Yext - Q2 2025

Transcript

Operator (participant)

Good day, and welcome to the Yext Inc. second quarter Fiscal 2025 financial results call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press Star, then one on a touchtone phone. To withdraw your question, please press Star, then two. Please note this event is being recorded. I would now like to turn the conference over to Nils Erdman. Please go ahead.

Nils Erdmann (Head of Investor Relations)

Thank you, operator, and good afternoon, everyone. Welcome to Yext's second 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 acquisition and integration of Hearsay Systems, expectations regarding the growth of our business, our outlook for the third quarter and full fiscal year 2025, our strategy and estimates of financial and operating metrics, capital expenditures, and other indications of future opportunities, as further described in our second quarter shareholder letter.

These forward-looking statements are subject to certain risks, uncertainties and assumptions, including those related to Yext's growth, the evolution of our industry, our product development and success, our ability to integrate Hearsay Systems' business 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, and our most recently filed quarterly report on Form 10-Q for the three and six months ended July 31, 2025. Excuse me, 2024.

Our earnings release and our shareholder letter, that were 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 shareholder letter, which is available at investors.yext.com. We also provide definitions of these metrics in the shareholder letter. With that, I will now turn the call over to Mike.

Mike Walrath (CEO)

Everyone, thanks for joining us today. Hopefully by now you've had a chance to read our press release as well as our second quarter letter to shareholders, which was posted to our website after the close of the market. We'd like to jump right into your questions. We can go ahead and do that now.

Operator (participant)

We will now begin the question-and-answer session. To ask a question, you may press Star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press Star, then two. At this time, we will pause momentarily to assemble our roster. And our first question today comes from Tom White with DA Davidson. Please go ahead.

Tom White (Managing Director and Senior Equity Analyst)

Great. Thanks for taking my questions. Two, if I could. I guess just first off, on the updated revenue guide, is it- is that all Hearsay contribution, or is there a change to kind of... any change to the outlook in the core business? And I guess if the only change is related to Hearsay, my arithmetic says the new guide implies maybe a full year revenue number for Hearsay of maybe around $51 million. I think you said it did $60 million in revenues last year. Can you just maybe help me square those two things? And then I got a follow-up. Thanks.

Darryl Bond (CFO)

Yeah. Hey, Tom, Darryl. Yeah, since we closed the Hearsay acquisition on August 1, the Q3 and full year guide includes two full quarters of Hearsay revenue. You know, previously we had said the Hearsay ARR was around $60 million, so you can kind of, you know, infer what the revenue is based off that. I'm not sure, you know, sort of how you got to your numbers, but, you know, when we look at the sort of balance of the year, you know, adding in the Hearsay business for the second half, you know, we've talked about the top line synergies that we, you know, believe are available, and we're starting the joint go-to-market motions to continue to accelerate both the legacy Hearsay business and our business. So, you know, all of that is contemplated in the guide.

Tom White (Managing Director and Senior Equity Analyst)

Okay, that's helpful. And then maybe just a higher level one, Mike. You know, the last couple of quarters, you've talked a bit about kind of this broader theme of consolidation, you know, of software vendors when kind of the broader market slows and how that's, you know, driven by customers. Just hoping you could maybe just talk a little bit about what you're seeing, or sort of where we are in kind of that general cycle right now. Do you think any signs that things are kind of loosening up a bit? Or if not, you know, how... what's your sort of appetite for potentially looking to add other products to the portfolio if this consolidation kind of theme continues? So thanks.

Mike Walrath (CEO)

Yeah. No, it's. Thanks for the question, Tom. It's so, so, you know, this has kind of been our thesis, and I think, we're seeing, you know, what we would expect to see in this environment. So, I've been spending a lot of time with our customers and particularly our joint customers with Hearsay over the last, particularly the last five weeks since we've closed that acquisition, and we're hearing the same themes over and over again. They have too much vertical software. It's creating workload on their teams, you know, which are smaller than they have been. It's really all the same themes. So, so too much software, too many platforms, data inaccuracies, the inability to run analytics across, you know, these vertical siloed technologies.

You know, this is why consolidation makes so much sense. And so it's also one of the reasons why we've seen such a strong positive reaction from our shared customers with Hearsay on the two companies coming together, because the promise of being able to deliver better analytics, a better data platform, more, you know, more efficient workflows, and all the, you know, I talked a lot in the letter about, you know, how important all of those things are gonna be in a generative AI experience world. So none of that has changed.

