thanks for taking my questions. Two if I could. I guess, first off on the direct business. So ARR growth slowed a bit versus last quarter, but looks like net retention kind of improved a bit sequentially. Mike, can you maybe just provide a bit more color on your initiatives to kind of sell into new logos? Just curious to what extent you’re seeing elongated sales cycles or reticence from enterprises due to the macro. And kind of what’s the balance between that potential dynamic versus the various operational initiatives you guys are implementing around kind of changing the sales force to go to market, et cetera? And then I have a follow-up on the reseller. Yes.

Mike Walrath: Sure. So thanks for the question. So I think there’s a couple of things at play there. So obviously, we talked earlier when we – a couple of quarters ago about the changes we made and the expected headwinds to ARR and revenue growth and things like that from services changes, Japan, SMB. And I think we’re seeing those and I think we pointed out last quarter as well that the vast majority of those impacts are in the renewal book. And as we’ve talked about before, the vast majority of the bookings in the second half of the year. So it’s not surprising that we would see those impacts starting to land as we get into the second half of the year and it kind of ramps as we go through the year. As far as the macro goes, I mean, we’re seeing it with new logos, we’re also seeing with the existing customers, particularly on the larger enterprise side of things, but really throughout the market.

There’s just more scrutiny. There is more budget pressure. I think there is more conservatism coming out of the enterprises and it causes more discussions about where is the budget for incremental opportunities coming from whether those are new logo, upsell. And in some cases, we’re seeing cost-cutting pressure within existing customers and we’re reacting to that by making sure that we’re positioning ourselves as the best possible partner opportunity to consolidate services. And even within the broader landscape, we’re seeing – even within a specific industry, we are seeing some companies are taking the opportunity to be much more aggressive about expanding their digital experiences. some are being more cautious and others are being – doing things that they acknowledge are probably long term the wrong things for their digital experience – customer experiences.

But they’re just under – some of these businesses are under extreme cost-cutting pressure. So it’s a mixed bag of all those things. I think as I said earlier, we’re probably seeing it, if anything, a little bit worse in Q2 than it was in the last couple of quarters, but we’re really just kind of expecting that it stays this way with more scrutiny, more pressure, longer sales cycles at least through the end of this year.

Tom White: Okay, that’s helpful. Thanks for the color. And then just a follow-up on the reseller business. So you mentioned that excluding that kind of M&A event, ARR would have ticked up versus last quarter, but obviously, still kind of down considerably year-over-year. Is that just broader kind of pressure that SMBs are experiencing, or anything else to kind of call out there? And what you guys can do to maybe help mitigate or sort of limit the amount of kind of deterioration in that business?

Mike Walrath: Yes. So we talked about this when we initially came in six-seven quarters – I guess six quarters ago that there was a lot of pressure on the SMB segment. At the time, I think it was hitting a lot of this environmental stuff at the SMBs earlier. So without this M&A transaction that really caused the sequential quarterly downtick, I think what we would be talking about is a real stabilization in that ARR, and feeling that we are at least seeing that stabilized. I think the mitigating factor and the thing that we’re excited about is that we’re starting to see the qualified demands and the pipeline show up on non-listing opportunities to our reseller partners set, which as we’ve talked about, it’s historically been almost exclusively with resellers.

And so that is something that we’re looking at is in the longer term as a real opportunity to grow those relationships and to make them more strategic, and really to help our partners consolidate the different offerings to a best-in-class digital experience offering. And so I would call it ex that one particular thing, we’d probably be talking more about just a stabilization in that ARR with the same idea that we’re seeing the demand build, but we’re not going to get too aggressive about forecasting that demand until we actually see it starting to convert into bookings and commitment to that channel.

Tom White: Great. Thank you very much.

Operator: The next question is from Rohit Kulkarni with ROTH MKM. Please go ahead.

Rohit Kulkarni: Hi, thanks. Just a big picture question on AI, and what are you feeling and hearing from the market and your customers when you are pitching your AI products, be it just the overall content management system or individual buzz and whistles like chatbots or AI-generated reviews? And – so where do you see that opening doors for existing customers new wins, and how is the – how are those conversations evolving? And then I have a follow up.

