Yext Inc

NYSE:YEXT

Good afternoon, and welcome to the Yext, Inc. Fourth Quarter Fiscal 2025 Financial Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Nils Erdmann, Senior Vice President of Investor Relations. Please go ahead.

Thank you, operator, and good afternoon, everyone. Welcome to Yexts' Fourth Quarter Fiscal 2025 Earnings Conference Call. With me today are CEO and Chair of the Board, Mike Walrath and CFO, Darryl Bond.

During this call, we will make forward-looking statements, including statements related to our future financial performance, statements regarding the expected effects of our recent acquisitions, expectations regarding the growth of our business, our outlook for the first quarter and full year fiscal 2026, our strategy and estimates of financial and operating metrics, capital expenditures and other indications of future opportunities as further described in our fourth quarter shareholder letter. These forward-looking statements are subject to certain risks, uncertainties and assumptions, including those related to Yexts' growth, the evolution of our industry, our product development and success, our ability to integrate acquired businesses with ours, our management performance and general economic and business conditions.

These forward-looking statements represent our beliefs and assumptions only as of the date made, and we undertake no obligation to revise or update any statements to reflect changes that occur after this call. Further information on factors and other risks that could cause actual results to materially differ from these forward-looking statements is included in our reports filed with the SEC, including in the section titled Special Note regarding forward-looking statements and Risk Factors in our most recent quarterly report on Form 10-Q for the 3 months ended October 31, 2024, our earnings release and our shareholder letter that were issued this afternoon.

During the call, we refer to certain metrics, including non-GAAP financial measures. Definitions of these non-GAAP metrics and other operating metrics as well as reconciliations with the most comparable historical GAAP measures are available in the shareholder letter, which is available at investors.yext.com. I will now turn the call over to Mike.

Thanks, Nils, and thanks, everyone, for joining us today. I'd like -- I hope everyone on the call has had a chance to read our fourth quarter fiscal year '25 shareholder letter. In case you missed it, we've included a summary Q&A supplement at the end of the letter below the financial tables to address anticipated top of mind questions based on our earnings materials. Before we jump into Q&A, I'd like to highlight some key points.

First, Yext is incredibly well positioned strategically and competitively. We've made excellent progress with our integration of Hearsay and our combined businesses are generating go-to-market and cost synergies as expected. Our platform and product road map has been enhanced significantly with the Hearsay products, Yext Social and just this week with the launch of Yext Scout. Product innovation is accelerating at Yext, and this will be a growth driver for us in the future, particularly as we help our customers grapple with the fast rate of change being driven by AI. In our discussions with customers and prospects, we're hearing excitement and enthusiasm for how our platform is evolving, which is opening up new opportunities.

Second, we are seeing positive trends from our performance metrics despite a mostly unchanged macroeconomic environment. Our gross retention and net retention rates are both increasing with gross ARR retention increasing to the high 80s and net retention up across both direct and reseller. Our EBITDA margins are north of 20% and our outlook for over $100 million in EBITDA in fiscal year '26 points to the financial strength of our business. While the macro environment remains unchanged relative to last quarter and spending scrutiny still persists, we have nonetheless seen changes in the demand environment. These outcomes are the results of our recent product developments and our heightened focus on customer success.

Third, the launch of Scout represents a major milestone for Yext. In my 16-year tenure here, I have never experienced a more enthusiastic response from our customers to one of our product announcements. We believe Yext Scout will fundamentally change the way our customers and partners gather data insights, expand their Knowledge Graph and prioritize actions to win more visibility in an increasingly complex local marketing world, and our customers are just as optimistic.

We announced the closed beta for Scout just 2 days ago, and already, we have had hundreds of waitlist sign-ups. There is a very strong demand signal, especially given the very limited marketing of the launch. And I believe this will be an advantage for Yext as brands increasingly focus on the opportunities and challenges that a fragmented search landscape presents. Finally, I'd like to take the opportunity to thank our entire global team for their ongoing efforts and commitment to our customers and our mission. Now we'd like to open it up for questions.

