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Edited Transcript of YEXT.N earnings conference call or presentation 29-Aug-19 9:00pm GMT

Q2 2019 Yext Inc Earnings Call

NEW YORK Sep 13, 2019 (Thomson StreetEvents) -- Edited Transcript of Yext Inc earnings conference call or presentation Thursday, August 29, 2019 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Conrad Grodd

Yext, Inc. - VP of IR

* Howard Lerman

Yext, Inc. - Founder, CEO & Director

* James Steele

Yext, Inc. - President & Chief Revenue Officer

* Steven M. Cakebread

Yext, Inc. - CFO

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Conference Call Participants

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* Brent Alan Bracelin

KeyBanc Capital Markets Inc., Research Division - Senior Research Analyst

* Brett Anthony Knoblauch

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Hamza Fodderwala

Morgan Stanley, Research Division - Research Associate

* Koji Ikeda

Oppenheimer & Co. Inc., Research Division - Director & Senior Analyst

* Mark Stephen F. Mahaney

RBC Capital Markets, LLC, Research Division - MD and Analyst

* Matthew James Coss

JP Morgan Chase & Co, Research Division - Analyst

* Naved Ahmad Khan

SunTrust Robinson Humphrey, Inc., Research Division - Analyst

* Philip Rigby

D.A. Davidson & Co. - Research Associate

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Presentation

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Operator [1]

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Good afternoon, and welcome to the Yext Second Quarter Fiscal 2020 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Conrad Grodd, Vice President of Investor Relations. Conrad, you may start your conference call.

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Conrad Grodd, Yext, Inc. - VP of IR [2]

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Thank you, Andrea, and good afternoon, everyone. Welcome to our second quarter fiscal 2020 conference call. With me today are Howard Lerman, CEO of Yext; Steve Cakebread, CFO; and Jim Steele, President and Chief Revenue Officer.

Before we begin, I'd like to remind everyone that this call may contain forward-looking statements, including statements about revenue and non-GAAP net income guidance, margin, revenue retention, market opportunities, capital expenditures, business performance, financial outlook and other nonhistorical statements as further described in our press release. These forward-looking statements are subject to certain risks, uncertainties and assumptions, including to those related to Yext's growth, evolution of our industry, product development and success, market opportunities and general economic and business conditions. We undertake no obligations to revise any statements to reflect changes that occur after this call. Descriptions of these and other risks are discussed in our reports filed with the SEC.

During the call, we do also refer to non-GAAP financial measures. Reconciliations with the most comparable GAAP measures are available in our press release, which is available at investors.yext.com.

With that, we'll begin by turning the call over to Howard.

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Howard Lerman, Yext, Inc. - Founder, CEO & Director [3]

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Thank you, Conrad. Hello, everyone, and welcome to our second quarter earnings call. We are pleased to report another solid quarter for Yext. I'm excited to share our quarterly highlights driving these results.

Revenue grew 32% over the second quarter of last year and it exceeded the high end of our guidance. Unearned revenue during the quarter grew 42.4% year-over-year. And the number of structured facts, which is an indication of engagement and usage, grew more than 60% from the year ago quarter.

We continue to see some of the best-known brands in the United States, Europe and Japan choose Yext. During the quarter, we signed contracts with leading brands like Travelers, Liberty Mutual, UCLA Health, [MAC], Big Lots, Versace and LloydsPharmacy. We also signed expansions and renewals with big customers like FedEx, AT&T, Baskin-Robbins, MetroPCS and BBVA Compass. In fact, last week, we signed a contract with my favorite broccoli cheddar soup maker, Campbell's. This is the first time in our company's history that we've closed a contract with a CPG company, that's consumer product goods, that doesn't have any physical store locations.

Now how were we able to sign a CPG company with no physical store locations? One simple word: search. Search is changing from links to answers. And because of this, people are being retrained to ask longer questions instead of just typing in simple keywords. They're not only asking longer questions, they're also asking questions in more places. The fact is that today's customer journey starts with a question, and if a brand doesn't answer a question, someone else will. So what do you need to answer a question? What you need is the Knowledge Graph, and this is a structured database that contains facts and their relationships in a way that can efficiently be surfaced to answer a question. It turns out Yext powers the Knowledge Graph for everyone of our clients, and collectively, these contain more than 200 million structured facts. And that gives us a huge head start and be able to deliver a breakthrough new search product, which we call Yext Answers.

