Hello and welcome to the Yext Fourth Quarter and Fiscal 2023 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. Please, go ahead.

Thank you, operator, and good afternoon, everyone. Welcome to Yext's fiscal fourth quarter 2023 earnings conference call. With me today are CEO and Chair of the Board, Mike Walrath; COO and President, 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 first 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 fourth 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. We undertake no obligation to revise any statements to reflect changes that occur after this call. Descriptions of these and other risks that could cause actual results to differ materially from those forward-looking statements are discussed in our reports filed with the SEC, including our most recent Form 10-Q for the quarter ended October 31, 2022, our annual report on Form 10-K for the fiscal year ended January 31, 2022, 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.

Thanks, Nils, and thanks, everyone, for joining us today. We are pleased to report our Q4 results and a solid finish to our fiscal year 2023. For the full year, we generated revenue of $400.9 million and a non-GAAP net loss per share of $0.02, which compared to a loss of $0.15 last year. We made meaningful progress in driving transformation across our business through continued product innovation, focused execution and improved productivity. We strengthened our commitment to solving customer pain points and drove increasing adoption of our platform. At the same time, we delivered operating margin improvement and two consecutive quarters of non-GAAP profitability. When we presented our management changes one year ago, we made several commitments. We committed to increasing customer focus and satisfaction. We committed to shift our go-to-market model from a capacity-driven model to a productivity-driven model. We committed to operating more efficiently and more profitably. We committed to our shareholders and our employees to increase our transparency and communicate better. We've made significant progress with the objectives we set a year ago and I would like to highlight some of the actions we took to improve our performance in a few key areas. First, we dramatically improved our go-to-market motion with a focus on increasing customer satisfaction. We rolled out new brand positioning that better aligns with what we do, making it easier for our customers to understand our product's value. We hired a new CMO to lead the development of our integrated marketing strategy and execution, and we hired a new CRO to drive improved sales execution, increase customer satisfaction and accelerate global revenue growth. Raianne and Tom have hit the ground running and brought fresh energy and perspectives to the organization. Our renewed focus on customer satisfaction has begun to show up in…

Thanks, Mike. I'm also proud of the progress our team has made in a short amount of time and I want to acknowledge and thank them for their hard work. Over the past 12 months, we've completely remodeled our go-to-market motion and our entire product platform, while improving efficiencies across the entire organization. In short, we got leaner and stronger this past year and didn't skip a beat on product innovation. I want to pick up on a point that Mike made which is that we are well positioned to add value for our customers regardless of how the search wars play out. The Knowledge Graph is a key foundation of conversational AI for business and we've been helping customers build their Knowledge Graph for years. We've been leveraging AI and transformer-based models in our digital experience platform for many years, specifically in our search and connector offerings. Within the family of transformer models we work with, we have been developing generative models and have been piloting them with customers for the past year. Over the coming years, we will continue to take a model-agnostic approach to helping our customers deliver digital experience which will include developing our own models and using the many great third-party models on the market today. We believe that AI will fundamentally change the digital experience for every user and every brand. In order for businesses to take advantage of this market shift, they will need new building blocks and a new composable architecture that leverages the best-in-breed technologies to deliver the digital experiences that their customers expect. This new digital experience architecture will be built on the foundation of AI and Knowledge Graph technologies, which will allow for companies to deliver conversational and consistent experiences across all their digital channels such as search engines,…

Thanks Marc. As our financial results demonstrate, we continue to execute well in the fourth quarter. Our Q4 revenue grew to $101.9 million which was above the high-end of our guidance range. And our full year revenue was $400.9 million, compared to $390.6 million in the prior fiscal year. Revenue growth in Q4 was approximately 3% in constant currency and 1% on an as-reported basis. This represented a year-over-year impact of approximately $2.3 million, due to FX. Full year revenue growth was approximately 5% in constant currency and 3% on an as-reported basis. This represented a year-over-year impact of approximately $10.2 million due to FX. Unearned revenue was $223.7 million at the end of the quarter, up slightly from the same period a year ago. Annual recurring revenue or ARR at the end of Q4 was $400.4 million, up 4% year-over-year in constant currency and 3% on an as-reported basis. This represented a year-over-year impact of approximately $4.8 million due to FX. Direct customers represented 82% of total ARR. Direct ARR at the end of Q4 totaled $327 million an increase of 6% year-over-year in constant currency and 5% on an as-reported basis. Our customer count for direct, excluding SMB, increased 7% year-over-year to over 2960. Third-party resellers which represented 18% of total ARR at the end of Q4 generated ARR of $73.3 million, a decrease of 6% year-over-year in constant currency as well as on an as-reported basis. ARR is how we gauge our progress and momentum in sales. Renewals and up-sells and when calculated on the basis of ARR we believe our dollar-based net retention rate indicates the long-term growth potential of our customer base. Historically, we had used trailing 12-month revenue as the basis for determining net retention. But going forward, we will disclose this ARR-based net…