Mike Walrath: Sure. Yes. Hi, Rohit, I’m happy to talk about that a little bit. So I think we need to separate two things here. So there’s a tremendous amount of interest in AI and it’s a great door opener today to talk about being able to bring more robust AI capabilities to enterprises of all sizes including things like chat and AI review response and content generation. The larger the enterprise, the longer it’s going to take for them to be ready to use those technologies, particularly when it comes to things that face the customer. And if you think about the majority of what we do is customer-facing digital experiences. And so one of the reasons why you’ve heard us be excited about this, but also be relatively tempered is that the legal compliance regulatory processes inside, larger businesses, particularly some of the regulated industries where we have a lot of strength in financial services and healthcare, it means that the actual I think commercial opportunity with those businesses is going to take a lot longer to show up then the excitement there is around the potential for these things.

I do think we’ll see adoption more quickly and smaller enterprises unless regulated segments, but I still think businesses are going to be cautious around anything AI-related that they’re exposing to the customer and with good reason. So one of the things that we’re very I think careful about making sure that our customers understand is that our digital experience solutions are not purely AI solutions. They’re really robust digital experience capabilities, including now content, headless CMS and a number of others that brings tremendous value without the AI plug-in pieces. When you plug the AI into it and use the AI, it’s just expands the value of those solutions.

Rohit Kulkarni: Okay. Okay, cool. Thanks, Mike. And then maybe on hiring and just the OpEx side of things, maybe, correct me if I’m mistaken. Did you – how was hiring during the last 90 days? Did you change any plans? And it feels to me that kind of OpEx came in slightly above – maybe just a fair bit but slightly above our expectations, but just would love to understand how have your kind of hiring plans for various different functions changed over the last 90 – 120 days.

Mike Walrath: Yes. So, no, I wouldn’t say there’s any significant change to our approach there. I think we’re being very targeted with where we add resources. I think we’re also being very thoughtful about where we are getting the performance that we need from resources. I think what you’re seeing there is probably a seasonal adjustment to our people-related OpEx, which is obviously the majority of it as we do our compensation cycle in the second quarter. And so if you – historically, you’ll always see that second quarter compensation expenses are going to be – are going to tick up because that’s when we do our primary promotion compensation cycle.

Rohit Kulkarni: I see. Okay. Thanks, Mike. Thank you.

Mike Walrath: Sure.

Operator: The next question is from Naved Khan with B. Riley Securities. Please go ahead.

Naved Khan: Yes. Hi. Thanks a lot. Just to maybe expense-related item. So if I look at the sales and marketing line ticked up a little bit, are there any campaign-related costs in there that you might have done in Q2? Or is it mostly around say out commissions or additional headcount? How should I think about increase there sequentially? And then I have a follow-up.

Mike Walrath: Yes. I mean we did launch some campaigns, but I wouldn’t call that [technical difficulty]. I think the primary thing is what I was just mentioning that because of the compensation cycle and because of when it falls, that’s when we’ll typically see the seasonal uptick in our overall compensation expense, which obviously, sales and marketing is the largest piece of. And so it’s not a specific amount of hiring or a specific initiative that’s causing that. It’s just the natural seasonality of when that compensation cycle happens.

Naved Khan: Understood. And then with regard to your ability to leverage packaging and pricing to basically do renewals, or drive retention and even new wins. Just maybe give us your thoughts there in terms of how much are you pulling on this lever and maybe there is an ability to do even more there.

Mike Walrath: Yes. You’re talking about – basically using the renewal as an opportunity to consolidate.

Naved Khan: Well, it’s more about pricing packaging as a lever to basically drive either renewals or maybe even new wins.

Mike Walrath: Yes. So I think in this environment where we – where there is a lot of scrutiny around budgets and there is — it’s harder for again in the enterprise, particularly for our buying customers to just identify incremental budgets. There are a couple of conversations that we want to have there. One is clearly how many different capabilities with the platform can we package together in order to create more value for the customer, and potentially help them save money while holding some of the pressure that we might be feeling or even expanding our relationships with those customers. And that’s the motion that I think we are focusing on improving and it’s a big part of the focus in the channel. And we need to be ahead of those renewal discussions in order to be in a position to do that.