[Operator Instructions] The first question is from Ryan MacDonald with Needham.

This is Matt Shea on for Ryan. Maybe first on the outlook for 2026. I recognize you guys aren't guiding the top line. But maybe just qualitatively, last quarter, you talked about seeing some signs of stabilization, noting that deals that slowdown were starting to accelerate. Now you weren't necessarily seeing tailwinds, but headwinds are starting to abate. Is that still your assessment of the environment? Any changes in that optimism level from last quarter? Or anything you're seeing that's informing the outlook for 2026?

Matt, I'll go first and Darryl may have some financial comments on the outlook. But I'd say no, I wouldn't say that we see anything really changing. I mean, I think we talked about -- we think feel like they've stabilized and normalized. We were not calling tailwinds, but I think we're seeing that the headwinds were at least not getting worse and I think what we're seeing across our base of customers and partners is that the awareness around the pace of change with AI experiences and AI search is driving a level of urgency that we haven't seen in quite some time to be -- to understand what the opportunities are to address the challenges that are going to come, when winning visibility and winning traffic is a far more difficult thing to do than just manage your Google profile and Google organic and paid search results.

So from that standpoint, we see that momentum continuing. You're still facing all the typical cost optimizations that we've been seeing in the last couple of years. You're still dealing with things like store closures and challenges around amount -- number of licenses and things like that. But I'd say overall, we just -- we feel momentum continuing to build, and it certainly doesn't feel like things are getting more difficult.

Okay. That's good to hear. And then maybe with Hearsay Systems Yext Social, it sounds like a lot of great demand there, which I think it's likely partially been supported by industry-specific factors like financial institutions just facing greater SEC crack down forcing them to be more compliant basically. Is it fair to say that there's maybe some tailwinds in the financial services space that play to Yext favor where we should see this vertical grow faster maybe than other end markets in FY '26?

And then maybe more broadly with the kind of macro environment continuing? Are there any other industry verticals you see as really ripe for Yext in FY '26 despite that tough operating environment? It sounds like health care was really strong in Q4, so maybe we see that continue? Any color would be helpful.

Yes. So I think we've seen momentum in health care. We've seen momentum in Fins. It's not surprising in Fins that we're not surprised to see that the benefit of having a broader platform and being able to solve more of the top of funnel and customer relationship, social and communications pieces. And certainly, it's an environment where there's heightened SEC scrutiny. I think the other thing, and this really crosses all verticals is anyone trying to optimize a local presence, whether it's a service area or a store location or an adviser or an agent is facing just a sense of urgency around the need to understand how am I doing it across a far broader set of platforms.

And it feels like at this point, every week, it feels like there's another player that you need to think about, how am I going to show up on perplexity? How am I going to show up on chatGPT and searchGPT. And this week, we saw Grok, and that's an amazing experience. So I think I think the -- while the financial environment remains challenged, as I said before, I think the prioritization of how do I get my data right? How do I use that data in a way that feeds a rapidly diversifying set of answer engines. It's just something that we think is going to be an increased priority inside every business with a local footprint. And I think we see the opportunity to outrun some of the sort of macro headwinds this year, which is why we still see the business, we see the ARR growth coming back [indiscernible] in spite of potentially an environment that remains challenged in the -- at the highest level.

The next question is from Rohit Kulkarni with ROTH Capital Partners.

I know on the fiscal year '26 guide, maybe talk about your kind of philosophy around spend to the extent you can. And how -- what are the key investment priorities in the upcoming year above and beyond what you did last year? To get to that $100 million plus EBITDA? And how should we think about any incremental flow-through in margins for the next 12 months?