Let's take a step back. Today's site search products are not that smart and they're not that useful. Most sites, when you see that magnifying glass, you type in a query and you get junky results. Try it, for example. Go to Procter & Gamble's website, pg.com. Now the very first search result for their popular product, if you search for Tide, just type in Tide, it gives you a Vietnamese result. You can't find what you're looking for. And when a user gets a result like this, they just go back to Google. And it means Tide lost control of the customer journey and that the user is likely to see competitor ads. Yext Answers is a breakthrough new site search product that delivers a Google-like experience for every company. It gives you answers, not links. The user types in a question in a company's website, and Yext answers the question kind of like Google does except it's all controlled by the brand and built on a brand's Knowledge Graph. It's simple to install and every single business with a website can use it. We're already seeing strong demand. It's in early access right now, but already by the end of Q2, we sold 8 answers-led deals, and that's pretty impressive considering we're still in early access. Now like Campbell's, we signed a large health care company to Answers. The #1 use case in visiting a health system website to find a doctor, and these are the kinds of questions that Yext answers. Answers is the latest expansion of our platform. With Answers, we've got 3 products that's in the Knowledge Graph: Answers, Listings and Pages. We've got answers we just talked about that delivers a safe search experience on Yext's customers' websites where customers can search the Knowledge Graph and get answers. Pages lets Yext customers create a page for every answer, which is a best practice for ensuring the right information shows up in the search engine. And Listings integrates the data in the Knowledge Graph directly into 150 voice assistants, maps, apps, third-party services like Google and Amazon, Bing, Facebook and many more.

And because the market opportunity is so large, we think that Answers is going to be a natural entry point for many companies. It's essentially available to any company with a website. It's no longer limited to physical locations. This will significantly increase our total addressable market. We're launching Answers in general availability at ONWARD. I am so excited to share more details about Answers on our next earning calls.

With our mission of perfect answers everywhere, Yext is leading brands into the future of search. We've been doing this for more than a decade. We always have and we always will.

And with that, I will turn it over to Jim.

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James Steele, Yext, Inc. - President & Chief Revenue Officer [4]

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All right. Thanks, Howard. We continue to build momentum across the business in all geographies, vertical markets, enterprise and in mid-markets. We continued to win new businesses this quarter, closing over 90 deals with at least $100,000 in contract value and 10 deals that resulted in at least $1 million in total contract value, including new logos and renewals of existing customers versus 7 deals the same period last year.

International did exceptionally well in Q2 and our investments in Europe and Japan are starting to pay dividends. In Europe, we added big logo names such as Calzedonia, Versace, [Ketai], Arcadia Group and Diageo and significant expansions at IWG Regus, Philip Morris and Barmenia. Japan's most impactful deal the quarter was Plenus, one of the largest foodservice companies in Japan.

With international revenue only 17% of total revenue in the quarter, there's still much to go after. Along with our international investments, we continue to build and invest in enterprise and mid-market sales teams commensurate with the opportunity we see ahead.

Total quota-carrying sales reps increased nearly 35% year-over-year to 203. And under Patrick Blair's leadership, we made significant progress in building out our mid-market team where we're tracking the best people in the business to build a solid foundation.

And speaking of attracting the best to the team, I'm pleased to announce that we hired my former colleague from Salesforce, Mary Fratto Rowe, as our new EVP and Chief Customer Officer. Mary will lead our global client success, professional services and consulting and client delivery organizations. She'll be responsible for the entire end-to-end client and partner experience with Yext. In Mary's most recent role at Salesforce, she was Senior Vice President of the customer success group responsible for the Americas professional services, where she oversaw a team of more than 1,300 people. During her more than 13 years at Salesforce, Mary was responsible for more than 1,000 customer implementations globally and worked directly with the company's largest and most complex customers. She also led the global advisory services division of the Salesforce success cloud, advising customers on the most strategic solutions for their businesses. I worked with Mary for more than a decade at Salesforce and have seen Mary's incredible impact on customer success firsthand.

We are so excited with the upcoming Answers product launch and the customer energy and enthusiasm going into ONWARD. So now, I'll turn the call over to Steve to walk you through the quarter in more detail.

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Steven M. Cakebread, Yext, Inc. - CFO [5]

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Hey, Jim. It was a solid quarter. And a quick note before we get into the numbers, I'll just want to remind you that we adopted ASC 606 in the fourth quarter of the prior year and ASC 842 for lease accounting last quarter.

Our second quarter revenue grew 32% to $72.4 million. That's above the high end of our guidance. Our small business revenue just for reference was $3.2 million for the quarter. Unearned revenue, which we formally reported as deferred revenue prior to our adoption of 606, increased 42.4% from the year ago period to $122.7 million. Due to the lumpiness of our enterprise business, we'll see variability in this balance throughout the course of the year. And as a reminder, last year, our unearned revenue was high due to our largest initial deal ever signed, Morgan Stanley.

As of July 31, we had $259 million in remaining performance obligation or RPO, which is relatively unchanged from Q1. And our backlog includes another $32 million of revenue that's under contract but subject to accounting exclusions. On that basis, we have $291 million in estimated future revenue under contract.

