Yext, Inc. (NYSE:YEXT) Q4 2024 Earnings Call Transcript

Yext, Inc. (NYSE:YEXT) Q4 2024 Earnings Call Transcript March 6, 2024

Yext, Inc. beats earnings expectations. Reported EPS is $0.1, expectations were $0.07. YEXT isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon, and welcome to the Yext Incorporated Fourth Quarter Fiscal 2024 Financial Results Conference 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 Nils Erdmann, Senior Vice President, Investor Relations. Please go ahead.

Nils Erdmann: Thank you, operator, and good afternoon, everyone. Welcome to Yext’s fourth quarter fiscal 2024 earnings conference call. With me today are CEO and Chair of the Board, Mike Walrath; and CFO, Darryl Bond. During this call, we will make forward-looking statements, including statements related to our future financial performance, expectations regarding the growth of our business, our outlook for the first quarter and full-year fiscal 2025, our strategy and estimates of financial and operating metrics, capital expenditures, and other indications of future opportunities as further described in our fourth quarter shareholder letter. These forward-looking statements are subject to certain risks, uncertainties, and assumptions, including those related to Yext’s 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. Further information on factors and other risks that could cause actual results to materially differ from these forward-looking statements is included in our reports filed with the SEC, including in the sections titled Special Note Regarding forward-looking statements and risk factors in our most recent quarterly report on Form 10-Q for the three months ended October 31, 2023, and our shareholder letter that was issued this afternoon. During the call, we also refer to certain metrics including non-GAAP financial measures. Reconciliations with the most comparable historical GAAP measures are available in the shareholder letter, which is available at investors.yext.com.

We also provide definitions of these metrics in the shareholder letter. With that, I will now turn the call over to Mike.

Mike Walrath: Thanks, Nils. Good afternoon, everyone, and thank you for joining us today. As we discussed last quarter, we have published our quarterly shareholder letter and financial commentary on our investor website and we look forward to taking your questions here today. There are a few high level themes I would call out from our letter before we dive into Q&A. First, we are pleased with the progress we made in fiscal year 2024, despite a very difficult operating environment. We believe our record profitability, increases in sales productivity, and some of the difficult decisions we made to be more focused will serve the company well in the future and drive more efficient growth. As I’ve talked about in the past, the recipe for efficient growth is a combination of increased sales productivity and the ability to measure qualified pipeline so that we can increase our investment in direct revenue generating roles.

We will continue to focus on efficient operations, but we have seen enough to be ready to direct more investment into direct selling and sales development to drive growth in the future. Second, we made great strides last year in shifting more of our focus to the core product offerings our customers value most and have reoriented our roadmap around our customers’ highest priorities. We have also reallocated our investment in customer support, services, and success to drive customer satisfaction and value. In fiscal year ‘25, we will continue to proactively deliver value-driving innovation in our core listings, pages, reviews, and search products, customer service, and support, and deliver new product functionality in adjacent product areas that are most valued by our customers.

These include Generative AI features, including broader application of content generation technology, as well as much more robust social management and analytics features. The strength and breadth of our platform, particularly the advantage of our content knowledge graph system, as a single data source of truth for our customers across all of the product use cases will serve us well in an environment where customers want fewer partners and more ROI. We will continue to invest R&D into high potential areas such as chat and other Generative AI technologies, but these investments will be more measured and focused on customer priorities than in the past. Finally, we continue to take a conservative point of view on the market environment and the timing of uptake of Generative AI solutions at scale.

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

I’m incredibly proud of our global team’s willingness to take on the difficult tasks of reshaping the ex-operating profile, adjusting to a difficult operating environment, and recommitting the company to our customers. I believe the work has been harder than we would have anticipated two years ago, and the work will continue to finish our transformation. I’m incredibly grateful to our team for their resilience and commitment in the past couple of years and for the future. With that, I’d like to open it up for questions.

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Q&A Session

Operator: We will now begin the question-and-answer session. [Operator Instructions] The first question is from Arjun Bhatia with William Blair. Please go ahead.

Arjun Bhatia: Perfect. Thank you guys. Mike, maybe one for you to start. On the product roadmap, it sounds like there’s a little bit of a refocusing going on, on the core with listings. And I think in the shareholder letter you also talked about some new capabilities like social media management. Can you maybe just give us a sense of where some of these investments on the product front are focused? How do you plan to build some of these new capabilities like social media management? And what might the platforms look like if we’re talking in December versus in March right now?