Thank you. We will now begin the question-and-answer session. [Operator instructions] Today's first question comes from Tom White with D.A. Davidson. Please go ahead.

Great. Thanks for taking my questions. A couple on guidance, if I could, and then one on AI. Just could you talk a little bit about what the full year guide kind of contemplates as it relates to your listings business? And then also on gross margins, should we anticipate that kind of the sort of steady state or kind of long-term kind of target for gross margin is up appreciably after the changes you guys are making on the services side? And then I've got one on AI.

Great. Thanks, Tom. It's Darryl. On the question with the revenue guide, we don't really forecast out or plan out the business based on products. What I can say is, obviously, we mentioned the headwinds that we're seeing from a couple of different areas based on some of the strategic decisions that we made in Q4. So that's certainly going to have an impact. We think that impact is in the range of low-single-digit percentage point on growth. What I will say about the listings business is, Mark highlighted some of the specific customer examples in his section that demonstrates the strength of the listings product and how that ties into the rest of the platform. So we feel pretty good about that. Your second question with respect to margins, yes, you're right. The actions that we took in Q4, was primarily aimed at how we operate the services business and our plans for the future. So yes, we'll see a step function in Q1 compared to Q4. Like we said, we'd expect Q1 gross margins to be in the middle of that 75% to 80% range. And we'll show continued improvement throughout the rest of the year.

Okay, great. And then…

Sorry. It's Mike. I was just piggyback on what Darryl said about the listings business. So one of the things we told you in Q1 and Q2 was that a lot of the gross retention challenges that we saw in Q1 and Q2 were largely coming from listings-only or primarily listings customers. So we're very pleased to see that our gross retention metrics have improved throughout the year and particularly in Q4 into the high 80s. And I think that's a -- what that shows is that we're doing a much better job bringing satisfaction to these customers and servicing these customers. And so in the area where I think we were most exposed, which were in largely the listings-only customers.

Okay. Appreciate that added color. Thanks. And then just on generative AI. There's been a lot of debate about how it may alter the established search engine paradigm. Can you just elaborate a bit more on whether that represents an opportunity or a risk for Yext?

Let me start and then Marc will probably go a little deeper on this. I'll just tell you this. The platform that we've built is designed to be model agnostic. It can -- regardless of whether any of the existing players or new players show up and become participants in this market with dominant models all of that bodes well for Yext and for our customers, because what we're interested in is making sure that the best models are in use. Marc can talk a little bit more about how we do that within the platform. What I think we're seeing is a lot of businesses are awakening to the risks of not controlling the sources of information that are being feed to the AI. Even just over the last couple of months, you started to see businesses take actions to significantly limit what's being done with AI without having better controls over how the technology is being used. And that's the problem that we solve for customers.

Just to add to what Mike said, what generative AI is doing right now is it's raising the bar for digital experience. And you're starting to see the content -- you're starting to see basically generative AI and the ability to deliver direct answers as part of consumer experiences. So the opportunity for us is to really help our customers and help businesses deliver a similar experience to what the consumer experience is because if this is the new bar then every enterprise, every business in the world is going to have to live up to that new expectation of digital experience. And so the big difference here is that for a business though you need to make sure that you're answering questions that are -- that have 100% accuracy that come from a set of corpus or a set of information that you control, and of course as you see new searches come in, the ability to add and augment that information to make sure that the next time someone asks that question that you can. And that's why it's a pretty big opportunity right now that we're seeing show up in so many different sectors in so many different areas. But for us we're really excited about it.