Sure. So I think we and Darryl, I can probably tag team this one. Philosophically, the way we're approaching '26 and obviously, you noticed that we're not giving a full year guide we are expanding the disclosure around ARR to include uncommitted ARR. So you get -- so what we're doing here is we're giving you a fuller picture of kind of what the entire ARR picture looks like, obviously, we had some FX headwinds in Q4 to that ARR picture. So you can kind of factor those in. And you'll remember that historically, we've typically had between kind of like 1% to 1.5% of revenue has been onetime professional services.

So as you think about -- our business, and we believe that I'm giving you this sort of this clearest possible picture of ARR, you're going to be able to pretty clearly understand what the revenue picture is going to look like on a sort of forward quarters basis, and we actually think that a better way to model the business than a full year revenue guide. As far as how we're operating the business, this is what I would tell you is, using those levers that I just gave you are going to have a pretty good sense of kind of what the revenue picture looks like and that will get updated quarterly with the new ARR disclosure.

We're going to be conservative in how we manage expenses until we see the growth developing. And so you can assume in that EBITDA guide that, that assumes a relatively modest recovery in the ARR picture. To the extent that we see a faster recovery or a faster growth rate in ARR picture, you can expect that we're going to be doing what we do, which is making decisions between further accelerating that growth with for example, more R&D investment or allowing more [indiscernible] to flow to the EBITDA line. So we see a lot of opportunity for ARR growth this year, and we also see opportunity to either invest into that growth or to kind of flow the excess EBITDA that would come from that growth to the bottom line. And that's just part of our daily process here. We ask ourselves what's the best thing to do with extra cash flow and excess EBITDA.

Yes. And the only thing I'd add to that, Rohit, is we've made pretty good progress on integrating the Hearsay business and operating as one company going forward. So that will obviously have the benefits to EBITDA as well.

Okay. Cool. And then a follow-up on -- I love the discussion around search fragmentation and how strategically Yext [indiscernible] kind of competitive positioning but improved. Maybe talk through the recent acquisition rationale and how Scout and your search offering in a fragmented marketplace could be viewed -- competitive speaking?

Yes. Sorry, I got a little [indiscernible] over there. I think you're asking about the Places Scout acquisition and the launch of Scout?

Yes, exactly. And given the kind of the overall fragmentation of search and how the acquisition fits into the new competitive environment that you might be seeing?

Yes. So as you know, we've been talking for a couple of quarters about sort of what -- how things get in an environment where Google is the environment, which is really what we've been in for the last close to a decade. And I think what happens is people get really comfortable, marketers get really comfortable and C-suite still really comfortable with,'that's where the traffic comes from. That's where the discovery is happening. And we feel like we're doing the right things to -- we're doing SEO and SEM and managing our data in a way there that makes sense.

I think what happens in an environment where we see this fragmentation and where the pace of that fragmentation is accelerating, is you need a lot more data to understand what is happening competitively. How am I showing up, whether that's on an AI experience or on a more traditional search experience? What's my share of voice, what's the brand sentiment? And then continue to understand Googles' search ranking and other search engine search ranking. And so where Places Scout is really a best-in-class platform is on the gathering of the search rank information and the related attributes around reputation, reviews, photographs, and all the other attributes that we can gather around that platform. And really by acquiring Places Scout and then merging that with a multi-quarter effort looking back R&D effort to build best-in-class AI share of voice, AI brand sentiment reporting. We've created a comprehensive platform that's utilizing AI and really creating an AI agent for our customers that's going to work 24/7 to identify opportunities for them to enhance and increase their digital presence and their visibility.

And what we've seen as we bring -- as we started to show that to customers is it's exactly what they feel they need, because it allows them to structure their data in a way where they can compare that data to benchmarks into competition as well as even across their own universe of stores or locations or advisers, and then they can use that core data asset to make much better decisions about how to be discoverable in this increasingly complex world. And as I said in the call, I've never seen a reaction from customers to any product we've ever built as positive as the one that we're seeing from this one. And it's early, but I just -- I haven't seen anything like it.