Our overall net revenue retention dropped about -- to about 108%, and that's below our traditional 110% but it was driven by some mergers, a partner in Europe that was closing business, and one of our other European partners who serves a very small end of our business line reduced our license count as renewals to their solutions slowed. We do expect over time to return to our more traditional levels.

Gross margins were 73.4% this quarter, a slight decrease of 100 basis points over the second quarter last year and that's driven primarily by the timing of some onetime publisher fees. We remain comfortable that gross margins will continue to be in the mid-70% range.

Total OpEx increased from $60.3 million last year to $83.4 million this quarter. The primary drivers of this increase was the overall growth in headcount, including the increase in our quota-carrying sales rep count along with the new leases in New York, District of Columbia and London. We will be incurring double lease expense in New York until the completion of our new global headquarters in 2020.

Second quarter net loss increased from $19.4 million a year ago to $29.3 million this quarter. On the basis of our 111.8 million weighted average basic shares outstanding, net loss per share of $0.26 this quarter compares to a $0.20 loss a year ago. Non-GAAP net loss, excluding stock comp -- stock-based compensation, increased from $8.4 million a year ago to $12.7 million this quarter. Our non-GAAP net loss of $0.11 per share this quarter compares to $0.09 in the year ago quarter and was $0.01 favorable to the high end of our guidance. Please refer to the press release we issued this afternoon for a reconciliation of GAAP to non-GAAP results.

Cash, cash equivalents and marketable securities totaled $274.2 million as of the end of July 31, 2019. Net cash used in operations for the second quarter was $11.4 million as compared to net cash used in operations of $4.4 million in the year ago period. The biggest drivers again were the increase in headcount and our new leases.

We demonstrated over the last fiscal year our business model is capable of generating healthy cash flow. As such, we decided to accelerate our investments in people and facilities in 2019. We've already begun to build out the mid-market sales team, which will start to come online next year. The ramp in sales cycles for a typical mid-market seller are about half the time of an enterprise seller. And these faster ramp times and overall size of the mid-market opportunity should help smooth the revenue lumpiness we experienced from landing larger-sized deals within the enterprise channel over the next few years.

As to guidance, in the third quarter, we expect revenue to be between $75.5 million and $76.5 million. And in the same period, we anticipate non-GAAP loss per share between $0.18 and $0.19, which reflects the investments we need to make in facilities, people -- and oh, by the way, ONWARD is an event in Q3. This assumes a weighted average basic share count of approximately 113.6 million shares.

Turning to the full year. We're raising the revenue range that was $297 million to $300 million. It's now guided to $299 million to $301 million. We're tightening our existing non-GAAP net loss per share range between $0.41 and $0.43. This is based on an assumed basic weighted average share count of approximately 111.9 million shares.

Let me turn it over to Howard about ONWARD in October.

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Howard Lerman, Yext, Inc. - Founder, CEO & Director [6]

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All right. In just 9 weeks, over 1,600 marketers and search technology leaders are going to join Yext at the Marriott Marquis in Times Square for ONWARD19, and this year's theme is the future of search. It's October 29 and 30. Our attendees are going to hear from Magic Johnson, from Seth Godin, from experts in today's leading technology and in search, including Google, Amazon, Bing, TripAdvisor and so many more, as we discuss the paradigm shift in search from chaotic results to brand-verified answers, and we're going to launch Answers there. ONWARD has sold out every year and we hope to see you there.

And with that, operator, we will open up the line for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question will come from Koji Ikeda of Oppenheimer.

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Koji Ikeda, Oppenheimer & Co. Inc., Research Division - Director & Senior Analyst [2]

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I had a question here on sales capacity. So the business increased its sales headcount 35% year-over-year, and that's really great considering we're hearing the hiring environment is really, really tough out there. I was wondering if you can comment a little bit about the headcount between the enterprise and the mid-market segments and maybe comment a little bit on that 35% growth. Was that target -- or was that on target with the plan? Or maybe was that a little bit ahead of plan or behind plan? And I've got a follow-up for you.

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Steven M. Cakebread, Yext, Inc. - CFO [3]

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Yes. So Koji, a couple of things here. Obviously, we've continue to focus on enterprise and we've been hiring a number of enterprise sellers, but the big growth is obviously in mid-market. We've got Patrick Blair here. He's world-class in building up that kind of business, and a lot of the sellers we hired over the last couple of weeks have been mid-market sellers. But we are on our targets. I mean we're hitting our numbers, we feel good about it.

The recruiting environment, you're right, it's hard but we are being -- with the leadership we have and the business model that we have, we're able to attract great talent. So I feel real good about where we're going and the sales capacity needs to get built up. You'll talk about productivity and I'll sit there and say, gee, I'm not in the 32 NFL markets. You've heard me say that before. I keep encouraging Jim to go to more markets. But New York, Chicago, San Francisco, Dallas, that's a start, but we need to be in a lot more markets. So we are going to continue to improve, and as Howard described, some really exciting products coming up in the future.