Great. Thank you very much.

The next question comes from Rohit Kulkarni with ROTH MKM Partners. Please go ahead.

Hey. I'll go with AI first and the model next. So first on the chatbot, maybe talk about how do you provide concrete anecdotes or showcase that the chatbots that Yext has with the corporate information versus the Bing chat that has had a whole bunch of misses as such. So I guess maybe talk through, how does Yext Chat integrated with existing knowledge base could outperform Bing's or some other large language model, integrated chatbots with public information. And then any color on pricing on any of the new recent announcements on chat or the CMS?

Sure. I'll take two different questions there. I'll start off with sort of what is -- how do we think that we'll be able to deliver a better experience, and I think the key is that we're delivering an enterprise experience. And what that means is that as the chat conversation takes place, as that back and forth takes place with the user, the information that the generative models has or the sort of narrow information that it has is just the information that's in the knowledge base. And part of the challenge is, of course, to make sure that these generative models do not make up information. And one of the cool things we're doing here is we're combining our large language model expertise with our search offering -- with our search expertise combined with our Knowledge Graph expertise and bringing all those technologies together to ensure that when not only answer a question accurately, but more specifically that it doesn't answer questions that it doesn't know anything about. And that is one of the real challenges with these large language models. And the way we do that is by, of course, narrowing down the data set and then more specifically leveraging these large language models for what they are, which is the ability to sort of translate natural language into other forms and other structures. The second part around pricing. We just announced the Yext Chat offering. We are in a limited beta right now, so we don't have a pricing model that we're ready to share with the world and the same thing with Content Generation.

Okay. And then on the guide for the fiscal year, I don't know whether you've already helped quantify the headwind associated with how you're deemphasizing direct sales to SMBs and then more SI partner relationships. So maybe I don't know if it's easy to quantify kind of incremental revenue and incremental EBITDA kind of headwinds that you are assuming in the current fiscal year guide.

Hey Rohit, it's Darryl. Thanks for the question. What we can say is, we've laid out sort of a couple of different headwinds in Mike's section. And when you look at the -- those in the aggregate, we think the impact to year-over-year revenue growth is in the low single-digit percentages. We haven't really gotten into how that sort of rolls into EBITDA, but you can see a pretty good increase in EBITDA from fiscal '23 to our fiscal '24 guide. So we've certainly made a lot of really great progress this year on generating efficiencies that will be sustainable.

Okay. Great. Thanks, Mike. Thanks, Darryl.

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

Hi guys. Thanks for taking the question. Maybe if I can just continue on the generative AI conversation. I'm curious where you see Yext Chat fitting into the broader picture with Yext Answers. And I'm trying to envision a customer use case. Is there room for a customer to adopt both Yext Chat and Yext Answers? Or does generative AI and natural language responses replace the need for Symantec search that a customer may have on their website?

Yes. So the best way to think of this is that there's going to be multiple digital experiences that exist in the world. There's not just one. There's not sort of like one digital exchange to rule them all. Whether it be mobile, whether it be web, whether it be messaging and chat, whether it be a commerce experience, they're all different experiences. They're all operating against the same information. So there are certain digital experiences that may call for more of a messaging experience, right, something where you want to have an exchange that's more sort of human-like and that might be the best scenario. Maybe that's sort of an example of like a shopping assistant or even like a handling support use cases. There are other examples where you want to have free form full result sets that you can visualize and you can interact with like in a commerce setting or something like a locator right? Those are just different -- they're different user experiences that somebody may want to deliver. And so as we have expanded our digital experience offering and expanded the set of composable pieces or building blocks of our platform we want to give our customers the option. We want to give them the choice. We want to give them the widest breadth of tools of building blocks that they can possibly have in order to create as many different experiences as they like.

Okay. Got it. That's helpful. And then just taking a step back as we think about all the new product announcements you have Yext Chat you have the CMS solution, the self-generating CMS rather, are these -- where are we in just the development and -- of these products and getting them to a fully functional level? And then from a financial perspective, how should we think about just the time line of when we start to see an impact on revenue and customer adoption from these solutions?

