Yext, Inc.YEXTNYSE
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Operator: Good afternoon, and welcome to the Yext, Inc.'s First Quarter Fiscal 2026 Financial Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Nils Erdmann. Please go ahead.
Nils L. Erdmann: Thank you, operator, and good afternoon, everyone. Welcome to Yext First Quarter Fiscal 2026 Earnings Conference Call. With me today are CEO and Chair of the Board, Michael Walrath; and CFO, Darryl Bond. During this call, we will make forward-looking statements, including statements related to our future financial performance, statements regarding the expected effects of our recent acquisitions, expectations regarding the growth of our business, our outlook for the second quarter and full year fiscal 2026, our strategy and estimates of financial and operating metrics, capital expenditures and other indications of future opportunities, as further described in our first quarter shareholder letter, which is available at investors.yext.com. These forward-looking statements are subject to certain risks, uncertainties and assumptions, including those related to Yext's growth. The evolution of our industry, our product development and success, our ability to integrate acquired businesses with ours, our management performance and general economic and business conditions. These forward-looking statements represent our beliefs and assumptions only as of the date made, and we undertake no obligation to revise or update any statements to reflect changes that occur after this call. Further information on factors and other risks that could cause actual results to materially differ from these forward-looking statements is included in our reports filed with the SEC, including in the section titled Special Note regarding forward-looking statements and Risk Factors in our most recent annual report on Form 10-K for the year ended January 31, 2025, and in our earnings release and our shareholder letter that were both issued this afternoon. During the call, we refer to certain metrics, including non-GAAP financial measures. Definitions of these non-GAAP metrics and other operating metrics as well as reconciliations with the most comparable historical GAAP measures are available in the shareholder letter. I will now turn the call over to Mike.
Michael Walrath: Thanks, Nils, and thank you all for joining us today. As I hope you read in our shareholder letter and earnings release, we had a very strong Q1, outperforming our guidance on all metrics, and we see continued strength into Q2. A few things I'd like to highlight before we dive into your questions. First, a fragmentation of the consumer search market continues to accelerate with the advancement of AI search. This trend elevates the importance for brands of managing digital visibility, and it differentiates Yext core products and provides fertile ground for our latest product release Yext Scout. Second, our core business health is improving. We're seeing improvement in both gross and net retention, customer satisfaction and overall value perception across our platform. Third, the pace of innovation is advancing rapidly at Yext. We are speeding up our execution even as our profitability and efficiency growth, setting the table for a growth flywheel well into the future. And finally, we have the balance sheet and cash flow to further accelerate our growth while maintaining flexibility. This enables us to strategically reinvest in organic initiatives and pursue opportunistic investments, whether through M&A or partnerships that extend and enhance our business. I'm thrilled with the execution of our global team who are bringing strong commitment to driving value for our customers, even as the pace of change in our industry accelerates. And now we're happy to take any questions that you may have for us.
Operator: [Operator Instructions] The first question is from Naved Khan with B. Riley Securities.
Naved Ahmad Khan: A couple of questions from me. Maybe just one on the Scout update. It's good to see the wage list of 2,000 customers, and I'm curious about the mix here in terms of are you -- besides the interest on existing customers, are you also seeing a good number of new customers sign up for this product? And maybe as a related question, as you start to see sort of more sales traction, how are you thinking about increasing sales head count for the rest of the year?
Michael Walrath: Naved, as far as the customers go, I think what we're seeing on the wait list is a mix. So we see existing customers. We see -- we also see new prospects, and we also see -- and customers. So it's sort of all of the above there, and that's driven by some of the demonstrations that we've had available for Scout since early April. As far as the sales head count goes, I think we have room to run with our current headcount. I think we have opportunities to grow productivity, but we're going to continue to look at the demand universe, the market and determine when the right time is to add additional head count. And we'll be opportunistic there because we're seeing plenty of positive signal, but we want to make sure that all of our sales folks have plenty of opportunity and that we don't get ahead of ourselves on that front.
Naved Ahmad Khan: Got it. And then maybe just staying on Scout, maybe just talk about the velocity in terms of customers kind of the sales cycle, maybe shortening or not? And how should we be thinking about the product kind of becoming generally available to all the customers, how are you thinking about the timeline?