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Koji Ikeda, Oppenheimer & Co. Inc., Research Division - Director & Senior Analyst [4]

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Got it. And as a follow-up, just how should we be thinking about the pace or maybe the cadence of hiring for the rest of the year?

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Steven M. Cakebread, Yext, Inc. - CFO [5]

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Yes. No, Koji, good question. I mean it is a process and so it does take a little bit of time, and we are doing global because we are also hiring people in Europe as well. So we have goals. We've been on track on those goals and I don't see any reason why we won't continue to be on track with those goals till the end of the year.

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Operator [6]

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Our next question comes from Naved Khan of SunTrust.

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Naved Ahmad Khan, SunTrust Robinson Humphrey, Inc., Research Division - Analyst [7]

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Maybe a quick clarification on the sales headcount. I guess it's a pretty robust pace of hiring, but if I had to think about if it's -- if you're leaning more towards midsize versus enterprise, is it more on the midsize headcount that's making up the new hires? Or how should we be thinking about that?

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Steven M. Cakebread, Yext, Inc. - CFO [8]

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Naved, I think a couple of things here. One is we've never had a mid-market, so the numbers you're going to see obviously show the fact that we're starting from 0 and building that. But we are still hiring enterprise sellers and putting in regions. And like I said, we're not in enough cities in the U.S., let alone Europe. So there's a conscious balance there. It just looks like -- and you're going to hear the numbers look grand because mid-market, as you know, are smaller deals with more people but they turn quicker cycles. So we're looking at both. And obviously, you'll see numbers that will keep coming up. I don't know other than to say when we find great sellers, we're going to hire them. And it is not going to matter whether it's enterprise or mid-market.

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Naved Ahmad Khan, SunTrust Robinson Humphrey, Inc., Research Division - Analyst [9]

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Thanks for breaking out the legacy SMB revenues. Can you just talk a little bit about the growth in this enterprise and how -- I think last quarter, you said enterprise had grown close to 40%. Is enterprise still growing somewhere in the high 30s? Is that the right way to think about it?

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Steven M. Cakebread, Yext, Inc. - CFO [10]

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Yes. I think if you look at our Q2, there's a couple opportunities that we had. One is we had a monster Q2 last year so our compares are, if you will for this quarter, a bit challenged because when you drop a big deal like Morgan Stanley, it's tough to replicate that in -- right now, which is enterprise business, which is timely and deal-driven. So I wouldn't read too much into the changes in our growth rates in enterprise. The team is doing a great job. They're hitting their overall marks and we feel comfortable about where we're at with that. It's just that we had a monster compare last year and we feel really good about pipeline and where we're going for the rest of the year.

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Operator [11]

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Our next question comes from Brent Bracelin of KeyBanc.

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Brent Alan Bracelin, KeyBanc Capital Markets Inc., Research Division - Senior Research Analyst [12]

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A couple of questions, if I could. I'll start with Howard. This is more of a technology question, but it does look like Google did announce a change in their core algorithm. I think that was back in June. Can you remind us when Google makes big changes to the algorithm, how does that impact customers? And then how does that impact your business as well? And then a couple of other follow-ups.

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Howard Lerman, Yext, Inc. - Founder, CEO & Director [13]

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There's no real impact because what we do, Brent, is help customers organize all the facts in their Knowledge Graph and build pages and also syncs them in the maps. So there's been, I think, dozens of changes all the time. And they're -- what we're focused on is getting the right answer to the end user. When someone asks a question about Burger King, we want to make sure that the correct answer is there and Google's algorithms are going to always try to always help the user get the right information. So we don't see a business impact from algorithm changes in Google as we're focused on getting the right answers out there.

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Brent Alan Bracelin, KeyBanc Capital Markets Inc., Research Division - Senior Research Analyst [14]

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Super helpful. And then I guess shifting gears to Jim here on kind of the Answers product. I know Howard sounds excited about it. We'll learn more about it. But I was just trying to understand as you think about just the packaging, pricing, how should we kind of think about Answers? Is the intent to lead with the Answers suite and that becomes the main product bundle? Walk us through kind of packaging, pricing and positioning around kind of Answers product. It certainly seems like there's a lot of interest there, but I just want to understand the go-to-market around it.

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Howard Lerman, Yext, Inc. - Founder, CEO & Director [15]

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First off, the go-to-market is fundamentally a little different because the TAM for Answers is every single business that has a website. Every single business that has a website needs to be able to answer a question, and that's our opportunity. So instead of being limited to accounts that have physical store locations or have physical people at a place, now we have significantly increased the number of accounts that we can go after, and that changes how you think about doing marketing and doing some demand gen and doing thought leadership and how you get out there to driving down demand. So those are all opportunities to do more on top of what we're doing now to get our reps bigger territories and to get them doing more stuff. That's the first thing.