So those things don’t come together at the last minute. I think Marc referenced one of the customers. He was talking about it was the nine-month cycle leading up to their renewal. So we’ll get – we’ll continue to focus on getting better at that motion as we really get the sales team structure and operating appropriately. I feel like I say this every call and soon I won’t be able to say this but Tom is still in seat less than a year. I think we’re doing a lot of great work. We’re seeing some of the productivity enhancements and things like that, but we are still early in this transformation.

Naved Khan: Got it. And maybe one last one if I may. I know there has been some impact from total discontinuation of the lower-margin services business. Maybe just quantify how much the impact was on the growth with that and just trying to parse out what’s organic versus inorganic?

Darryl Bond: Yes. Hi, Naved. It’s Darryl. When we initially laid out the components of the headwinds that we’re going to see in the fiscal year, it was in the low single-digit percentage point on growth, and as Mike mentioned earlier a lot of those renewals will come up – as it relates to services, a lot of those renewals will come up in Q3 and Q4, and that’s where we’ll see the impact in revenue ARR and retention.

Naved Khan: Got it. So as far as this last quarter goes, it was less than 1%. Is that fair?

Darryl Bond: We haven’t broken it out. I mean the low-single-digit is really on a year-over-year growth rate, but like we said it’s certainly back-end loaded.

Naved Khan: Understood. Thank you, guys.

Mike Walrath: Thanks, Naved.

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

Chris Madison: Hi. This is Chris on for Arjun. Thanks for taking my question. The first one for me, how much more room do you have to continue driving margin expansion from here without a top line pickup? Are there still levers you can pull to continue improving op margin without additional leverage from the top line?

Mike Walrath: Yes. I think there are always levers there. I think the question that we’re asking ourselves daily, weekly, monthly here is at what point does extracting more margin overall operating margin for the business, costs, the opportunity to get the revenue accelerating. So we think about this all the time. We talked about this at our Investor Day. When I talk in my comments about seeing sales productivity increase, seeing qualified demand there. If we did nothing more than continue to increase sales productivity and increase qualified demand, we would actually – I think you get – you start to see that revenue growth that we are or that ARR re-acceleration we are looking for. We could clearly cut expenses to get more, but the question ultimately is do you sacrifice revenue growth there?

So I think we grapple with this question all the time and in a difficult macro environment it’s a little – it’s probably a little harder question, especially when we have this kind of mixed signal where the macro environment is very difficult, but the qualified demand and overall demand is clearly building and we’re seeing progress on that side. And so this is not an easy one. We’re going to keep evaluating it. We’re going to keep looking at it. We know we’ve made a lot of progress, but depending on how the environment develops and how much demand develops, then we’ll be thinking about optimizing between incremental operating margin and revenue growth.

Chris Madison: Got it, and makes a lot of sense. And the second question I had was on the revenue outlook. So it looks basically flat each quarter from 2Q to the end of the year. How much of the growth recovery at this point is directly tied to an improving macro environment? So what are you hearing from customers that gives you confidence that we’ll actually see ARR growth return when the macro starts to improve?

Mike Walrath: Yes. I think – look, I think that’s the hardest thing to predict, right? And so in a world where overall demand is improving, which we mentioned right both sort of total demand and qualified demand, which really just refers to different stages, we would – and the macro environment is improving what you’d anticipate is that those rates recover to what they were before we went into challenging macro at least three or four quarters ago. And you have more demand so that would indicate that you’re going – that we’re going to grow the book, right? And so we have the one signal that we are very happy with which is there is more opportunity, there is more demand, there is more interest, and we track that through all stages of the pipeline that we’re responding – campaigns are creating responses and interest and all of those things.

