Good day and welcome to the Yext Fourth Quarter Fiscal 2022 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Jeff Houston, Head of Investor Relations. Please go ahead.

Thank you, Sarah and good afternoon, everyone. Welcome to Yext's fiscal fourth quarter 2022 call. With me today are Chairman, Mike Walrath; CEO, Howard Lerman; CFO, Steve Cakebread; and Chief Accounting Officer, Darryl Bond. Before we begin, I'd like to remind everyone that this call may contain forward-looking statements, including statements about revenue, non-GAAP net loss, growth of our business, our management and governance plans, gross margins, operating margins, net dollar-based retention, capital expenditures and other nonhistorical 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, our management performance and general economic and business conditions, such as the impact of the COVID-19 pandemic. 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 have a material difference from these forward-looking statements are discussed in our reports filed with the SEC, including our most recent quarterly and annual reports and our press release that was issued this afternoon. During the call, we also refer to non-GAAP financial measures. Reconciliations of the most comparable GAAP measures are also available in the press release which is available at investors.yext.com. With that, I would like to turn the call over to Howard. Howard?

Thank you, Jeff. Since we founded this company in 2006, we've been focused on helping businesses and organizations around the world be the authoritative source of delivering their business information everywhere people search, starting with the power of listings. We created products that help companies build their companies and most recently with Answers, we help our clients leverage the power of AI-based search technology to provide perfect answers everywhere. Yext has become a powerful AI-based search platform, working with many of the world's most notable brands. I am proud of how far we have come. Today, it's time for me and Yext to take the next step in our journey. Mike Walrath will succeed me as CEO. Mike has been part of Yext's Evolution since 2009 when he joined the Board. And since 2011, Mike has helped guide the company as Chairman of the Board. Before he joined the Board, Mike built an innovative technology company called Right Media that he sold to Yahoo where he managed a team of more than 4,000 people globally. In addition to Right Media, Mike helped build other high-growth software companies, including MOAT which is acquired by Oracle. He has a track record of creating value, solid experience running complicated businesses at scale and Mike believes in our vision. Mike can provide a fresh perspective on products, solutions and successfully lead Yext into the future. With that, I'll turn the call over to Mike to share some of his thoughts as he steps into the role.

Thank you, Howard. When I joined the Yext Board in 2009, the company was a nation startup. None of today's products existed. I would like to acknowledge how far the company has come under Howard's leadership and I'd like to thank him for all that he has done to create the opportunity that we have today. I believe Yext has enormous potential and I look forward to playing an active role in the company's next phase of growth. I'm stepping into this role with a deep understanding of the business but I am sure there is much for me to learn as I shift my focus to day-to-day operations. Yext has built a unique platform of products unrivaled by any of our competitors. The products are as relevant today as they have ever been, as companies are finding it increasingly complex and difficult to manage their brand's information with the proliferation of information sources available to their customers. Yext helps our customers solve real business problems through the entire online customer journey across a portfolio of products that enable our customers to control their brand's truth. I believe our long-term market opportunity is massive and growing and we've only scratched the surface of our potential. Still, we were disappointed by our performance in fiscal year '22. While it has been a very challenging operating environment and COVID surges in Q2 and Q4 had particular impact, we can now see that our go-to-market was far too inefficient. We did not experience the sustained recovery in sales productivity that we expected last year and it showed in our bookings results which impact revenue in fiscal year '23. There are several areas where we can -- where we believe we can improve our performance. First, we have begun the work of streamlining our…

All right, Mike. Thank you. When I came to Yext in 2014, we were a private company, a few hundred employees, three people in finance, a few products and a lot of enthusiasm. Today, we're a public company, global base of employees and thousands of world-class brands on our platform. The company's enthusiasm remains and I'm thankful to have been part of this team. I'm also grateful to have had the opportunity to build a world-class finance organization ready to move the company forward. I'm handing the reins over to Darryl Bond, who will exceed me as CFO. Darryl was one of my first hires at Yext and someone I had hoped would succeed me when I eventually left. He's worked alongside me and the management team at Yext for years, has a deep understanding of the company. He's likely a familiar face to many of our analysts and investors as he's been heavily involved in Investor Relations over the years. And I know that I'm leaving the CFO role in capable hands. With that, I'm going to turn the call over to Darryl and congratulate him on his promotion. Darryl?