Now in terms of the pricing and packaging, you'll have to come to ONWARD and stay tuned for what that's going to be. I'm not ready to announce what the prices are going to be. But you can think about it being almost exactly like we sell pages and listings today where a customer's got to buy our Knowledge Graph platform. It's priced per entity per year. Once you have an entity like, let's say, a doctor in the Knowledge Graph, then you pay an additional license fee if you want to put him in listings. You pay an additional license fee if you want to build him a page. And if you want that entity to show up in Answers, you'll pay an additional licensing for that, too. So it's going to be all built on the Knowledge Graph platform. The Answers is our third product that you can now buy on top of Knowledge Graph in addition to Listings and in addition to Pages.

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Brent Alan Bracelin, KeyBanc Capital Markets Inc., Research Division - Senior Research Analyst [16]

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Got it. Super helpful. And then, Jim, as you think about a much larger opportunity around Answers, are you rethinking kind of go-to-market at this point? How do you broaden the reach?

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James Steele, Yext, Inc. - President & Chief Revenue Officer [17]

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Well, definitely, as Howard mentioned, any company that has a website, we talked about CPG and used the Campbell's example, it opens up a whole new set of opportunities for us and many, many more accounts that we -- in the past, if we were looking at our market opportunity, like we described in the S-1 and when we went public a couple of years ago was all about well within Google Maps or 100 million companies in Google Maps and we looked at that as about a $10 billion TAM.

Now it completely changes because you have all these companies that don't -- they're not location-based necessarily. They -- but they have customers, consumers that are getting on the website that want answers just like they go to Google to find. And we want to give them that same experience that they have when they're in these third-party search engines once you get to a website so that it improves that customer experience and ultimately has a higher conversion rate to close revenue for that company. So our market and part of why we're adding a lot of salespeople is we see tremendous opportunity in our existing market with Listings and Pages, but now we're basically adding a third major application on top of the platform that's Knowledge Graph and all leveraging the same kind of data set.

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Brent Alan Bracelin, KeyBanc Capital Markets Inc., Research Division - Senior Research Analyst [18]

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Got it. Helpful color there. Just a couple of quick ones here for Steve. Here obviously I wanted to start with calculated billings. This has been a pretty volatile metric. If I look back over the last couple of years, hasn't been all that indicative, but it is the lowest growth rate we've seen in a couple of years. So was that just tied to tough compares? Was linearity a little different this quarter? Was it a partner-driven staff? Walk me through the factors that impacted billings kind of this quarter. And then just could you touch on the gross margin? That also fell, I think, below 75% for the first time in a while. So just walk me through those 2 issues.

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Steven M. Cakebread, Yext, Inc. - CFO [19]

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Sure. So as you know, I'm not a big fan of your calculated billings number because we have a mix of billings between quarterly, semiannual, monthly, et cetera. So it's not really reflective. And interestingly enough, every time we beat your number, it's been great and every time we miss your number, it's a problem. And I don't think that we got any problems with billings this quarter. We're on our plans. We feel really good about what's going on. I just think that metric is very volatile for a small business of our size. Primarily when it's driven by large enterprise deals that they end up themselves. Timing is everything. So if I had a deal last quarter or this quarter that moved a couple of days, your calc number would be very, very different.

So I don't really focus on that calc billing, but I do look at making sure we're generating growth in deferreds or unearned revenue as the new thing. We did that. And the RPO or our backlog continues to look solid. So I can't help you on the calculated billings issue there, but I think we're on track with where we want to be. In terms of gross margins, we've always said that we do pay R&D fees for some of our new publishers. And depending on the timing, you're going to see that number move up and down. I still feel really comfortable that we're in the mid-70s as the gross margin that's going to stay there. We brought on some interesting new publishers and made some payments this quarter. And they'll manifest themselves as you see it in the ongoing and future years for this stuff, but there's no fundamental change in gross margin at this time. It's a timing issue in terms of payments.

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Operator [20]

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Our next question comes from Mark Mahaney of RBC.

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Mark Stephen F. Mahaney, RBC Capital Markets, LLC, Research Division - MD and Analyst [21]

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All right, 2. If I can just keep following up on that gross margin. So Steve, it did sound like there was something onetime-ish. Is it a onetime-ish publisher fee issue? Or is it just a timing issue? Just clarify that. And then...

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Steven M. Cakebread, Yext, Inc. - CFO [22]

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Yes.

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Mark Stephen F. Mahaney, RBC Capital Markets, LLC, Research Division - MD and Analyst [23]

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I just want to get back to -- I know somebody asked about the Answers -- Yext Answers and package and pricing. And I guess you're going to hold off on providing a lot of detail on that, but I think you said there were 8 Yext Answers deals in the recent period or in the last quarter. So maybe let me try this. Were those 2 -- were those add-on sales to existing customers? Were those lead sales to customers you haven't had before? And would one of those have been was the Campbell Soup Company? Was that one of the customers since that would be more natural for them since they don't have the retail locations? Any more color you can give on what the market opportunity -- I get the market opportunity but what the go-to-market strategy or success has been so far with that.