I think if anything, what we've seen from customers is that with the amount of uncertainty that there is in the world, elections, interest rates, recessions, geopolitical risk, you know, that a lot of our customers are seeing this as a great time to think about their tech stack, think about their investment, and really figure out how to get the most value from it. And so from our standpoint, we're fortunate in that sense that we, I think we're gonna participate in a lot of those conversations because we already have a much broader platform than any of our individual competitors, and we're really just getting started with the organic innovation piece of this. Certainly, we will continue to ask our customers where we should go next.

I think this is a big part of the innovation reboot that we've been going through here, is having the customers drive us to what's the next most important product, which had a lot to do with the strategic rationale behind a deal like Hearsay. So, I think these personally, I love these conversations. I think we get into problem-solving with customers. We get into where the puck is going, and that's gonna help us build a roadmap of organic growth and inorganic growth opportunities.

One of the things I did in the letter is really lay out how we think of that as a long-term value-driving framework, both from a investing in organic growth, expanding inorganically where those opportunities exist, and then obviously, the third pillar of that is the ability to buy back our shares and create a positive anti-dilution effect to our shareholders.

Tom White (Managing Director and Senior Equity Analyst)

Great. Thank you very much. I'll get back in the queue.

Operator (participant)

Our next question comes from Rohit Kulkarni with Roth Capital Partners. Please go ahead.

Rohit Kulkarni (Managing Director of Internet and Capital Markets)

Hey, thank you. A couple questions. One is on kind of how do you think upsells into Hearsay or Hearsay's upsell into Yext's core customer base? How do you feel where is the greatest lowest hanging fruit in the next 6, 9, 12 months? And I think you had mentioned earlier that excluding the loss of large customer, I think organic ARR growth could get to mid-single digits by end of this year and high single digits by in first half of next year. Just wondering where what are your latest thoughts on that organic growth based on... And then perhaps you could update based on Hearsay, and then I have a couple of other GenAI questions.

Mike Walrath (CEO)

Sure. So, thanks for the questions, Rohit. So on the first question, I think that there are several opportunities where we have joint relationships with customers who are customers of both Yext and Hearsay. There's an opportunity to create more value, as I mentioned, by unifying the data platform, the analytics, the workflows over time. And that's something our customers are really excited about. Probably the most actionable opportunities for us are the opportunities where Yext may have a customer that Hearsay doesn't work with or vice versa.

This consolidation theme remains a tailwind, you know, becomes a tailwind in those discussions because the customers can look at ways to, you know, it can be save money, it can be save expense, operating expense. I mean, one of the things I think people overlook a lot is when we, you know, and we've done it at Yext too, when we overbuy software, it's not only the cost of the software and when we have all the... You know, when we have too much, too many pieces of vertical software in the business, there's an operational load on that diversity of software as well, where, you know, the people running these systems are moving back and forth between different systems throughout the day, and that's just inefficient.

So, those are where we see the opportunities, and probably the most, the best thing about the Hearsay acquisition so far is how quickly the conversations with customers have turned from being a Yext conversation or a Hearsay conversation, or really about a partnership discussion, and so it's really remarkable, and one of the things meeting with customers I've seen is how you know there isn't a there you know these businesses are merging together very quickly, and it's almost you know almost immediately indistinguishable. Is this a Yext opportunity or a Hearsay opportunity? It's a how do we create value for the customer opportunity, so that's really encouraging.

I think your second question was on organic ARR growth, and, you know, one of the things that we talk about in the letter is that we're seeing a lot of stability overall in the ARR picture, and we're also accounting for a lot of risk. And, you know, I think we all entered this year, and I've talked to a lot of other software CEOs about this, entered this year thinking that this year was gonna be an improvement in the environment. We haven't seen evidence of that, and as we look at the risk factors in the second half of the year that I've laid out a couple times already. We're just gonna take a cautious approach on how we talk about expected ARR growth.

So, you know, what I would say is we, you know, in total, we expect stable to modest growth in the ARR this year, and maybe we'll be pleasantly surprised by an environment that helps us. But we're just gonna be overall conservative in how we look at that.

Rohit Kulkarni (Managing Director of Internet and Capital Markets)

Okay, great. I guess I like the commentary around GenAI and the fact that I'll take the glass half full interpretation that where you say that the wave is coming. So perhaps-

Mike Walrath (CEO)

Yeah

Rohit Kulkarni (Managing Director of Internet and Capital Markets)

... talk about how you are thinking from your conversations with decision makers and enterprises around kind of puts and takes as to when or how GenAI-related tools that you provide would start to move the needle and would start to essentially be the driver in more and more deals and bookings and over what period do you feel that's a reasonable assumption to make?