Thanks, Steve. I appreciate the opportunity and have enjoyed working so closely with you over the last seven years. I'm excited about my new role and the future of Yext. As Steve mentioned, I've met many of our investors and analysts in the past and I look forward to continuing the dialogue with you. But for now, let's begin with our Q4 and fiscal '22 results. Our fourth quarter revenue grew 9% year-over-year to $101 million. Fiscal year '22 revenue grew 10% to $391 million. Unearned revenue increased 16% year-over-year to $223 million. And annual recurring revenue, or ARR, was $390 million at the end of Q4, up 10% year-over-year. Our trailing 12-month net dollar-based retention which excludes our small business customers, was 98%. In our trailing 12-month, net dollar-based retention for direct which also excludes small business, as well as our third-party reseller customers was 99%. We've seen improvements in gross retention in the past couple of quarters and we believe our renewed focus on customer centricity will drive greater renewal rates and upsells which should improve net dollar-based retention. Keeping in mind, this is a trailing 12-month number. Separately, the total number of Yext direct customers, excluding SMB and third-party reseller customers, increased 15% year-over-year and is over 2,700. Our direct ex SMB and reseller customers with ARR over 100,000 was 605 at the end of Q4, up 10% year-over-year. Turning to non-GAAP results which are reconciled to GAAP in our press release. Q4 gross margin was 77.1% this quarter compared to 78.4% in the year ago quarter. We continue to be in the range of our long-term non-GAAP gross margin target of 75% to 80%. Fiscal year '22 gross margin was 76.6% compared to 77.3% a year ago. Sales and marketing as a percentage of revenue declined…

[Operator Instructions] Our first question comes from Arjun Bhatia with William Blair.

This is Chris on for Arjun. I guess the first thing I wanted to touch on was the customer capital. It was flat quarter-over-quarter from 3Q to 4Q. With that in mind and kind of your revenue guidance for next year, are you seeing significant churn in any portion of the customer base? How should we think about kind of how some of those -- playing out?

Chris, this is Darryl. Thanks for the question. We've seen some really positive gross retention over the last couple of quarters. I think last quarter, we mentioned we've seen gross retention start to come up back to historical levels and we saw that again. So we're really, really encouraged by the signs that we're seeing in gross retention. We've made a bunch of improvements in that area over the past few quarters. And as Mike mentioned in his remarks, we continue to focus on customer centricity and it will certainly be an area of focus going forward.

Yes. It's Mike. So one of the things we've looked at closely over the last couple of months is our historicals here. So as Darryl mentioned, historically, we were in the mid- to high 80s and even low 90s with gross retention. We saw that drop to a low in the low 80s during fiscal '21. And we saw in the second half of fiscal '22 our gross retention recover into the mid- to high 80s. So we're not at all satisfied with that number but the trend is actually in the right direction. And what it reinforces for me is that focus on customer centricity is what's going to get us back to where we were.

Got it. That makes sense. And so with the -- there's obviously a pretty big shift in kind of the management team. Just broadly speaking, what are some of the biggest priorities going into 2022?

So it's Mike. I'll take that one. So it's -- there's a lot of change. Fortunately, everybody who's around the table has been here. And so I think there's a really great lens on the business. There's a lot of work to do as well. Some of the focuses that I outlined for you in my comments are already underway. This is the unification of the go-to-market and the focus on efficiency in the go-to-market with our products and engineering teams. And when I talk about our approach to investments, it all comes back to really the cadence of that and being more disciplined about making sure that when we are making these types of investments, we have data that tells us that we're ready to expand functions. And so as I get -- this is early here but as I get deeper and deeper into the business, those are the types of things we're going to be focusing.

Our next question comes from Naved Khan with Truist Securities.

