Yext, Inc. Q1 FY2023 Earnings Call

Good day, and welcome to the Yext, Inc. First Quarter Fiscal 2023 Financial Results Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Ho Shin, General Counsel. Please go ahead.

Thank you, Sarah, and good afternoon, everyone. Welcome to the Yext fiscal first quarter 2023 conference call. With me today are CEO, Mike Walrath, COO and President, Marc Ferrentino; and CFO, Darryl Bond. Before we begin, I'd like to remind everyone that this call may contain forward-looking statements, including statements about expectations regarding growth of our business, our management and governance plans, forward-looking guidance and estimates of financial and operating metrics, capital expenditures and other nonhistorical statements as further described in our press release. These forward-looking statements are subject to certain risks, uncertainties and assumptions, including those related to Yext growth, the evolution of our industry, our product development and success, our management performance and general economic and business conditions, such as the impact of the COVID-19 pandemic. We undertake no obligation to revise any statements to reflect changes that occur after this call. Descriptions of these and other risks that could cause actual results to have a material difference from these forward-looking statements are discussed in our reports filed with the SEC, including our most recent quarterly and annual reports and our press release that was issued this afternoon. During the call, we also refer to non-GAAP financial measures. Reconciliations with the most comparable GAAP measures are also available in the press release, which is available at investors.yext.com. Please note that Darryl is dealing with a case of laryngitis, so Mike will also be delivering Darryl's prepared remarks, but Darryl will do his best to participate in the Q&A. With that, I will turn the call over to Mike.

Thanks, Ho, and thanks, everybody, for joining us today. We're making progress in our efforts to streamline the business, improve operating efficiency and re-architect our go-to-market strategy. We have installed a lot of change in the last 90 days. I'm encouraged by the changes we are making to further improve our operating results in the future and particularly by the responsiveness of our team to a different set of operating principles. We have an amazing group of talented people across this company, and I'm really excited to work with them as we build the future of Yext. We are early in our transformation to become a more nimble and efficient company, but I'm pleased with the progress we've made so far and look forward to continued improvement. First-quarter revenue was $98.8 million, $1.5 million above the high end of our guidance, while non-GAAP net loss per share was $0.06, $0.01 better than the high end of our guidance range. We took actions to create operating efficiencies during the quarter, and we expect to realize these operating efficiencies in future periods as our full-year guidance suggests. We are confident in our ability to continue to make the core business more efficient even as we face economic uncertainty, inflation and foreign exchange headwinds. We will continue to attack inefficiencies in our business as we find them. This process is iterative and is becoming a core culture principle as we align around our highest priorities: customer satisfaction, operational efficiency and product innovation. We have renewed our commitment to putting customer satisfaction at the center of all we do. Our go-to-market reboot will take time to execute. Long-term customer satisfaction is at the core of our ongoing efforts on this front. We experienced increased customer churn and contract downgrades in recent periods, which have had an effect on our revenue retention. Certain customer sets have been more affected by these trends than others, and it stands out that listings-only customers have been particularly affected. It is in this customer set where we've seen the most challenges with support and services, which has led to more competitive pressure. Reversing this trend means focusing on initiatives that include better client success interaction, highlighting product innovation across the platform and focusing on customer adoption. Our core belief is that happy customers drive adoption, upsell and ultimately will lead to higher net retention rates. We believe our efforts in this area will also serve to further improve satisfaction with most of our customers who are very happy with the value our products are delivering. We're taking a long-term view of the customer journey and will prioritize the future opportunity over near-term revenue. Today, we also announced that David Rudnitsky, currently CRO leading the North American sales organization, will be leaving Yext. Dave joined Yext in 2017 and helped build the enterprise sales team here. We wish him well and appreciate all the contributions he's made to our sales organization. We have already started the search for a global CRO, and Dave will assist in transitioning his role until September 30. Brian Distelburger, Yext Co-Founder and currently CRO responsible for the international and partner sales organizations, will assume his responsibilities in the interim and is helping us to identify the right leader to take on the global CRO role. We will continue to focus on operational efficiency. We spent most of the quarter reorganizing the business, resulting in a flatter organization. We worked on consolidating duplicate functions, increasing our leaders’ span of control and creating more accountability to improve operating efficiency. We are already seeing the results of our work, and our improved full-year EPS guidance reflects the work we have done in the early part of our fiscal year. We expect to continue to make progress on this front as we streamline the organization and focus on making sure our efforts are in the highest value areas. We view these operational efficiencies as directly linked to driving increased customer satisfaction. The complexity and size of our organization was getting in the way and a leaner, more focused organization will better serve our customer needs and grow those relationships over time. Product innovation remains a top priority across our entire platform. Marc will address our progress and priorities as well as some of the customer wins from the quarter. We are also working to make our product platform easier to understand by rolling out refreshed brand positioning and our business easier to understand by doing a better job of describing our revenue categories and dynamics. Going forward, we'll be providing ARR broken out by two categories: direct, which includes our enterprise, mid-market and small business customers; and our third-party reseller customers separately. Darryl will provide a more detailed look at the metrics by category. Well, I guess I will provide a more detailed look in Darryl's remarks and how we will report them going forward. At a high level, we think ARR provides insight into the performance of our recurring revenue business model while mitigating fluctuations in billing and contract terms. ARR growth in the direct business reflects product adoption and indicates that we are landing new customers and renewing and upselling existing customers, a good indication that our customers value our product and that our value proposition is intact in spite of challenging execution over the last few quarters in our go-to-market. Third-party reseller revenue is less predictable and less indicative of the robustness of the overall portfolio as resellers are currently limited to selling certain products. However, we do see resellers as an opportunity for future growth as we enable them to sell additional products and solutions. We also want to highlight that more than 95% of our revenue in the quarter was recurring in nature, and we expect that to continue. Finally, onetime services are essential for more complex customers but only represented about 2% of total revenue in the first quarter, and we anticipate them to remain a small percentage of our overall revenue as we continue to build out our SI community. We are orienting the company around these metrics. So the entire team is focused on building a company with a best-in-class SaaS profile with strong recurring revenue and healthy margins. 90 days into my tenure as CEO, a few things are clear: We have a lot of hard work ahead of us, and we expect economic uncertainty will persist at least for the near term. I believe disciplined execution stands out in more difficult economic environments. Our product platform is robust and provides tremendous value to our customers. The market opportunity is large and growing. We will continue to focus on operational efficiency and making the right long-term decisions across the business to show tremendous customer value, which is the heart and soul of our growth opportunity. We remain confident in our ability to operate efficiently and believe our stock is a great investment. This is reflected in our share repurchases in Q1 and our ongoing plan to continue to repurchase shares. We maintain a very strong balance sheet of business getting healthier by the day and an amazing team that will focus on the large opportunity in front of us. I'd now like to introduce Marc to discuss customer and product updates.