Mike Walrath (CEO)

Yeah. So, you know, as you, as you know, I've been a little bit of a curmudgeon on this topic. And, you know, I think that's probably because I've been around too long and seen a few of these cycles before, and, you know, we get really excited and then, you know, we sort of enter this phase, which I think where we're living now, which is we're asking ourselves, you know, as an industry, is, you know, is this real beyond... Obviously, it's driving a ton of value for anyone producing hardware to support the AI infrastructure build-out, and it's driving a lot of workloads.

But it's really, you know, as I think has been broadly commented, it's not driving a lot of, it's not, certainly not driving the wave of bookings that I think we were hoping AI would drive. And so, you know, this reminds me of mobile and social and, you know, even the internet in the late nineties, when I was just kinda cutting my teeth, where it was, you know, it was happening right now, and then, you know, it then it wasn't happening right now, and then it took a long time. But it turns out when it did happen, it happened a lot bigger than even we could have expected. And so, so I draw on those experiences, and what I see is, I see...

I just don't think in a couple of years that we're gonna, you know, two, three, four, five years, and it's hard to put a time frame on it, that we're gonna be talking about, you know, AI so much as we're gonna be talking about the value that's being generated through the platform. And so foundational to that, you know, we talk a lot inside Yext about, you know, your AI strategy is your data strategy. And so the more fragmentation that we see across the consumer experience, the more important it's gonna be that you have a cohesive content and data strategy, and that the applications that you're using to deliver that data to those consumer experiences, in particular, you know, it has to be organized, it has to be authoritative, it has to be actionable.

When that happens, we expect this becomes an extraordinary tailwind. Now, you know, some of the risk factors, or what I would call time-based risk factors, are the compliance level for engaging through LLMs and various other forms of AI with the consumer is gonna be a very high bar, particularly inside large enterprises like financial services institutions, and healthcare. And so that you know is a, the promise of the technology will and the ability of the technology will outrun the comfort level that large enterprises are gonna have with using it. Now, the flip side of that coin, to try to give you a thorough answer to the question is, we're already seeing it benefit inside the platform.

When we talk about things like listings, recommendations, like automated generated review response, we're beginning to see customers dip their toe in the water of using these technologies in a very safe and very constrained way. And not everyone is a regulated industry. You know, hopefully, that doesn't sound too contradictory. This is gonna take a while. When it happens, it'll be bigger than people think, and the way we're gonna deliver, you know, as an industry, the way we're gonna deliver a lot of this AI innovation is through software platforms that have the right componentry around data, workflow, analytics, learning, and things like that.

Rohit Kulkarni (Managing Director of Internet and Capital Markets)

Okay, fantastic answer, Mike. I'll go back in the queue.

Mike Walrath (CEO)

Okay, thanks, Ray.

Operator (participant)

Our next question comes from Ryan McDonald with Needham. Please go ahead.

Ryan MacDonald (Managing Director of Senior Equity Research Analyst)

Hi, thanks for taking my questions. Mike, maybe the first one is, now that you've got Hearsay closed, and you're starting the integration work, how quickly can you start to maybe recognize some of those revenue synergies, or, and what are some of the processes or steps you're taking to be able to, you know, start to better go after the not shared customers and maybe some of your key verticals, and can you just remind us how Hearsay sales cycles compare to sort of core Yext? Thanks.

Mike Walrath (CEO)

Yeah. So we think there's a, you know, it's kind of a layer cake of opportunity there. On the revenue side of things, I think we see a sales process and a customer support process that's very similar between Yext and Hearsay. I think the deal cycles are very similar. It's a lot of the same buyers and same buying centers, or at least similar, within the organization. And so, as I mentioned before, I think we really do see an opportunity where there is a Yext customer who's not a Hearsay customer, we'll have a, you know, an opportunity to have a discussion there around the benefits of a unified platform and data layer.

And we also, you know, as you know, we've been, and probably the biggest investment we've made from a product standpoint over the last 12 months is in a non-financial services social selling social management and analytics platform, which I think we're, you know, talking about, you know, getting to GA within days in the letter. So that's coming. We're really excited about it. We've had a large customer beta going there, and we think that it's gonna be a really nice addition to the portfolio. As we integrate the products, there are gonna be many opportunities to take Hearsay functionality and extend it beyond the financial services vertical, and also potentially bring Yext core products to those core kind of ser- Yext.

Sorry, Hearsay financial services teams. So, all of that, you know, I think we need a little bit of time to work through organizationally, how we're gonna manage this. And obviously, there's a whole product roadmap element to this too, and we're gonna approach that patiently because fortunately, you know, we have the time that we need to figure that out.