A few questions. So if I just look at the guidance, right, for the full year, revenue growth in the low single digits, a sequential decline just for Q1. I'm wondering what's causing the sequential decline. I think this is the first we've seen. Is it coming more from the listings business? Or have you lost any momentum in the Answers side? And then what gives you the confidence that you can still deliver on the full year growth? The second question I had is the change or the changes you are planning to make or maybe you have already made on the sales headcount. So the -- how surgical is this change in terms of reducing the headcount? And where are you more focused now with the people that you have? Just give us some sense.

Thanks, Naved. This is Darryl. I'll handle the question a little bit out of order. But your first question was about the guide. And I think we certainly had a tough fiscal '22, as Mike had mentioned in the script. And obviously, the bookings in Q4 significantly impact the revenue that we're going to see in fiscal '23. So you're seeing some of that dynamic there. And to your question around the quarter-to-quarter sequential decline, keep in mind, we recognize revenue daily over time. And Q4, I believe, has 91 days. Q1 has 88 days. So that few days equates to a few million dollars of revenue. So that's why we're seeing that. In terms of momentum, Answers is continuing to grow incredibly well. We're still seeing a triple-digit growth rate. So we feel really encouraged by the product. As Mike mentioned, our primary focus is going to be on sales productivity and continuing to drive improvements there. In terms of confidence for the guide, we're -- when we put together the guide, we wanted to be thoughtful and there's a lot of macro uncertainty out there but we're basing the guide on the visibility that we have today into the business and we feel it's an achievable target. And I'll hand it off to Mike to add and...

Yes. I'll be happy to. So with respect to the guide specifically and what Darryl referenced in Q4 and also in Q2, we saw a really significant disruption in our business. I think -- it's worth noting that for -- as an example, in Q4, 50% -- over 50% of our in-person events were canceled because of the Omicron surges. And that's unfortunately an important part of our sales motion. So can we get better at designing our sales motion so that it's more efficient during disruptions like that? Absolutely, we can. But it's also -- it's a fact that those things are disruptive to us. In terms of the sales headcount, I would say the -- it has been surgical what we've done so far. It has been built around a focus on productivity and where we think we can be productive. And to me, productivity is one of the most important indicators of the health of our overall go-to-market. And so I'd like to see how we're dealing with productivity before we get into capacity modeling and increasing our quota carrying and making sure that we have the right number to handle the amount of demand that's out there.

Maybe just a follow-up on that, if I may. So I guess we are in a sort of a reopening phase of the economy as it kind of relates to COVID. And shouldn't that then kind of allow you to kind of benefit from -- and how much are you baking in from that? Second is just around the recent developments, right, in Europe around Ukraine and if you're seeing any impact from that.

Sure. So on the reopening, I mean I think it's interesting to note that we sat here a year ago and we, as a company, really felt like the reopening tailwinds were coming. And so we're certainly being cautious in how we build our plan and how we -- and ultimately, that affects our guide. We'd certainly like to see those tailwinds as we go into this year. The -- as far as the Ukraine impact goes, we have no exposure -- direct exposure to Russia or Ukraine. And so far, we haven't seen that have any impact on our business.

Our next question comes from Ryan MacDonald with Needham.

Maybe the first one for Michael. As we start to think about this, I guess, slower growth period going into calendar year '22 here, how should we think about reps as you work through the year and some of these changes about sort of a more balanced approach to growth and profitability? And obviously, within what's built into the guide today, obviously, a little bit lower in terms of EPS and perhaps the Street was expecting. Are there any, I guess, charges or sort of onetime costs that you have to incur early in the year that is maybe preventing you from being able to ramp margins more quickly?

So thanks, Ryan. I'll leave the accounting questions to Darryl which will be a practice that you'll get used to with me. When it comes to -- but I do think you hit an important point which is change management at a company of our size does take time and it's not as easy as flipping switches. And so although we have already begun to become more efficient, those changes do take time to get through the system. And while we are committed to those changes, we also want to make sure that we're making the right changes and that they're surgical and that we're not doing things that impact the core of our business which is incredibly healthy. When it comes to efficiency, I mean one of the things that you're hearing from us is that we expect to be sustained positive on an operating cash flow basis and to me, that's one of the most important metrics in our businesses. If we're producing operating cash flow, then that gives us a lot more flexibility than if we're burning cash which we do not expect to.