Thanks, Mike. I'm glad to be here. I have been with Yext since 2015, and I believe we offer the most innovative products in the market with significant growth potential. Our exceptional products address real business challenges for our customers. My immediate focus is on improving our go-to-market strategy, and I believe we have made progress this quarter. I want to discuss our branding. Our transition to Answers and branding our search offering as Answers has created some confusion both internally and with customers. Clarifying our brand and vision has been a top priority for Mike and me. The concept of Answers has been central to our business since we launched listings in 2010. Our first Answers product, Listings, enables businesses to control their answers across the largest network of publishers globally. Our Reviews product helps businesses manage crowd-sourced feedback about their offerings. Our Pages product allows customers to provide answers through SEO-optimized web pages. With the recent launch of our search product, customers can now answer questions directly on their websites or within the company. All of this relies on our Knowledge Graph product, which organizes and collects answers across the business into an advanced content management system designed for AI. Ultimately, we aim to assist businesses in providing answers to every question from their customers, employees, and partners, anytime and anywhere. This vision extends well beyond marketing into support, e-commerce, and workplace applications. Every CEO faces an answers challenge. Having accurate, real-time responses to critical questions about a company leads to more robust top-of-the-funnel activity, improved website conversion rates, reduced support costs, and more productive employees. We will be rolling out a consistent branding and positioning that aligns with our offerings. Moving forward, our core products—Listings, Reviews, Pages, Search, and Knowledge Graph—will be collectively referred to as the Answers platform. Yext has always been the answers company and each of our products addresses a fundamental problem for our customers: delivering perfect answers everywhere. We will continue to develop industry-specific solutions on top of the Answers platform, presenting significant growth opportunities. Our revamped brand messaging forms the basis of our go-to-market strategy. I will outline other key focus areas as we reshape our go-to-market efforts. We are placing a strong emphasis on customer success and education, launching new programs to help our customers fully utilize our products and maximize value from their investments. Our customers see us as experts, and we aim to reinforce that perception. We have unified our data insights functions into one go-to-market insights team to provide a comprehensive view of the customer. We are also reorganizing our marketing team to foster cross-functional collaboration and enhance focus on growth areas, specifically in marketing, support, healthcare, and financial services. Given the development of our platform over the past year, we feel prepared to engage the SI ecosystem more substantially than before, and I anticipate this being a major focus going forward. On the product side, we launched our Spring '22 Release this quarter, introducing several new features. We are making it easier to integrate our platform into internal systems to gather more answers from across the business. Enhancements have been made to our search product, including a new search merchandiser. This release also features significant upgrades to our flagship Listings product, reaffirming our commitment to this line. Our product development strategy is aligned with our brand and go-to-market approach. Yext strives to empower every business globally to collect, organize, deliver, and answer anywhere, anytime. Now, I would like to share some highlights from our first quarter. Our strengths were particularly pronounced in healthcare, followed by financial services and food services, with notable customers such as Cardinal Health, UnitedHealthcare, Allied Financials, and El Pollo Loco. We offer a robust solution set for healthcare that includes not only location services but also provider listings and reviews. Our provider pages and find-a-doc offerings have seen good follow-up purchases. These solutions complement one another, creating a clear upsell path that provides additional value to customers. The same model applies to financial services, starting with listings for loan officers, insurance agents, or wealth advisors, then moving to reputation management and pages. Once all relevant data is in the Knowledge Graph, we can efficiently upsell to search or guided search, as the data is already in the system, simplifying deployment for customers. Listings and Reviews continue to constitute a significant portion of our new business and upsell opportunities. We successfully gained one of our largest location listings with DHL Express in EMEA this quarter. We also partnered with Shake Shack, which presents significant growth potential across our platform. This demonstrates that our core business remains strong, and with the renewed focus on our products and services, we expect continual momentum. We have kept innovating our flagship Listings and Reviews products, and our current aim is to educate the market about these innovations along with advancements across the platform. One deal I am particularly excited about highlights the progress of our search offering in recent years; we worked with a large global appliance company that thoroughly evaluated the market, examining most of our competitors while seeking a search partner capable of handling both support search and e-commerce search. They conducted a competitive selection process and ultimately chose us. With the latest features in our Winter and Spring releases, we can now compete effectively in security while our AI-driven search capabilities set us apart from the competition. We have seen recent successes in winning over entrenched competitors as our search platform. For instance, with the Winter '22 Release and the necessary security features for internal use cases, we secured a win with VMware, displacing a long-standing competitor. Their existing provider utilized a keyword-based interface and lacked analytics. This forward-thinking team opted for Yext due to our natural language processing, strong analytics, and Tableau integration. We believe this win is just a small glimpse of a much larger global opportunity. Now, I will pass the call to Mike.