Michael Walrath: Yes. So I think it's too early to say with any sort of certainty what the sales cycle would look like for this product. From what I can tell so far, I would expect that, if anything, the sales cycle will be a bit shorter, it's an easier implementation. The core data is publicly available. And I think the value that our customers see, especially in light of what's going on in the market and the need to really understand the visibility around their brands with the rapid fragmentation that we're seeing. All of those things encourage me that this could be a shorter sales cycle product for most customers. As far as the -- and look, I think that's reflected in the speed with which we've rolled the product out. So just as a reminder, we launched this product officially at our Analyst Day on April 2. That initial cohort was less than 10 development partners who we've been working with in advance of the, what I would call, a more open data. As of yesterday, so there were an incremental, I believe, it was 37 customers rolled out over the course of the last 48 hours or so. And so I would describe where we are today with the product as an open beta that will be incrementally rolling out additional customers as we get those customers -- those beta customers lined up. We don't have a date yet for when we'll go full general availability, but I'm really confident that we have the capacity to roll out a lot of customers here.
Operator: The next question is from Ryan MacDonald with Needham & Company.
Ryan Michael MacDonald: Congrats on a great quarter. Really strong results and a lot of positive momentum. Mike, it seems like that from reading the shareholder letter and hearing you speak right now, there's a lot of good things going on in the business, great Q1, good momentum to Q2. Scout is obviously seeing some really nice demand here say, social, et cetera. But yes, we still don't have a sort of a full year top line outlook yet. I'm just curious, can you help us understand sort of how you're balancing sort of the enthusiasm and the momentum in the business right now versus maybe what you're seeing in the macro? And sort of what's kind of creating the lingering caution, if you will.
Michael Walrath: Yes. No, look, I think the lingering caution is 2 things would probably primarily the macro, right? So it was interesting. I think -- I listen to all the tougher calls and I thought it was interesting to listen to the March -- how the March quarters and the April quarters potentially sounded a little bit different, while we don't have any direct impact on our business from tariffs and things like that, we are obviously well aware that businesses who do are thinking carefully about how they're expanding dollars. At the same time, I think there's a competing tailwind here, which is -- it's not really deniable anymore that the brand discovery landscape is shifting enormously. We saw Google dip below 90% market share recently for the first time in a very long time. And candidly, that's not the best measure for 2 reasons. One is the -- that's really only measuring traditional search. And the second is that the fragmentation that's happening here isn't a zero-sum game. So we think the fragmentation drives more search, not less search. So all of those things, I think, factor into the puts and takes around feeling really positive on the fact that this environment is very fertile for us. The commoditization pressure that we've talked about for years in our product abates in a market where having the best digital visibility, brand visibility products is going to drive value perception. But we're always going to be mindful of the fact that there's a lot of uncertainty around the macroeconomic landscape and -- so I think our overall outlook will remain conservative as long as that uncertainty exists.
Ryan Michael MacDonald: Helpful color. Maybe on Scout in the beta program, I'm just curious what you're looking for within customers that have launched in the beta from the development customers thus far. Are there any sample data points in terms of ROI generation that you can talk about? And then maybe perhaps based on what you're seeing or based on maybe the value you're seeing being delivered in the early days of Scout, is this evolving how you're thinking about monetization of the product when it eventually is generally available later this year or next year?
Michael Walrath: Yes. So I mean, look, I think the development partner relationship is a little different than these initial beta launches. So the development partners are signing up for a product to experiment with a product that is not ready for a public launch. The launch that we've had over the last 48 hours is really a public beta launch. And so we've been gaining that. We're controlling how many customers are launched, but sitting today with something like 45 live customers, we're getting amazing feedback from the customers. I've personally sat through dozens, many dozens of customer interviews and customer meetings, both demonstrations, but then also customers who are actively using the product. I can tell you that so far, there's a 0% disinterest rate in the product and there's very high value perception, both around the product, but also around how it demonstrates the value of our other core existing products. So we talk a lot about Scout has over 150 nonperformance metrics that we're able to gather, big chunks of those metrics are things around how are you distributing your listings information to create citations, both for traditional search and AI search, your page performance, your review performance, reputation performance. And so when we start demonstrating at the location level to our customers how those metrics are contributing, any questions about the value of our listings product or our reviews products or our Pages product or our social product, they start to fall by the wayside because you can see that, that is the thing that differentiates you and you can see how you're outperforming your competition because of those things. So when I talk about kind of maybe the earliest benefit of the product is the anti-commoditization pressure of our core products against what we've seen is pressure from a lot of small competitors with less capable products. That's probably the earliest benefit. The secondary or maybe the more important benefits over the long run are the TAM expansion and the attachment opportunity with Scout as a stand-alone product.