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Howard Lerman, Yext, Inc. - Founder, CEO & Director [24]

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Mark, it's kind of funny. When you think about what Answers is, it's structured search. Every other product in the world is index-based search, which gives you documents back when you search for something. That's actually how Google works where there's 2 parts of Google. If you search for McDonald's, the very first thing you'd see might be maps and knowledge cards that's structured answers powered by Knowledge Graph. And then under that, you see links, which are powered by their index-based search. They blend them together to give the user a certain experience.

And so with all the existing sites search stuff out there, it's all index-based or document search. And where Yext has an enormous advantage and a head start is in structured search, which are all powered off a Knowledge Graph. For every single one of our existing customers, we have a Knowledge Graph that contains collectively more than 200 million facts. And so the ability to give an answer back from structure comes from having all that structured data. So for any of our existing customers, it's pretty straightforward for Yext to spin up an answers instance and be able to answer questions about their business because we already have their Knowledge Graph. We already have their data. We're putting it into Google, we're putting it into all these other places. And so we can show up to a demo with answers kind of almost, I don't want to say totally done, but a pretty good working demo and say, hey, let's run a quick site search challenge, run -- if you're P&G, go ahead and search for Tide on your own site and you're going to get Vietnamese and all these weird results back. That's your #1 product. It's kind of a weird result for your end users. And by the way, your website is featuring prominently your search box, it's right in the middle.

Now let's put this around and run a search that gives you the actual answers, gives you information about the product and availability of the product that gives the end users, that customer, the answer there. And that is index search versus structured search. And so in our case, because we already have all these Knowledge Graphs, we got a huge head start for any existing customer of Yext in getting them answers. That's going to be a core part of our go-to-market without question. But in addition to that, you have -- the potential new logos here is, you've heard Steve say it, you've heard Jim say it, it's a significant amount more than we've ever been able to go after before. And of the 8 deals, for example, Campbell Soup is an entirely new logo. We never had any relationship or the ability to -- they don't have physical store locations. Since you have this category, CPG, it's endemic of the fact that, oh my gosh, every single one of these brands has a website. And people are hitting in it all the time and they're searching for stuff and getting junky answers. And when they get a junky answer, they go right back to Google and then Google shows a competitor ad and the company's lost control of the customer journey, they might have lost the customer and that's not a good thing. And so we can show up with something that's just works and simple to install. Now when it's a new logo, we've got to get the information into the Knowledge Graph. For an existing customer, we don't have to do that.

Although a core part of the packaging here is, hey, go ahead, let's take a large hospital system. They may want to start with doctors. And then as they see the searches that are coming in that they're not answering if people are searching, for example, for symptoms, they may want to add that to their Knowledge Graph. They'd have to pay for additional entities -- entity licenses in the Knowledge Graph and in Answers. And there'll be a whole program around how that's all going to work. So we see a great feedback cycle here between the ability for someone to -- within a company to see a question that's being asked and to put entities into Answers and into the Knowledge Graph. And I think you may asked -- also asked a question about gross margin.

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Steven M. Cakebread, Yext, Inc. - CFO [25]

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Yes. So on the gross margins, Mark, these are onetime engineering payments that we paid the new publishers. Timing is sometimes uncertain because it's when they complete it. And so we had some onetime publisher payments that came in at this point in time, and they're new publishers...

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Howard Lerman, Yext, Inc. - Founder, CEO & Director [26]

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They're new publishers and you're going to have to come to ONWARD to see who they are. We're very excited about it.

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Operator [27]

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Our next question comes from Mark Murphy of JPMorgan.

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Matthew James Coss, JP Morgan Chase & Co, Research Division - Analyst [28]

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This is Matt Coss, on behalf of Mark Murphy. Any update you can provide on billing term distributions of yearly, semiannual or monthly? And if you can't get too specific, what does the percentage of business build annually look like today, perhaps versus a year ago?

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Steven M. Cakebread, Yext, Inc. - CFO [29]

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Yes. We don't really get into that because it does move around. I mean we try and get everybody on the annual, but it's also true that some accounts will take quarterly for the first year and move to annual. So I'd rather not get into the details because it moves around a lot based on our deal flow. But I'll just say I appreciate the challenge you have. The calculated billings is probably not a good indicator of what -- how our business is doing at the moment.

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Matthew James Coss, JP Morgan Chase & Co, Research Division - Analyst [30]

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Okay. That's fair. And I know you have a few insurance companies as customers that you talked about in the past. They tend to have thousands of seats. Can you update us on some of the things these customers are doing, maybe the ROI they're getting, additional products they're adopting, what the expansion rate of those multi-thousand seat customers look like?