Thank you, Marc. I wanted to share our numbers. In the first quarter, our revenue increased by 7% year-over-year, reaching $98.8 million. Unearned revenue rose 5% year-over-year to $196 million, and our annual recurring revenue, or ARR, stood at $387 million at the end of Q1, also reflecting a 5% year-over-year growth. The stronger dollar against other currencies resulted in an approximate 1% negative effect on Q1 revenue from foreign exchange and an approximate 2% negative impact on ARR. Our trailing 12-month net dollar-based retention, excluding small business customers, was 99%. When excluding both small business and third-party reseller customers, our trailing 12-month net dollar-based retention was 100%. Our customer count, not including small business and third-party reseller customers, grew 11% year-over-year to 2,830. Additionally, we had 613 customers with ARR over $100,000 at the end of Q1, up 8% year-over-year, again excluding small businesses and resellers. Starting this quarter and in the future, we will provide a more detailed analysis of ARR for our direct and third-party reseller customers. We see ARR as a key indicator of our future prospects, as well as our progress in acquiring new customers, renewals, and upselling. Direct customers make up 80% of total ARR, with direct ARR at Q1 reaching $310 million, which is a 7% year-over-year growth. Our direct sales team primarily targets enterprise and mid-market accounts, and ARR growth is a reliable indicator of customer adoption and satisfaction. Third-party resellers account for 20% of total ARR, with their ARR at $77 million in Q1, marking a 3% decline from the previous year. The size and customer base of our third-party reseller customers vary widely, making their revenue less predictable compared to direct. Looking at our non-GAAP results, which we have reconciled to GAAP in our press release, Q1 gross margin was 76.4%, down from 77.8% in the same quarter last year, but still within our long-term non-GAAP gross margin target range of 75% to 80%. Our operating expenses for Q1 were $82.9 million, representing 84% of revenue, compared to $74.2 million or 81% in the same quarter last year, driven mainly by employee-related costs and various sales and marketing events. Many of our planned events for the first half of the year are already underway, but we anticipate achieving efficiencies in sales and marketing expenses in the second half of the year. We recorded a net loss of $7.8 million in Q1, compared to a net loss of $3 million in the same quarter last year. Our net loss per share for Q1 was $0.06, which came in better than our guidance range. Last year’s net loss per share in Q1 was $0.02. Our cash and cash equivalents totaled $248 million at the end of Q1, down from $261 million at the close of fiscal year '22. During the quarter, we authorized a $100 million share repurchase program for our common stock, repurchasing $31 million by the end of the quarter and an additional $24 million thereafter. We aim to maintain a strong balance sheet and cash position going forward and are open to purchasing stock at favorable prices. Our net cash flow from operations in Q1 was $17.9 million, a decrease from $35.1 million in the previous year’s quarter. We expect to keep generating positive operating cash flow annually for fiscal '23 and beyond. Capital expenditures were $1.6 million in the first quarter, down from $7.5 million in the same period last year, as we have returned to a normalized annual CapEx rate following the completion of our real estate expansion. Regarding our outlook, we anticipate Q2 revenue to be between $99 million and $100 million, which accounts for a negative impact of $1.8 million from foreign exchange. For Q2, we expect a non-GAAP net loss per share to fall between $0.05 and $0.06, assuming a basic share count of approximately 124.6 million shares. For the entire fiscal year of '23, we are projecting revenue between $399.3 million and $403.3 million, which includes a negative foreign exchange impact of $6 million. Our anticipated non-GAAP loss per share is expected to be between $0.10 to $0.12, reflecting a $0.07 improvement from the midpoint of our previous guidance due to expected progress in managing operating expenses, especially in sales and marketing. The full-year earnings per share assumes a basic weighted average share count of approximately 127.1 million shares. We are now ready to open the floor for Q&A.