There's obviously the other side of it as well, which is the cost synergies element, and there are clearly gonna be opportunities for us to bring the teams together and drive both revenue upside and cost synergy, which is part of what you see us kind of alluding to in the outlook with a consolidated low single- or low twenties margin by the end of the year, but improving upon that next year.

Ryan MacDonald (Managing Director of Senior Equity Research Analyst)

Yeah, appreciate the color there. I mean, and I wanted to ask on that, on the adjusted EBITDA margin. So is it right to assume, as you talk about the low twenties consolidated adjusted EBITDA margin exiting the year, that at that point, Hearsay is still a bit dilutive to EBITDA margin now, and that, you know, much of the potential expansion or growth, or upon that in fiscal twenty six, is primarily synergy driven, or, is there incremental leverage you're kind of seeing in the core business as well? Thanks.

Darryl Bond (CFO)

Yeah. Hey, Ryan, it's Darryl. I think the first part of that is right. The consolidated margin, you know, that we guided to, you know, includes both businesses, and the Hearsay portion component is a little bit dilutive to overall margins. I think as we get into next fiscal year, you know, we'll continue to sort of run the business in an efficient way. And since we're integrating the businesses and putting things together, it's hard to say, you know, do the efficiencies come from, you know, the legacy Yext business or the legacy Hearsay business? Because to us, it's really just one business at this point.

You know, we're gonna look at how are we allocating capital, how are we making decisions with respect to investments and efficiency that are gonna throw off the best return. You know, we don't necessarily think about it as, you know, two different pieces. It's really just, you know, one overall set of operations.

Mike Walrath (CEO)

Yeah, that's right. I would just add to that, and just reinforce that point that Darryl just made, which is when we look at our capabilities as a combined company, we're gonna look at all the opportunities within the portfolio to deliver innovation, to deliver growth opportunity, and also to unify teams. And so it's been fantastic to see the teams come together. I think we're seeing, and I've been part of a lot of acquisitions. I think what we're seeing is, we're seeing the teams really immediately coming together. There's cultural alignment, and it's really gratifying to see how well the teams are working together and just the energy and the level of effort across the whole organization.

As we go into next year and as we think about, you know, sort of improving margins, you know, there are obviously two elements to that. There's the opportunity to get the revenue growth going again, and then there's also the opportunity to be more efficient and to determine how we allocate the portfolio of investments that we make. We do believe that there comes a point, and, you know, I'm gonna stop short of predicting when this point is, where we get through this kind of, you know, kind of macro. And then the market gets really interesting because the consolidation opportunity will be a headwind for some companies and a tailwind for other companies, and breadth will be a huge advantage.

And that's really where, you know, I think we're setting ourselves up to make a lot of progress, is even as I think the operating environment gets easier, there's still going to be, for quite some time, I think, the digestion of, you know, ten, twelve years of what we would call, like, kind of the technology hyper buying environment. And in that type of environment, we just feel we have some very strong value proposition and capabilities to unify platforms and make things work better.

Ryan MacDonald (Managing Director of Senior Equity Research Analyst)

Appreciate all the color there. I'll hop back in the queue.

Mike Walrath (CEO)

Thank you.

Operator (participant)

Again, if you have a question, please press star then one. Our next question comes from Naved Khan with B. Riley Securities. Please go ahead.

Naved Khan (Managing Director and Sr. Research Analyst, Internet)

Great. Thank you. Thank you very much. So, just a commentary on boomerang customers, and the fact that you managed to get nine back in the last quarter, that's pretty encouraging. I'm curious if you're continuing to see these trends into the third quarter as well, and also about the terms on which these customers might be coming back. Are they coming on similar terms and tiers as they used to be? And what are the primary reasons for them coming back?

Mike Walrath (CEO)

... Yeah, so, thanks for the question, Naved. Yeah, we're thrilled about this. I think, it's well known that it has been a tough couple of years. There's been a tremendous amount of competitive pressure. You know, I think there are a lot of promises made, and one of the things we're seeing is that, you know, those promises are not always delivered upon. And so, when that happens, well, one of the things that we've, I think, done a better job over the last particularly twelve months of doing, is making it clear to our customers that, you know, we're ready to help them come back, right? And in this type of a environment, if the thing that you left for isn't working, the ROI implications of that can be enormous.