Yes. And Ryan, just to capture your question about the onetime expenses, there will be some but not incredibly meaningful in Q1. One thing that we are going to focus on is a lot of operational efficiencies and continuing to look at where we're spending, how we're spending and reallocating as needed. So we'll -- throughout the year, we're going to probably look at R&D and may spend a little bit more there as we have an opportunity to improve the product to make them easier for customers to use. And that's going to be an area where we'll continue to focus. As well, we mentioned in the past that we've made some investments in customer success and customer support. We'll continue to look at that area as an opportunity to create better customer experiences to help continue to drive retention improvements. And the one thing that we've been talking about for quite some time and have demonstrated some pretty good success is continuing to drive efficiencies on the sales and marketing line and we expect to continue to do that.

Excellent. That's helpful. And maybe just as a follow-up, as we think about the go-to-market strategy. You talked about the unification of that strategy is already underway and then you're working towards that. As you think about the product set between listings and pages and answers and the Answers suite that continues to evolve, do you still feel that there is a strong sort of synergy and cross-sell motion between the 2? And if not, is there -- are you looking at sort of -- is there any product rationalization we should expect as a part of the changes?

So my point of view on that is we -- across the product family, we're still seeing that kind of non-listing products are still all growing about 30%. So we do see strength in that business. Obviously, listings is the biggest part of our product set. Upsell, cross-sell motion is one of the most important parts of our go-to market. I think it's one of the biggest opportunities for us. When we talk about one of the ways that we'll know that we're doing a better job with our customers is we'll be seeing higher gross retention and higher upsell. And it's certainly one of the things that impacted us in fiscal year '22 on the new bookings side. So, I'm a firm believer in my -- I've spent most of my career building solutions that start with the customer and they start with solving the customers' problems. And I don't see a single product in our portfolio that doesn't solve a very large customer problem. We have to do a better job of coordinating our motion when it comes to showing our customers the solutions to their problems and servicing them when we do get those deals.

Our next question comes from Pinjalim Bora with JPMorgan.

I just wanted to take a step back and maybe if you can talk about what surprised you in the quarter in terms of Q4 bookings. Because it seems like the ARR numbers came up at least below what you were thinking. Talk about what surprised you. Why did -- why was it not that great? And maybe talk about the core business. And I know core business was coming back up. I think last quarter, it was growing about 5%, had come from like 1% growth in Q4 of last year. How has -- did that take a step back in Q4 essentially that kind of impacted bookings? The other thing associated to that is I think you see reps, you said 225. I think the year before, you ended 250. Was there a higher sales attrition that you saw ending the year? Was that a result that impacted kind of bookings? Help us understand what impacted bookings.

Yes. So there's -- I'll go first. And I think there are -- when you talk about Q4 and we saw this to some extent in Q2 as well, I think we told you in Q3 that we were going to be doing -- there's going to be a lot of focus on customer-facing events and getting back to our customers. And as I mentioned before, we -- between December and January, we lost more than half of those events, simply because we couldn't do them. So the surprise for us in Q4 was how disruptive the motion in the world was by the Omicron surges. And again, I'll say it again, we should get better at selling through those sorts of disruptions. But certainly, when we exited Q3, we didn't expect to see that kind of disruption and it absolutely affected bookings. And sorry, the other question was about sales attrition. I think when -- in shifting from a capacity-driven model to a productivity-driven model, this is a little bit of a different focus for us. And so you will see natural attrition in an organization that -- where you have fewer sales reps who are achieving their quota. In this case, we wanted to make sure that we were addressing productivity proactively. And so that big dip you see from 2.25 to 190 currently, that was more action on our side.

It was more forced than voluntary is what you're saying?

It was proactive on -- yes.

Our next question comes from Rohit Kulkarni with MKM Partners.