Our first question comes from Naved Khan with Truth Securities. Please go ahead.

Thanks a lot. A couple of questions from me. So Mike, in your commentary, you talked about some impact from customer downgrades and maybe some increased churn. Can you give us some more color in terms of what's going on sort of under the covers here? So are you seeing these losses more on the third-party customers or more in the direct customers? And also, when these customers are downgrading or say, churning off, what's the primary reason for that? Where are they going to? Are there other sort of new products in the market that might be leading to increased competition?

Yes. Thanks for the question. I'm happy to talk about those dynamics a little bit. So one of the things we saw in Q1 was that we saw our gross retention slip into the low 80s, which was down sequentially from Q3 and Q4. The good news is, is that it's our smallest up for renewal quarters. So the relative impact is fairly small. And really, it was driven by a single churn. And it's a great example of where we have to do a better job with the customer. So this particular customer had had numerous disruptions to their service that we're providing them, numerous team changes. And frankly, I think we weren't responsive enough to their needs. And for that, unfortunately, that was a logo churn. Very much what we're focused on here is addressing these customer satisfaction challenges before they happen because when they do happen, then they create an opening for competitors who can't match us from a functionality or service standpoint, but we're certainly exposed when our customers aren't happy. And so the focus internally is absolutely on logo retention, even if certain customers come at some level of downgrade churn. I would much rather see that than logo churn because we have amazing upsell opportunities with these customers. And so that's what I'm talking about when I'm discussing starting with customer satisfaction and starting with happier customers. We take the competitive opportunity very much off the table when our customers are happy, which most of them, the vast majority of them are.

Got it. But maybe digging a little bit deeper into this. So coming out of COVID, which we are now, it would kind of seem to us that the demand would improve, maybe you would see more licenses as more locations open or just more upsells. Are you sort of starting to see any of that even in the months that we just ended? Or any kind of color or commentary would be helpful there.