Operator: The next question is from Tom White with D.A. Davidson.
Thomas Cauthorn White: Two, if I could. I was hoping you guys could just give a bit more color on the drivers of the revenue outperformance in the first quarter. And I guess, specifically the direct ARR improved sequentially there by a few million bucks, I think. Maybe talk a little bit about the extent to which it was sort of legacy product driven versus your newer offerings versus maybe some of the recent M&A like you hear say? And then just secondly, on the buyback. I think the kind of the pace of buybacks ticked up in the quarter versus kind of the cadence of the past couple. Can you maybe -- might just talk about like your appetite to focus on reducing the share count here potentially, just given the strong cash flow, the improved liquidity after this debt deal. Like where is the buyback kind of ranking with your other opportunities or things you're thinking about?
Darryl Bond: It's Darryl. On the revenue and the ARR performance in Q1, it was a couple of things. One, we did see a bit of a tailwind from FX rates. If you recall, for the last few quarters, we've been talking about FX headwinds, particularly as it rates to the pound. And that sort of abated and came back. And I think the rates at the end of Q1 this year are kind of roughly in line with where they were of Q1 of last year. So that drove some of the improvement on both the revenue and on the ARR side. And we called it out in the shareholder letter in the back pages after the remarks. But we also continue to see improvements in retention. We disclosed gross retention and net retention on the basis of ARR, and our customer success motion and our ability to retain customers and drive value to customers continues to show improvement, and that also helps with obviously the revenue but also the ARR picture. On the buybacks, I'll make a couple of comments. But obviously, you saw where the stock traded throughout Q1 and even at the levels that we're at today, we continue to believe it's a great investment when you look at it from an EBITDA multiple perspective. So it becomes a really important tool in our capital allocation [ belt ], and I'm sure Mike will have some additional comments.
Michael Walrath: Yes. I think we're going to look at the buyback as an opportunity to -- I think we've -- since over the last 3 years, I think we've reduced the overall share count. I think we'll continue to look to drive that type of antidilution through the business as -- especially with what we think is the stock price being very attractive. As far as our optionality around buyback versus M&A, it's not necessarily an either/or situation. So we have a really strong balance sheet. We have cash, we have cash flow, and now we have a great partner, BlackRock and a debt facility that would enable us to look at -- be opportunistic about highly accretive acquisitions. And so it does feel like it's going to -- will continue to be a good time to look at M&A opportunities. But again, I just don't really think that that's necessarily an either/or situation. You can see -- we do buy a lot of shares in Q1 and we continued to buy shares in May because we gave you the year-to-date or I guess [ through the 530 ] number there. So we feel great about that investment just as we feel great about the M&A transactions we've had with Hearsay and Places Scout.
Operator: [Operator Instructions] The next question is from Rohit Kulkarni with ROTH Capital Partners.
Rohit Rangnath Kulkarni: A nice quarter, guys. Just on the organic part of the business, net ARR, net retention rate is up. That's a very healthy sign. Any color as to what is driving that with regards to upsell or any improvements in GTM that you may have implemented? And then kind of on the -- like I know both companies are now fully integrated. But anything that you can share with regards to the core Yext growth rate, excluding Hearsay and Scout?