The next question is from Tom White with D.A. Davidson.

Maybe just a follow-up to the last one. And hopefully, it's not redundant. But I agree, the acceleration of kind of search fragmentation stuff is super interesting, and it seems like my phone, all of a sudden, I have like 3 or 4 kind of new apps over the last quarter or 2 that I'm sort of using for search occasionally. So I guess if I think about Places Scout, I guess, when I think about what they bring versus what you guys had been kind of working on internally, it sounds like vis-a-vis this idea of optimization and SEO visibility across all these different things. Like what is the combination of the two things -- brand or what the two groups of assets bring that maybe is different from some of the other SEO optimization kind of offerings out in the market? And then I have a quick follow-up.

Yes. So I think the best way to think about it is that historically, Places Scout has been a leader in gathering and organizing SEO rank base is kind of CO core data. I think what we've recognized here, and a lot of people -- you're going to hear a lot more talk about does SEO need to become AIO. Is that when it comes to Google, there's a really -- and to a lesser extent, just from a volume standpoint being and the other search engines there's a really pretty well understood mechanism to understand how you're doing. There's huge value in comparing your own data to the data of competitors, and that's something that the Places Scout acquisition has unlocked and I think will allow us to be best-in-class when it comes to those core traditional SEO metrics.

And we also get -- we get a very talented team there and a lot of expertise around gathering data, and that's going to be really helpful and useful. That's a really strong team, a small but a very strong team there. And so I think the second part of this is that there aren't any established rules and understanding around how do I measure how I'm doing on AI experiences? How do I figure out how I'm showing up across searchGPT and chatGPT and Grok and Perplexity and what will be dozens of and maybe more kind of verticalized search experiences. And so we believe that marketers of all types are going to need to understand what they can do to influence the answers that are being given. And it's just a very different problem then how do I rank on Google and how do I buy a paid search placement there.

This is what we're hearing from our customers is help me solve that problem. And -- as it turns out, what we have here at Yext is an amazing set of products to help them solve those problems, listings, reviews, pages, social, they're all knowledge and the sort of core underlying Knowledge Graph. Those are the -- those are the actionable items that is how you take action. What Scout does is it gives a really robust insights layer -- that will recommend and ultimately automate the taking of those actions and it's much more scalable. And I think that's where a lot of the excitement from the customers come from is that it's going to allow them to unlock advantage in a world that is going to be increasingly less predictable.

That's very helpful. Just one follow-up on kind of capital deployment. So -- you guys have done a couple of acquisitions here recently. I also saw that you increased the buyback too. I don't know if I was kind of like reading into this too much in the letter, but the letter sort of sounded like you guys were still very much on kind of the hunt for other acquisitions, and you've been kind of referring to the vendor consolidation kind of dynamic that's happening out there. I mean, did I interpret that correctly? And maybe just talk a little bit about how you're weighing your various uses of capital here this year?

Yes. So I'd say that our position really hasn't changed. We've been talking for the last 3 or 4 quarters at least, maybe a little longer about the need to evaluate M&A opportunities against the opportunity to buy our own stock at what we think is an incredibly attractive level. The good news is, that we're seeing obviously increased EBITDA we're seeing material increases in free cash flow. That number is a little affected by the -- that conversion rate. I think we're talking about a 90% conversion rate -- that's a 70% conversion rate, but that's kind of affected by onetime payment with the Hearsay, right Darryl?

Yes. In this coming fiscal year, we said in the letter, we've got a conversion rate of free cash flow around 70%, and that is going to include some acquisition-related payments to the Hearsay team. But we continue to throw off a strong free cash flow amount. That gives us a lot of flexibility to do the repurchases, the potential M&A opportunities come up and continue to invest in the business.