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James Steele, Yext, Inc. - President & Chief Revenue Officer [31]

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Sure. This is Jim Steele. We showed, I think, during the S-1 kind of a cohort of a typical -- actually, it was an insurance company and we find this across the board where they might start with kind of a base package. And then as they look for additional regions, they expand both geographically as well as upgrade to ultimately our Ultimate package, which includes reviews of -- first, it's kind of crawl, walk, run with a lot of these customers. They like to start to see what the value is. They can track the number of clicks. They can see the conversion rate. They know how many phone calls you're getting, driving directions, and it's a very clear set of KPIs that they can track to see what that value is. So yes, that's a typical -- I mean we're very focused on not just insurance companies, but obviously financial services is one of our very biggest industries.

Health care is very big as well and food, retail. And many of these companies start with the base package and they grow from there. They upsell -- we upsell them to greater value package and they also add the additional licenses as they expand. And now with Answers, that gives us a whole new opportunity to go back to these customers and say, hey, you care about providing brand-verified answers everywhere, not just in the third-party ecosystem but also on your own website. So let's leverage that Knowledge Graph that Howard was talking about. Every one of our customers has Knowledge Graph to power Listings and also Pages. So now we can go back and say, hey, we can also help you get the same kind of experience for your customers in the same kind of conversion rates if we provide this Answers product.

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Operator [32]

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Our next question comes from Tom White of D.A. Davidson.

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Philip Rigby, D.A. Davidson & Co. - Research Associate [33]

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This is actually Philip Rigby, on for Tom. For Campbell's, did Answers displace another vendor at Campbell's? Or is this a whole new feature for them?

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Howard Lerman, Yext, Inc. - Founder, CEO & Director [34]

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I don't know the answer to that specific question, but one of the coolest things about site search is that the way we're going about this, remember, Google blends the other document search and structured search. Sometimes, structured search can answer the question directly or give you all the information right there. Other times, maybe it's better to link to a document that you might have to read for more context. So when you search for many results in Google, give you back a blend of both structured search and index search together.

We are completely -- and we've designed our product to be able to integrate with most other site search vendors to place answers or structured search on top of index search so that we can coexist with another index-based search vendor so that the end user can get an answer and get links to the documents back without necessarily displacing another vendor but with significantly enhancing the customer journey where they start.

And by the way, when someone is searching on your own brand's website, those are your best customers. Those are the people that are looking for the most specific questions that are hunting for the deepest details. That's when you've got to really give them the answer that they're seeking. Otherwise, if you don't answer their question, somebody else will.

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Philip Rigby, D.A. Davidson & Co. - Research Associate [35]

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Great. And appreciate all the color you gave on Europe and Japan. Any other international countries or regions you want to give us a little bit more color on?

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Steven M. Cakebread, Yext, Inc. - CFO [36]

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Nope. I mean it's been strong for us. Our Northern or U.K. business has been outrageous. A lot of the logos that Jim talked about or names were from Northern Europe. So...

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James Steele, Yext, Inc. - President & Chief Revenue Officer [37]

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And also Southern Europe, Italy and France have been very strong, with Versace obviously, the great Italian brand, with Calzedonia. Like we've really been strong in Europe, and Japan has really been terrific as well.

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Steven M. Cakebread, Yext, Inc. - CFO [38]

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Yes. So we keep trying to get all the men's fashion line because we're hiring so many sales reps. They've got to get new clothes.

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Operator [39]

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Our next question comes from Stan Zlotsky of Morgan Stanley.

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Hamza Fodderwala, Morgan Stanley, Research Division - Research Associate [40]

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This is Hamza Fodderwala, in for Stan. Just wanted to follow-up on the international question. So can you give us any more color as to what percent of revenue is coming internationally today? How fast is that growing? And you mentioned Europe. Outside of U.K., are there any other markets that you're particularly bullish on?

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James Steele, Yext, Inc. - President & Chief Revenue Officer [41]

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So we mentioned before in the second quarter, 17% of our revenue is international. And yes, definitely, the U.K. is very strong, France and Italy and Germany as well. We have customers in Austria and Switzerland and other parts of Europe. And Japan really, we opened Japan just about a year, a little over a year ago. And we hired the CEO of Salesforce for our Japan business and he just did an amazing job in the past year plus just building that business up. So that's the -- that's where we're looking at. We don't -- we haven't really focused on going to other countries at this point because we have so much opportunity. And now with Answers, we've just opened up a whole lot more TAM in the existing countries that we do business in. And of course, Canada is very strong for us as well. And of course, we have customers who have locations throughout the world. I think we talked about 100 and some-odd countries, 150-or-so countries that have Yext is driving their local listings in those countries, but we don't have necessarily operations in all those countries.