Yes. So we talked about Content Generation being there as part of our spring release, which will be coming out in a few weeks. For Yext Chat, we're in early stages of a beta right now. We've actually -- are beginning to launch a handful of beta customers. And so for us we're looking at getting those customers successful and then towards the back half of the year opening it up to a much, much wider audience.

Perfect. Thank you.

You asked about like when should we expect to see financial contribution. I think it goes to the way -- the answer to that question is it goes to the way we think about how we go to market, right? So we're not necessarily thinking of these things as point solutions. We're thinking of them as digital experiences that were going to help enterprises deliver more effectively. And so depending on the company then they may have -- they may need all of these digital experiences, they may need some of them. And the modularity of the platform the ability to take pieces of it and make it all work off the same Knowledge Graph and the same set of models and technology is one of the really compelling things about the platform. So we're happy -- as we've said before, we'll land with one solution or many solutions depending on what's top mind for the customer. Our goal is to prove the power of combining semantic search and large language models with the Knowledge Graph in an enterprise setting. And once we've done that then the upsell, cross-sell motion is obvious because you've already composed a Knowledge Graph and you can then just layer additional experiences on that seamlessly.

Okay. Got it. That's helpful. Thanks for taking the questions.

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

Hey. Thanks for taking the questions. This is Matt Shea on for Ryan. Nice to see some recovery in the dollar-based retention in the quarter, it looks like gains were stronger in the third party than the direct segment. What drove the difference in the quarter-over-quarter recovery? And what gives you guys confidence that Q3 was the trough for those metrics and that you can continue to build off of the success that you started to see in Q4 over the course of FY 2024?

I'm going to let Darryl answer the numbers question. I'll say, qualitatively, I think we can feel this – and we can see this and feel this in our customer engagements. We – what drives the gross retention numbers is obviously customer satisfaction. We've talked about this quarter-after-quarter. It was not fun in Q1 and Q2 to speak with every customer who left us and hear their – and hear about the reasons why. So I can tell you, I haven't stopped speaking to customers. I talk to them all the time, every opportunity we get. And our focus on customer satisfaction and making sure that not only do they want to continue using the products that, they're using, but they want to buy more from us is taking hold. And so qualitatively, we feel really good about the progress we've made there. As we enter a new year here, where we'll go through the same up for renewal ramp that we see every year and I think we'll just keep getting better at this.

Yeah, Matt. This is Darryl. Just to answer the question on the numbers. I just want to make sure, it's clear. We moved from the legacy method that we were doing to calculate net retention on revenue over to ARR. ARR is a more forward-looking metric. We're also disclosing ARR at the end of each period, so we thought it'd be useful to provide a retention rate based on that same basis. And just to help provide some – a little bit more clarity the compares to the revenue rate to the ARR rate are generally pretty close within one to two percentage points each quarter. But going forward, we'll continue to provide this on the ARR basis, as it lines up pretty neatly with our ARR disclosures. So when you think about that, the higher gross retention that we saw in Q4 in the high 80s is certainly helping move that – move the net retention metric in that direction.

Got it. That's helpful. Appreciate the color. And then appreciate the earlier comments on some of the new C-suite additions the new CMO and new CRO. Now that they've been in the seat for four to six months maybe a little longer, as you look to start the new fiscal year what strategies would you say that they are the most focused on? And how is this informing some of your initiatives for the coming year?

Yeah. So I think we're roughly four months for Tom and roughly six months for Raianne. And when we hired these leaders one of the things, I told you was with sales cycles in the 6 to 12 month range. It takes a while to really see the quantitative impact of a better go-to-market machine, because it takes a while to build that. And as you're building it, you're definitely getting better at delivering the – through that engine. But it's not like, it starts on the day that they get here. So we're really pleased with the progress that's being made there. I think Tom and Raianne, they know their business well and they're executing effectively. And the results are showing that things are improving. I think we expect that to continue throughout the year. And a lot of the things that we've been building and launching on the go-to-market side of things are really just now getting into usage. So, it's still early, but we're feeling really good about what's happening on that side of the business.

At this time, there are no more questions in the queue. This concludes our question-and-answer session as well as today's conference. Thank you for attending today's presentation. You may now disconnect.