Mike Walrath: Sure, yes. And, hey Arjun, thanks for the question. So I think we talked about this when we started this journey. We talked about the need to refocus on the core, to deliver the value that our customers were paying us in listings and pages and reviews and search. And like everything, it takes longer than you think to get things going in the right direction. I do think one of the things we’ve seen over the last couple years is as businesses focus on less how do I add new technologies to my stack? How do I experiment with new things and more, am I getting the value that I’m paying for in my various vertical or multi-product software solutions? We need to demonstrate, and I think we are demonstrating to them, that there’s a lot of product innovation happening inside the core.

And where I think our — previously our focuses were a little bit further out. When it comes to social, we’ve always had social features in the product. But I think it’s an area that we’ve heard really clearly from our customers, that they want to see more of this. They want fewer vendors. They want more cross, I’d say, cross platform visibility. And the other thing they really want, and I mentioned this in the letter also, is a data structure that makes sense and allows them to do more with all these different functions. And so this is something we continue to work on and we expect as we get into really get into the second half of the year that there will be a lot more coming through the product innovation cycle on all of the products, but increasingly on the social media side as well.

Arjun Bhatia: Okay, got it. And then you mentioned, right, increase in sales capacity and this being the right time to invest given some of the trends that you’re seeing in the pipeline. I would be curious to hear what you’re seeing in terms of sales productivity and how you’re kind of benchmarking what best-in-class is both for Yext and just as you compare yourself to the industry, I think it’s — the pipeline trends certainly are seem promising? But talk about where you’re hiring, why it’s the right time, and how much incremental expense maybe we can expect on the sales and marketing side?

Mike Walrath: Yes, so, you know, look, we are at the highest direct sales productivity that we’ve seen, I believe, in the last four years, was what we stated in the letter. I’m not going to tell you we’re best-in-class, because we’re not best-in-class yet. But we’ve seen marked improvement there and this is something I’ve talked about a lot over the last four or five quarters is when you’re seeing consistent improvement in sales productivity and the qualified demand, which obviously, you know, over the last five, six quarters, we’ve seen a really nice increase in our ability to both create, but also to measure our pipeline, that’s when we can start growing our sales capacity again. And so we’ll be doing that in a pretty measured way over the first-half of the year, and that’s where we expect to start to see contribution from actually growing our direct revenue generating headcount in the second-half of the year.

At the same time, you know, to your question about incremental expense, we continue to find areas of efficiency and optimize the cost structure of the business. And so the cost of the additional revenue generating capacity, which is really mostly in the form of quota carrying heads and sales development or business development representatives, is all baked into our outlook for the year. So there’s not a sort of unbudgeted incremental expense there. We’re really just focusing a lot of our investment and efficiency work back into what drives the highest revenue generating roles.

Arjun Bhatia: Perfect. I appreciate the caller. Thank you. Operator The next question is from Tom White with DA Davidson. Please go ahead.

Tom White: Great. Thanks for taking my questions. Two, if I could. Mike, in the letter you mentioned a significant increase in year-over-year lead volume in the quarter and higher pipeline creation. Curious to what degree that’s being driven by some of the various initiatives around demand gen that you guys have been working on? Maybe you could just give a few examples of like the sort of the most successful kind of channels or tactics on that front? And then, or is there, you know, kind of an uplift from just maybe the client spending environment perking up a little bit exiting the year versus maybe, you know, kind of, earlier in the year. And then I have a follow-up on the guidance.

Mike Walrath: Yes, no problem. So the first thing, I think the last thing you said first, which is, you know, I don’t think that we’re necessarily calling or seeing an uptick in the spending environment. I think our outlook on this, we’ve been accused of being slightly more dour maybe than some of our peers, but our outlook on this is that we expect, I think we’ve seen, if anything, we’ve seen some stabilization. And our expectation, as laid out in the letter, is that the environment will be like this for a while. And I think as long as we have uncertainty around the macro and inflation and interest rates and all that stuff. I just don’t expect that there’s a big snapback in spending. I think when it comes to developing a really efficient demand generation machine and we’ve been talking about this since we brought Ran and as CMO and really her sort of core expertise and her team’s core expertise around this is you have to get a few things right.