Yes. From my perspective, I agree that we seem to have moved past the COVID challenges, and it feels like business is returning to normal. When Marc discusses the platform and the potential across our entire product range, it's encouraging to see a variety of deals coming in. We may not yet have reached our desired deal volume, but given the disruption from our reorganization and the start of reworking our go-to-market strategy, that isn't surprising. We're excited about these opportunities. I think Marc can elaborate on some of the enhancements we've made to the Listing platform and how that ties into our reseller customers, where there is a significant opportunity, not just on the listing front but also with new product expansion.

Yes. We've been innovating on our listings products at a consistent pace over the past few years. However, we haven't effectively communicated the value and the innovations of our listings product. That's something we can easily improve, and we're working on it. By enhancing this functionality, we are increasing the utility of the listings product, making it more valuable and more integral to our customers' businesses. In the third-party reseller channel, we have primarily sold listings and reviews so far. We're looking to potentially introduce new products in that channel in the future to drive additional value.

Understood. The second question I had is just on the sales and marketing. So in terms of the headcount reduction and the impact on the P&L, is that more loaded towards the back half? How should we think about the expense line as we move through the year?

Yes, Naved, it's Darryl. That's a great question. As we analyze the EPS guidance we've prepared, it clearly indicates significant improvements for the latter half of the year. The adjustments we've made regarding quota-carrying representatives, which we discussed during the last quarter’s call, reflect where we currently stand. We finished last quarter with 190 sales reps, and we'll wrap up this quarter with approximately 180. We are quite optimistic about these figures.

And so just in terms of the dollar impact, why aren't we seeing that sequentially between Q4 and Q1 and maybe even more so? Yes.

Got it, got it. So I think it's a matter of scope and magnitude, right? Like the sales and marketing line is much bigger than just our quota-carrying reps. There's support, there's some other functions around customer success in there and so forth. So as all of the efficiency work and the reorganizations and the streamlining and the removing of silos, as that comes to fruition, the benefits will start to realize in the back half of the year. If you think about the timeline, Mike really only took over midway through March. By the time we got through all the reorg, it's kind of difficult to impact the numbers within the quarter, but we expect to see the improvements going forward, and you see that from our EPS guidance in Q2 shows some improvement over Q1, but we expect further improvement in the back half of the year.

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

Thanks for taking my questions. Maybe first starting on the customer success motion. I know from discussions earlier in the quarter that we that there's a big focus here on sort of standardizing that customer success motion across the organization and trying to drive some improvements around quarterly business reviews. Can you just talk about some of the success or the progress maybe that you're making in this area?

Yes, I'll address the first part, and Marc might have some examples or stories to share. It begins with identifying what's not effective. We've started to recognize where these issues arise. There's been significant turnover within our customer organizations, which presents a challenge. When personnel change within our clients, we frequently need to restart initiatives and retrain for adoption, which are crucial for client success. This is indeed an operational hurdle. As I mentioned in the last call, various groups interact with the customer, all contributing to customer success, but these efforts were not as coordinated as they should have been. We've implemented significant changes this quarter to unify these efforts and ensure our coordination and interactions with customers are more consistent. Additionally, this is a key reason we've decided to appoint a Global Chief Revenue Officer, who will focus not only on the sales organization but also on customer success, to enhance our efforts in effectively operationalizing our entire go-to-market strategy.

Just to add to what Mike said. Our product in many ways is a sort of straightforward cause and effect. The more adoption, the more usage of the product, the more value you get. It is actually pretty straightforward in that regard. And so one of the things that we're doing, one of the things that we're focused on is really driving adoption inside of our customer base, being customer focused, having that be really the driving force, the driving consistency behind our customer success experience. Now in years past, there wasn't a clear set of metrics for us to operate against, and what we spent the last quarter on is really metering much of that product experience, much of that consumer experience, all driving towards eventually being able to hopefully in this next quarter, being able to at least measure adoption across a very, very large customer base that we have. That will then lead to higher levels of systems and processes and automation that we'll be able to deliver. What that really means for us and means for the customer is a much more consistent customer experience. Whether you're a single location pizza place or you are our largest customer, that we're delivering that consistent experience. And what we're doing it at scale and we're doing it efficiently. And so that's something that we're really excited about to watch that unfold over the next few quarters, and our customers will definitely feel that benefit of that innovation.