Michael Walrath: Yes. So I think the first question was a little hard to hear you right, but I think it was net retention and what's driving it. So I think the good news is we're seeing gross retention and net retention both up. To me, what I observe in the business is I observe that, and it's no secret that we've been fighting a lot of -- sort of good enough at half price for a long time in the business on a lot of our core products, certainly on the listings products primarily. I think in this -- and I mentioned this a few times in this world where it's getting harder and harder to manage brand visibility because you have to go so far beyond just sort of the core GMV page at this point. That is having an impact in customer value perception across our products, and that's going to be an anti-churn metric for us, both in terms of logo churn, but also in terms of downgrade churn because it's really not going to be an environment where you can afford -- where a brand can afford to be missing out on opportunities to generate visibility through proper citation building through listings, through reputation, social and all those products. So we're really encouraged to see that the market is -- and our customers are very focused on this, and I think it's helping a lot that we have best-in-class products here and that the value -- the perception of value of those best-in-class products are, I think they're getting the attention that they deserve with because of the search -- the fragmented search environment. . I forgot what your second question was, I'm sorry.
Rohit Rangnath Kulkarni: Just any other color on the growth in the underlying core Yext business, excluding Hearsay and Scout?
Michael Walrath: Yes. I mean, I think we're in a similar place in terms of the stability of that ARR. And what's going to help us -- there are 2 things that are going to help us there. Obviously, 1 is going to be better retention, which we're seeing, and the other is going to be more upsell, and that comes from the opportunity to attach more products. So the way I look at this is, we have -- I just described the whole sort of, I think, value perception of our core. That's going to help a lot with the gross retention situation, especially as we get into our heavier renewal periods, which were always in the back half of the year. So you can move the needle a little bit in the earlier -- in the first half of the year, but most of -- because most of the book lines up being up for renewal in the second half of the year, it becomes really -- that's where you have the opportunity to really change that math. And then on the upsell, what you need is you need innovative products that customers value in order to get the upsell and the boomerang customers that drive ultimately the ARR growth. So we're encouraged on both of those fronts. We're really excited about the customer reception for Scout. Our customers are watching AI disrupt the landscape in which they try to manage their digital visibility, and they need AI products like Scout that are going to help them to combat the challenges and take advantage of the opportunities of fragmenting digital search landscape.
Rohit Rangnath Kulkarni: Okay. Great. And I guess just maybe why or why now around this kind of loan facility that you have from BlackRock, maybe just talk about kind of obvious conclusions one can draw, but would love to hear kind of why and why now? Are you seeing any specific kind of urgency in pursuing some growth initiatives that led you to doing it now?
Darryl Bond: Rohit, it's Darryl. One of the primary reasons was that our facility -- our credit facility SVB was expiring at the end of the calendar year. So we needed to do something because we do leverage that for some availability to collateralize letters of credit with leases and things like that. But -- as we got into the conversations with BlackRock, we realize, obviously, they're a really great partner, they're well known. They felt really good about our business. And we looked at the opportunity. And as Mike mentioned, with our point of view on the M&A outlook and the opportunities that may arise, it just made sense for us to do something a little bit bigger. The SVB facility was written years ago, right around the time we did our IPO, some of the covenants were meant for a smaller company. So as we got into the conversations, we felt pretty good about the terms we were getting about the covenants we were getting and the flexibility it provides us with some of the things we want to do to continue to invest and grow the business.
Michael Walrath: Yes. The only thing I would add to that, Rohit, this is Mike, is -- I think we've done 2 acquisitions in the last year basically. One of those was what we think is a highly accretive strategic acquisition of Hearsay, and obviously, Places Scout was smaller but very strategic, I think, product-led acquisition. We're really happy with both of those and we think that the opportunity for more of those exist. We're going to be super diligent and I think, very disciplined buyers. But this environment is definitely creating opportunities just as it's creating organic growth opportunities. It's also creating opportunities for us to consider different assets. And so having a facility in place with a partner like BlackRock is just going to make it easier for us to be really smart and agile when it comes to those opportunities.
Rohit Rangnath Kulkarni: Okay. Anything with the word agentic in the PR would definitely help.
Michael Walrath: And sorry, anything left?
Rohit Rangnath Kulkarni: In the world -- the world having agentic in your PR would help.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Mike Walrath for any closing remarks.
Michael Walrath: I'd just like to thank everyone for joining and for all of your support and look forward to speaking with you again next quarter.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.