So we either need to see that continue to build to the point where we can actually outrun the macro headwind or we see the macro headwinds subside and deals get easier to do, particularly at the enterprise level, which is where we see the sort of faster acceleration of ARR. And look, I wish I could tell you when that’s going to happen. I think we’re pretty clear that we don’t that our guide and our forecast doesn’t anticipate that, that is getting better in the back half of the year. We think these – we think the caution that’s tied to the macro uncertainty and really these businesses like the market hate uncertainty, we expect that to continue. If it improves faster than we would expect to see benefit from that, and if it gets worse, we would expect to see the impact of that as well.

Unidentified Analyst: Got it. Well, thank you for taking my questions.

Mike Walrath: Pleasure.

Operator: [Operator Instructions] The next question is from Ryan Macdonald with Needham. Please go ahead.

Ryan MacDonald: Hi. Thanks for taking my questions. Mike, I appreciate the macro environment is a bit challenged, but one of the areas that you seem to be continuing to have some nice success is with these boomerang customers. Can you just talk about what the dynamics are at play portion of the market from a competitive perspective? And whether there is a specific strategy that you’ve employed that seems to be leading to the success? And how large of a revenue opportunity should we think about this boomerang customer opportunity being moving forward?

Mike Walrath: Yes. So I’d say some high-level things about that. Marc may want to jump in with some more specifics. But I think – when you think about like what the boomerang customers typically look like because of the relative newness of much – many of the products, they’re primarily going to be listings and reviews customers who are boomeranging. And typically, when we saw – you know, which we’ve talked about, we saw some of these listings and reviews customers go elsewhere over the last two, three, four years. We’ve talked about this a lot. They were promised certain things by competitors and in a lot of cases, they moved for lower-cost solutions. And I think what they found was that the ones that are coming back clearly didn’t get the value that they were expecting elsewhere, and so we’re seeing them return.

I think I say like on the same token, on the flip side of that, when there is significant budget pressure in the market, the attraction to moving to a lower-cost provider is going to going to be there as well. So I think we’re happy to see the boomerang is happening and we’re very focused on making sure that we do everything we can to keep companies like those that are now coming back from leaving for what might appear to be greener pastures or just cost savings and then turn out to have a product that really doesn’t work very well or a set of services don’t work.

Ryan MacDonald: Yes.

Marc Ferrentino: Yes. As Mike said, the majority of the customers are really a lot of the listings customers. What you see over the last few years is some of our competition doing some unnatural things from a deal structure standpoint and the old adage is you get what you pay for. And so listings quality, the support models, the ability to resolve issues at scale are really all areas where competition has fallen down really. And when you’re talking about mission-critical data being out there in the Internet, you’re talking about your public presence and sort of driving top of the funnel, you really can’t go with a second-rate solution. And in some cases, the customer has to go through that experience before they realize the overall value that we’re providing for years. So that’s what we’re going to see and I expect us to continue to see that in future quarters.

Ryan MacDonald: That’s a helpful color there. Appreciate it. And maybe as a follow-up. So I get that we have some sales cycle elongations now, but is there any strategies you’re unable to employ to essentially nudge prospective customers along in the pipeline at this point, whether it’s utilizing pricing or flexible deal structures as maybe a way to take advantage of trying to gain some market share in a more difficult time? Or is it a pretty frozen end market at this point?

Mike Walrath: Yes. No. I mean we’re always looking for those opportunities, and sometimes – I’ve said before, sometimes, there’s a consolidation opportunity. Sometimes those are – we can do two or three things that they’re evaluating and we can do it all at a lower cost, and that’s how they can find some cost savings. And so we’re really happy to engage in those discussions. We’re obviously looking at pricing, we’re looking at packaging, we’re looking at different ways to address our customer needs to be efficient. The same way we’re addressing being efficient as a business as well, and I think this kind of optimization will continue for a while. And I anticipate that we’ll get back to the business of building really high ROI digital experiences as we get through this kind of – this period.

Ryan MacDonald: Thanks for taking my questions.

Mike Walrath: Pleasure. Thanks.

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

Mike Walrath: Thanks everybody for joining us, and look forward to talking to you soon.

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

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YEXT INC

Q2 2024

Earnings Transcript

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