That's helpful. Marc, as a follow-up, you mentioned that increased usage leads to more loyal customers and greater success over time. You also discussed customer education as a means to enhance usage. As you continue to promote customer education or increase usage, do you believe that the best approach is to improve self-service and simplify the user experience, or would it be more effective to offer more consultative services to assist customers in their usage?

Due to our large and diverse customer base, we emphasize self-service as a fundamental starting point. Our community and hitch-hiker sites serve as valuable resources for customers to learn about industry trends, best practices, and ways to get the most value from our products. However, we don't stop there. For larger enterprise customers, we provide customer success teams that assist in applying the self-service information effectively. This is crucial for customer implementation. When we discuss adoption, it's primarily related to content: the quantity and quality of content added to our platform, which enhances visibility in search and boosts overall performance. We are able to support this both through self-service avenues and by offering consultative experiences for our largest clients.

Excellent. And then maybe last one for me, Mike. You talked about, I think one of the previous questions about, Q1 is a relatively light renewal quarter for you. And then so despite having some churn, it was a relatively small impact. Can you give us a sense of, as you look out through the remainder of the year or at least in the second quarter, what the renewal cycle looks like? And what you're kind of doing right now to try to prevent any incremental churn? And perhaps what assumptions are built into the guidance currently for any incremental churn at these levels?

Certainly. Q1 tends to increase in the amount of renewals as the year progresses. I believe we've learned valuable lessons in recent quarters about the effects of not delivering the customer experience we aim to provide, and our primary focus is on reversing those declining trends. Fortunately, we have time to address this, and we recognize the underlying value; however, we must improve how we deliver a cohesive experience. It's also important to highlight that for a multiproduct platform like ours, there are times when we need to take steps for our clients that may not yield immediate financial returns but can lead to greater opportunities down the line. I plan to discuss this further in the future. We take these factors seriously and aim to ensure we're preparing for future growth, especially for the smaller segment of our customers who may have faced service disruptions. Regarding guidance, I want to emphasize that we are somewhat cautious due to the current macroeconomic environment and the ongoing changes within our organization, which are not yet fully realized. Thus, we are approaching this with caution.

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

Thank you. This is Chris on for Arjun. So the first question I wanted to touch on was, so in terms of go-to-market, I think last quarter, we talked about the QR headcount coming down, but also wanted to kind of build out some of the supporting cast around the sales rep. So where do we stand kind of today in that process in terms of adding pieces in sales enablement and those kinds of things?

Yes. Let me begin, and I believe Marc may want to add some thoughts on this as well. As we've delved deeper into this, it's become evident that an improved customer experience and greater operational efficiencies are interconnected. It has become clear that while we may have abundant resources, they have not been coordinated effectively and may have been misallocated in some instances. Moving forward, we aim to ensure that we are utilizing our resources wisely and reallocating them as necessary to enhance efficiency, which will directly benefit our customers by reducing redundancy in their interactions and eliminating disorganization. These have been the main factors contributing to past customer dissatisfaction.

The only thing I can add is that consistency is really central to what we want to deliver. We're a decent-sized company with many happy customers, but there is some inconsistency in the customer experience right now. This issue is not solved by simply adding more resources. Instead, it requires automation, improved processes, better data management, and thoughtful systems design. All of these efforts aim to maintain a consistent experience for every customer, regardless of size or location. As Mike mentioned, we realized the focus should be on the allocation of existing resources and ensuring that they are consistently utilized across the organization, rather than on simply increasing the number of resources.

Got it. That makes a lot of sense. It's very helpful. So zooming out in an ideal world, I'm not asking for guidance here, but if we're to dream the dream, where is the Yext two to three years from now? So what are the kind of key dominoes that have to fall in terms of product and go-to-market that kind of gets you from here to where you want to be? I know we've talked about some of the table stakes things like kind of improving the customer experience, that's the near-term focus. But is it continuing to expand the product portfolio, add new opportunities to go-to-market? How should we think about that?