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Hamza Fodderwala, Morgan Stanley, Research Division - Research Associate [42]

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Got it. That's helpful. And are you -- obviously macro is very top of mind for a lot of companies and investors. Are you seeing any maybe signs of, if not weakness, but like longer sales cycles or anything unusual either internationally or domestically at all?

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Steven M. Cakebread, Yext, Inc. - CFO [43]

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Yes. I'll take that. This is Steve. Our business has been so strong and I think we're doing very well. No macro influences at all other than some of us have to watch CNBC and watch the stock market go up and down, but that doesn't influence real business. So nothing on our horizon. We feel very comfortable about where we're going and the business that we're talking about. And sales cycles are not getting longer. Obviously, we bring in mid-market. We address a whole another market. Sales cycles are actually shorter. So we feel really good about where we're going in these particular markets regardless of other influences outside of that.

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Hamza Fodderwala, Morgan Stanley, Research Division - Research Associate [44]

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Got it. And just one more question, Steve. On the RPO metric, you mentioned that it was in line with Q1. Do you have the year-on-year growth for that metric? I'm not sure if I got it.

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Steven M. Cakebread, Yext, Inc. - CFO [45]

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Yes. No, we did adopt a method that didn't provide year-on-year growth, which you'll start to see that obviously next year. We needed to implement it fairly quickly because we became an accelerated filer. So all we could do is provide you that now.

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Operator [46]

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Our next question comes from Brett Knoblauch of Berenberg Capital.

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Brett Anthony Knoblauch, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [47]

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The first one is for Howard. I think in your prepared remarks, you talked about how you're seeing an inflection point in the business, and in particular going from a product-specific company to more of a platform solution. Can you just talk about the benefits that brings?

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Howard Lerman, Yext, Inc. - Founder, CEO & Director [48]

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Sure. With our new Answers product, it sits on top of the Knowledge Graph. Every time a customer signs up or buys one of our 3 products, Listings, Pages or Answers, they have to buy the Knowledge Graph platform. They have to put the entities into storage to be able to power those entities and then buy an additional license in Listings or Pages or soon to be Answers. The more knowledge their customers have in the platform, the more valuable each of those products are, number one. And then also, it's easier for us to come up with new products, like we just did with Answers. And with Answers, we have a huge head start in being able to sell that to all of our existing customers that are already on our platform.

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Brett Anthony Knoblauch, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [49]

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Okay. And then just, I guess, a clarification question. Is Answers the same thing as Yext Think when you first announced that?

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Howard Lerman, Yext, Inc. - Founder, CEO & Director [50]

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Correct. That's the official brand. Think was our beta name, and after we figured out into the market, we have appointed Yext Answers.

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Brett Anthony Knoblauch, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [51]

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Okay. And then maybe just some commentary on ONWARD. Could you compare maybe the pipeline you have coming to ONWARD versus the pipeline you had come in last year? I don't know if you can give specifics or not.

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Steven M. Cakebread, Yext, Inc. - CFO [52]

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I don't know, there's a lot more people.

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Howard Lerman, Yext, Inc. - Founder, CEO & Director [53]

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It's a bigger -- I'll tell you what. Were you there last year?

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Brett Anthony Knoblauch, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [54]

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I was.

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Howard Lerman, Yext, Inc. - Founder, CEO & Director [55]

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Yes. When we killed off -- Jim, it was so popular. Number one, I'm going to say the biggest companies in Germany to Mexico has asked us to repeat that exact keynote in a week in Cologne in front of 10,000 German marketers. So if anybody is in Cologne next week, we'll see you there. But about ONWARD, we couldn't do it at the same facility. We actually were asked not to come back. So we'll be doing it at the Marquis, which I love them because Marriott is a customer of Yext, but I really just don't like the carpet there. Despite the carpet, which looks a little bit like Jim's sport coat right now, we're going to be, I think, having a bunch more people relative to last year. The capacity is a lot bigger. And we still got...

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Brett Anthony Knoblauch, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [56]

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And then maybe one for Steve. Can you just talk about your view on where you're seeing net retention going towards the back half of the year?

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Steven M. Cakebread, Yext, Inc. - CFO [57]

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Yes. We've had no problems in our enterprise and mid-market is obviously just getting going so it's hard to comment on that. But I think we'll build that back up. Like I said, we had -- one of our partners just go out of business. That's going to take some loads, and we've continued to have some mergers and acquisitions go on. It took some locations down. Keep in mind, we have a trailing 12-month calc, so it will take a little bit of time to move that back but feel real comfortable. There's no systemic issues here. It's just kind of the normal course of business when you're dealing with large companies.

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Conrad Grodd, Yext, Inc. - VP of IR [58]

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Well, thank you, guys. That concludes our call for today. We'll continue our conversations throughout the quarter. Operator?

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Operator [59]

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At this time, we will now take you back to the ONWARD19 teaser.

(presentation)