Good luck, Howard and Steve and congrats, Mike and Darryl. So just double clicking on this kind of fragmented product and sales comment. Mike, maybe you can kind of expand on to last year, we kind of heard a lot around lead with Answers and that's going to be the leading product, although Listings remains predominantly the largest driver of all the economics. So perhaps maybe take a step back, how are you thinking next 12 months with regards to go-to-market? And also increasingly, we were hearing around kind of verticalized use cases gaining more traction and that's the way some of the salespeople were being directed to go after specific vertical use cases, need support, e-commerce or whatnot. So as you think through over the next 12 months, what should we expect from kind of a more unified product and sales? Should we expect more of these vertical use cases? Or is there going to be a step back with regard to Listings being the more leading product? Would love to hear your kind of big picture thoughts on that.

Yes. So I'll give you my big picture thoughts and we'll be updating these quarterly as I get deeper into it. But again, because I have been Chairman and I've had an opportunity to be very engaged over the last few months, I'm not coming into this conversation cold. One of the things we still see is that our bigger deals are still Answers-led. So I see nothing that says that the Answers opportunity isn't as big as we thought it was and that we won't be continuing to lead with Answers where it's part of the -- where it's the most important part of the customer solution. Another way that I would frame this and again, this is all sort of stuff I've dug in on, is all of our products are built around getting the right answer. So while we distinguish between Listings and Pages and Answers as an example, Listings was the original Answers product. It was where we -- how do you make sure that your local information is correct everywhere? Getting the right answers -- the customers' right answers out there. So nothing about that has changed. And nothing about my point of view on the opportunity has changed. What we have to do is execute better. And that goes to -- verticalized selling is a very useful way to think about this. Expertise matters. Understanding the customer matters more than ever in our new go-to-market motion. When I talk about fragmentation, the types of things I'm talking about and the number of touch points that our customers feel. So my wife will forgive me for sharing her customer experience but she runs a small restaurant group. And when I asked her how her customer experience was going, she said, "It's great. We've had at least 15 customer touch points." Which was -- I think is part of the challenge is that we have so many different groups touching the customer at times, I think we lose track of having a single dialogue with the customer. And so the organizational changes that we've already started to make are about centralizing those interfaces and making sure that client success support professional services, customer service that they're all touching the customer in a way that's very consistent and aligned with our -- and more closely aligned with our go-to-market. So hopefully that makes sense but that's really what we're driving towards. And that's how historically I've done this in the past with other SaaS-type solutions.

Okay. And just other question on like upsells and renewals, any specific callout in how that has trended over the last 90, 120 days with regards to kind of any particularly call-outs with regard was upsells more stronger or weaker or renewals as an end retention rate, how did that trend?

Yes. So Rob, we've seen some pretty solid improvement in gross retention over the last Q3 and Q4. Where we're really challenged and continue to be challenged is on the upsell. And I think that sort of plays into a lot of what Mike has been talking about, about sales productivity and continuing to refine the go-to-market approach.

I was only going to add that I think when you get the customer relationship right and when your customers are happier, the entire upsell, I mean, this is simple basic stuff but the whole upsell motion gets a lot easier when -- if we're seeing challenges on the customer satisfaction or success side of things, then it makes that conversation harder. And while we have seen the renewals recover nearer to historic levels, we are very focused on getting them back to or above where they've been historically.

[Operator Instructions] Our next question comes from Stan Zlotsky with Morgan Stanley.

This is Elizabeth on for Stan. I wanted to double-click on the go-to-market efficiency. Just given some of the comments last quarter about the 50% improvement in sales productivity of ramped reps, was there anything specific that changed over the last three months outside of just the reduction of interested events?

Yes. So I think what we saw was the 50% increase in ramped rep productivity, we obviously took a step back in Q4 there. And it certainly had a lot to do with taking a look at what we're seeing on the productivity side of that. We have many reps who are highly successful and there's a model for success here. We have to get better at replicating it. When I talk about unifying sales training and enablement and making sure that everyone is using the same motions, that's all part of that process. And so...

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