Earnings Call Transcript - YEXT Q1 2026

Operator, Operator

Good afternoon, and welcome to Yext, Inc.'s First Quarter Fiscal 2026 Financial Results Conference Call. This event is being recorded. I would now like to turn the conference over to Nils Erdmann. Please go ahead.

Nils L. Erdmann, Investor Relations

Thank you, operator, and good afternoon, everyone. Welcome to Yext First Quarter Fiscal 2026 Earnings Conference Call. With me today are CEO and Chair of the Board, Michael 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 second 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 first quarter shareholder letter, which is available at investors.yext.com. 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 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 annual report on Form 10-K for the year ended January 31, 2025, and in our earnings release and our shareholder letter that were both 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. I will now turn the call over to Mike.

Michael Walrath, CEO

Thanks, Nils, and thank you all for joining us today. As I hope you read in our shareholder letter and earnings release, we had a very strong Q1, outperforming our guidance on all metrics, and we see continued strength into Q2. A few things I'd like to highlight before we dive into your questions. First, the fragmentation of the consumer search market continues to accelerate with the advancement of AI search. This trend elevates the importance for brands of managing digital visibility, and it differentiates Yext core products and provides fertile ground for our latest product release Yext Scout. Second, our core business health is improving. We're seeing improvement in both gross and net retention, customer satisfaction, and overall value perception across our platform. Third, the pace of innovation is advancing rapidly at Yext. We are speeding up our execution even as our profitability and efficiency grow, setting the table for a growth flywheel well into the future. And finally, we have the balance sheet and cash flow to further accelerate our growth while maintaining flexibility. This enables us to strategically reinvest in organic initiatives and pursue opportunistic investments, whether through M&A or partnerships that extend and enhance our business. I'm thrilled with the execution of our global team, who are bringing strong commitment to driving value for our customers, even as the pace of change in our industry accelerates. And now we're happy to take any questions that you may have for us.

Operator, Operator

The first question is from Naved Khan with B. Riley Securities.

Naved Ahmad Khan, Analyst

I have a couple of questions. First, regarding the Scout update, it's encouraging to see the waitlist of 2,000 customers. I’m interested in knowing if, in addition to existing customers showing interest, there is a significant number of new customers signing up for this product. Also, related to that, as you gain more sales traction, how do you plan to increase sales headcount for the remainder of the year?

Michael Walrath, CEO

Naved, as far as the customers go, I think what we're seeing on the waitlist is a mix. So we see existing customers; we see new prospects; and we also have customers. So it's sort of all of the above, and that's driven by some of the demonstrations that we've had available for Scout since early April. As far as the sales headcount goes, I think we have room to run with our current headcount. I think we have opportunities to grow productivity, but we're going to continue to look at the demand universe, the market and determine when the right time is to add additional headcount. We will be opportunistic there because we're seeing plenty of positive signals, but we want to make sure that all of our sales team has plenty of opportunities and that we don't get ahead of ourselves on that front.

Naved Ahmad Khan, Analyst

Got it. And then maybe just staying on Scout, maybe just talk about the velocity in terms of customers, the sales cycle, maybe shortening or not? And how should we be thinking about the product becoming generally available to all the customers, what's your timeline?

Michael Walrath, CEO

Yes, I believe it's too early to determine the sales cycle for this product with certainty. However, I expect that it might be shorter due to its easier implementation and the fact that essential data is publicly accessible. The value our customers recognize, especially considering the market dynamics and the need for clear brand visibility amidst rapid fragmentation, suggests this could lead to a shorter sales cycle for many customers. This is reflected in the speed of our product rollout. We officially launched this product at our Analyst Day on April 2, initially collaborating with fewer than 10 development partners. As of yesterday, we have added 37 more customers in the last 48 hours. I would characterize our current status with the product as an open beta, with plans to gradually bring on more customers as we align them. We don’t have a specific date for full general availability yet, but I am confident in our ability to onboard a significant number of customers.

Operator, Operator

The next question is from Ryan MacDonald with Needham & Company.

Ryan Michael MacDonald, Analyst

Congrats on a great quarter. Really strong results and a lot of positive momentum. Mike, it seems like, from reading the shareholder letter and hearing you speak right now, there's a lot of good things going on in the business: great Q1, good momentum into Q2. Scout is obviously seeing some really nice demand here, say, social, et cetera. But yes, we still don't have a sort of full year top line outlook yet. I'm just curious, can you help us understand sort of how you're balancing the enthusiasm and the momentum in the business right now versus maybe what you're seeing in the macro? And sort of what's creating the lingering caution, if you will?