Yes. So high level, we see our cash situation is really healthy. We see a lot of opportunity to look at different ways to allocate that capital, whether it's into organic growth or it's into M&A or it's to share buyback or just let it accumulate on the balance sheet if we don't think that any of those three things are particularly good uses of capital at the time. And so we'll continue to be fairly unreligious and undogmatic about this. But I'd say opportunistic. And the increased authorization really just reflects the fact that we see our stock as a tremendous value right now, and we'll continue to be opportunistic about buying it back.

[Operator Instructions] The next question is from Naved Khan with B. Riley Securities.

Great. I had a question on the Scout -- Places Scout acquisition. Is there any contribution to either revenue line or any contribution to ARR from this acquisition?

No, Naved, it's Daryl. No, there's no meaningful impact. It was a relatively small company and a lot of the benefits that Mike described are underpinned by the technology and the capabilities they have, but we're not forecasting or modeling in any meaningful financial contributions.

Yes, other than what's in our -- in effect, it's in our plan for the year, and it's in our -- in the EBITDA guide that we're giving for the year. So just because of the timing of the deal, we were able to kind of bake it all into the plan.

Got it. So I'm just trying to sort of understand the ARR dynamics in Q4. Sequentially, ARR declined I'm trying to think whether it's a Listings business, they're seeing some headwind or what's causing this number to come down? And then you still expect ARR to increase in 2026 this current fiscal year. And what would lead to that on an organic basis?

Yes. So -- so there's a few things there. Darryl, do you want to talk about the FX and sort of those impacts first?

Yes. So from the -- sequentially from Q3 to Q4, there's about $3.5 million impact from FX. So that's the biggest driver of the decline. There's a little bit, a few pluses and minuses from just bookings and churn, which makes up the delta.

Yes. And so -- the roughly, let's call it, kind of $2.5 million of non-FX-related decline there. That's a continuation of the trend we've been talking about, which is -- we are still seeing Yext core ARR decline as we restructure contracts, but the pace of that decline has really tapered way down. So I think it was something like $12 million in Q4 of last year of total decline. And this year, we're talking about something in the $2.5 million range, right?

And a lot of it is driven by downgrades, not logo churn.

Yes. And so I think -- and there's some contribution also from the Hearsay business, which is it's growing while that Yext business still has this sort of sub 1% decline. What I think we're seeing are we're seeing a bunch of green shoots. So we're seeing 4 consecutive quarters of improving renewal rates. We're seeing gross ARR [indiscernible] to improving retention picture combined with having more products to sell and to bundle and that includes the Hearsay Relate, Hearsay, Social and related products, that includes Yext Social, which we're starting to see make progress. And then obviously, the Scout launch is a big one, and we think that the enthusiasm for this is a driver, both of kind of improved retention as well as potential ARR growth in the future. So that's what causes us to be really bullish about the business as we look out a few quarters.

I think we'll continue to be in an environment where you just -- it's hard to sell through. I have 20% fewer stores or 20% fewer advisers than I had 2 years ago when we did the deal. And so you still have those kind of -- those headwinds. What we aren't seeing anymore are the really big customer dissatisfaction. We're talking painfully a couple of years ago about just customers we lost touch with and dissatisfied customers and service and support issues, and we're just seeing a lot of those headwinds are abating, and that's the strong work of the team, and that causes us to be more positive on the outlook.

Understood. And just going by the EBITDA guide, like it seems like you're more comfortable guiding to this number because obviously given us the annual number. And maybe it's not really dependent on what the top line looks like. Is that a fair statement? When you say that.

Yes, I think it's fair to say that we have more control over that number in any environment, because we control the way that we invest based on the signal that we're seeing. And we -- I think our confidence there is that the improvements that we've made and the marked improvements we saw over the course of last year are sustainable and even expandable in just about any operating environment.

This concludes our question-and-answer session. I would like to turn the conference back over to Mike Walrath for any closing remarks.

I'd like to thank everyone for joining us today and look forward to speaking with you next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.