Because what you look at is, you know, if you're losing organic traffic, if you're less competitive in a rapidly fragmenting search generative world, it can be devastating for your business, and so we are, you know, just as we're taking a very partner, you know, long-term partnership mindset to the to our customer relationships and to the renewal cycles, we're also making it as easy as possible for companies who, you know, who have left and feel that the value they've been promised hasn't been delivered, to come back. And in a lot of cases, this is happening faster because we're able to revert back.

We, you know, we maintain a lot of the infrastructure to be able to quickly get them back up and running and solve the, you know, whether it's Listings or Pages or Reviews, challenges they're having. So, this is a trend we think, you know, it's a credit to our teams, staying close to the customers and really remaining partnership-minded, even when the customers decide to go experiment with other solutions, that we can, you know, get them back up and running really quickly. And, you know, this is. I just want to credit the global team on this. It's a different mindset, and it creates long-term partnership value that I think is hard to put a value on, but it's a lot.

Naved Khan (Managing Director and Sr. Research Analyst, Internet)

That's great to hear. Maybe a quick follow-up. Just on the guidance for the full year versus the third quarter, if I try to back into the EBITDA margin for the fourth quarter, it kind of implies mid-twenties kind of range. Just wondering if I'm off somewhere or just give us some color on how to think about that.

Darryl Bond (CFO)

Yeah. Hey, Naved, it's Darryl. I think if you look at Q4 implied EBITDA margin, it's around 22%. You know, and when we talk about, you know, getting up into the mid-20s%, you know, I think the legacy Yext business is kind of there. And as we talked about a couple of minutes ago, you know, Hearsay, you know, is a little bit dilutive to that. And I think as we get into next year, that's where we see, you know, the opportunity to continue to expand the margins. You know, both, like Mike said, through finding efficiencies in the business, but also, you know, hopefully getting some benefit from rep.

Naved Khan (Managing Director and Sr. Research Analyst, Internet)

Got it. And last question, if I may. So maybe just on this, you know, move from contractual ARR to usage-based on the third-party reseller side of things. Just kind of what kind of is driving that move? And if it really doesn't affect revenue, then just kind of what are the dynamics behind the scenes that kind of lead to this change?

Mike Walrath (CEO)

Yeah. So this has always been part of that business, but I think it's been an easy default to, you know, we want the committed revenue predictability. And sometimes you know, I would file this under customer centricity. I would file this under, you know, in a lot of cases, what we've determined is that we might be missing opportunities, companies who don't want to commit to a certain level of spend, but have a set of customers who they want to deliver the platform to. And so what we're trying to do here is create a lot of flexibility for our customers.

In a lot of, you know, many, many cases, you know, they wanna make a commitment, and they want, you know, and I think it's fairly simple, like, the more volume of product that someone, any customer commits to, the better the pricing is going to be. But I think we probably over-rotated to that type of a structure, to the point where it probably felt like we were demanding commitments from customers whose business might be at a stage, it might be a smaller business, a growing business, who needed less commitment, who might have, you know, less of a predictability to their own business.

And so really, it's just been a focus shift to meeting our customers where they are and making sure that, you know, there's always a trade. It might. The unit pricing might not be as good for a deal that has less commitment or no commitment. So, you know, I think what we're trying to shine light on here is that as we do this, you know, it can have a dampening effect on the reported ARR, because conservatively, we only report contractually committed ARR. And so you'll have to, you know, as we move forward here, and we've kind of been signaling this for a couple of quarters, and we'll try to, you know, make this as clear as possible.

We're not gonna change the way that we report ARR, at least we don't have plans to right now. But we'll try to give you some indications around... You'll be able to look at the revenue trend, but also the committed ARR number for the reseller business. And I think that'll help you, you know, figure out what's going on there. So we wanted to call it out this quarter just because, you know, there was that, you know, kind of $2 million-ish, I think, drop in committed ARR for the reseller business. But if you look at the revenue and then you adjust for kind of the days in the quarter thing, what you get is there's basically flatness and in that revenue.

Obviously, as we go forward, we continue to kind of call that out, but hopefully that, hopefully that makes some sense.

Naved Khan (Managing Director and Sr. Research Analyst, Internet)

It does. Appreciate the details. Thank you. Thank you, guys.

Mike Walrath (CEO)

My pleasure.

Operator (participant)

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

Mike Walrath (CEO)

I'd just like to thank everyone for joining us again today, and I just want to take a moment, one more time to thank our global team. I know many are listening to this, and the team's doing an amazing job delivering value for our customers and focusing on the long-term value creation. And would be remiss not to acknowledge it at every possible moment. Really appreciate everyone's time today, and look forward to speaking with you next quarter.

Operator (participant)

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