I'll share some general thoughts that might be helpful. The product portfolio we currently have is extremely strong, including our Listings, Pages, Reviews, and Search product lines. Additionally, we have numerous industry-specific solutions that build on that, which Marc and his team have been designing and delivering for years. We do not see limitations in product opportunities, and Marc might want to elaborate on that. Broadly speaking, one of the current shifts is the belief that growth and efficiency must be separate. We do not agree with this perspective. As I mentioned in our last call, every successful business I have built has focused on growth driven by efficiency. In terms of our earnings per share guidance for the latter half of the year, we are essentially guiding around breakeven, which marks a significant change, especially given the challenges we're facing from foreign exchange and the broader economic environment. We believe the opportunity lies in getting organized, streamlined, and agile, which will enhance our market approach by resulting in happier customers and improved upsell opportunities. I've spoken with every customer who has recently left Yext, and the feedback is quite consistent. Many expressed they did not intend to leave and were disappointed with the service. This insight shows us that we can potentially win those customers back and highlights where we need to concentrate our efforts. Another common piece of feedback was that customers wanted to purchase additional products but felt they weren't offered those options, leading to dissatisfaction. Going forward, a key principle for us is recognizing the immense potential for upselling and cross-selling in the long term. Our search products and other offerings have a vast market that we can access when our customers are satisfied. I understand I may sound repetitive, but I feel it is important to emphasize this.

Yes. It all begins with customer success, which is the driving force behind everything we do. Our most satisfied customers tend to purchase more and engage more deeply with us. This fosters a trusted advisory relationship, which is truly exciting. The challenge we face is how to establish this successful path consistently across our entire customer base. Essentially, we typically introduce customers to our offerings with a single product, one we previously discussed. This initial product helps build the Knowledge Graph and populates our AI content management system, which then opens up numerous opportunities for expansion and upselling. Looking ahead two to three years, we envision a well-structured go-to-market strategy that revolves around this concept: starting with one solution and then broadening to many more solutions, moving beyond just marketing to include support and eventually e-commerce and workplace solutions, among others. There is a clear, consistent path ahead of us, and we are quite optimistic about it. The pace of innovation in our company has been remarkable, particularly over the last few years. I am genuinely excited about our upcoming roadmap and future developments, though I cannot disclose specifics due to the nature of forward-looking statements. However, I can assure you that our roadmap is exceptional, and I am thrilled about what lies ahead.

Great. That's all really encouraging to hear. So one thing I want to touch on just a little bit more. I know we've talked about here and there, some of the macro impacts and kind of taking that a little bit into guidance. Are there any areas if we kind of double click on potentially seeing a slowdown in demand, maybe separate from some of the customer service issues that we've discussed? And if we were to enter a recessionary period, are there any product lines in particular that you would expect that to have kind of an outsized impact on? Or is it going to be just kind of broadly thought across the customer base as all?

Yes. I'll take that one. It's Mike. So I think the biggest impact we're seeing is the FX impact, and it's not something we have any control over. So we'll continue to update you on that as from a kind of a headwind. I would say at this point, we're not seeing any particular demand slowdown based on the macroeconomic environment. And if we look at it historically, I think software businesses tend to do well through recessionary or I don't know what we're calling this environment, but you guys are the experts on that, not me. But I think software businesses do well because in those environments, our customers are going to be looking for opportunities to drive cost down, and digital transformation is an incredibly good way to increase ROI on your various activities. And so we feel like we're in a great place to weather whatever might come economically. And at this moment, I wouldn't say we're seeing anything from a budgetary standpoint or a demand standpoint that's macro.

Okay. Great. And one more if I could slip it in. So revenue came in a little bit ahead of guidance despite some of the challenges mentioned with gross retention and the large customer that churned. How do we think about reconciling that with the sequential RPO decline? So is there any way you can kind of quantify how much of that might have been related to the customer, the churn, versus FX impacts? Was it all primarily FX, I would assume?

It's Darryl. The RPO is kind of a tough metric. RPO looks at contract duration, contract terms. And we prefer to look at ARR. You might notice in the earnings release, we separated out our third-party reseller ARR from our direct ARR. We think that sort of removes the impact of things like contract terms, billing terms and timing. I think if you think about multiyear deals, that's going to impact your RPO numbers, particularly year-over-year. So that's what's really driving that. It's not any one customer, and the FX impacts we mentioned are in like the 1% to 2% range for the metrics we called out.

This concludes our question-and-answer session as well as our call for today. Thank you for attending today's presentation. You may now disconnect.