Michael Walrath, CEO

Yes. I think the ongoing caution is primarily due to two factors: the macro environment and the shifting landscape of brand discovery. While our business isn't directly affected by tariffs, we recognize that companies that are impacted are carefully considering their spending. On the other hand, there's a significant shift happening in brand discovery that we can't ignore. Recently, Google fell below 90% market share for the first time in a long time, which is notable. However, this figure mainly reflects traditional search and doesn't capture the entire picture. The fragmentation in the market is not a zero-sum game; we believe it actually leads to more searches, not fewer. All of these elements influence our positive outlook, as this environment is quite favorable for us. The pressure on our product's commoditization lessens in a market where having superior digital and brand visibility can enhance value perception. Nonetheless, we remain aware of the uncertainty in the macroeconomic landscape, and our overall outlook will continue to be cautious while that uncertainty persists.

Ryan Michael MacDonald, Analyst

Helpful color. Maybe on Scout in the beta program, I'm just curious what you're looking for within customers that have launched in the beta from the development customers thus far. Are there any sample data points in terms of ROI generation that you can talk about? Based on what you're seeing or based on the value you're seeing being delivered in the early days of Scout, is this evolving how you're thinking about monetization of the product when it eventually is generally available later this year or next year?

Michael Walrath, CEO

Yes. So I think the development partner relationship is a little different than these initial beta launches. The development partners are signing up for a product to experiment with a product that is not ready for a public launch. The launch that we've had over the last 48 hours is really a public beta launch. We've been gaining that. We're controlling how many customers are launched, but sitting today with something like 45 live customers, we're getting amazing feedback from the customers. I've personally sat through many dozens of customer interviews and customer meetings, both demonstrations, and also customers who are actively using the product. I can tell you that so far, there is a 0% disinterest rate in the product and there's very high value perception, both around the product itself and also around how it demonstrates the value of our other core existing products. We talk a lot about Scout having over 150 non-performance metrics that we're able to gather, and big chunks of those metrics are things around how you distribute your listings information to create citations for both traditional search and AI search, your page performance, your review performance, and reputation performance. When we start demonstrating at the location level to our customers how those metrics are contributing, any questions about the value of our listings product or our reviews products or our Pages product or our social product, they start to fall by the wayside because you can see that this is what differentiates you and how you're outperforming your competition because of those things. The earliest benefit of the product is the anti-commoditization pressure of our core products against what we've seen is pressure from a lot of small competitors with less capable products. That's probably the earliest benefit, and the more important benefits over the long run are the TAM expansion and the attachment opportunity with Scout as a stand-alone product.

Operator, Operator

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

Thomas Cauthorn White, Analyst

Two, if I could. I was hoping you guys could just give a bit more color on the drivers of the revenue outperformance in the first quarter. Specifically, the direct ARR improved sequentially there by a few million bucks, I think. Maybe talk a little bit about the extent to which it was sort of legacy product driven versus your newer offerings versus some of the recent M&A like Hearsay? Secondly, on the buyback. I think the kind of the pace of buybacks ticked up in the quarter versus the cadence of the past couple. Can you maybe just discuss your appetite to focus on reducing the share count here potentially, just given the strong cash flow and the improved liquidity after this debt deal? Where does the buyback rank with your other opportunities or things you're thinking about?

Darryl Bond, CFO

It's Darryl. On the revenue and the ARR performance in Q1, it was a couple of things. One, we did see a bit of a tailwind from FX rates. For the last few quarters, we've been talking about FX headwinds, particularly as it relates to the pound. That abated and came back. I think the rates at the end of Q1 this year are roughly in line with where they were in Q1 of last year. So that drove some of the improvement on both the revenue and the ARR side. We also continue to see improvements in retention. We disclosed gross retention and net retention on the basis of ARR, and our customer success efforts to retain customers and drive value continues to show improvement. This also helps with obviously the revenue and the ARR picture. Regarding the buybacks, I'll make a couple of comments. Obviously, you saw where the stock traded throughout Q1, and even at the levels we're at today, we continue to believe it's a great investment from an EBITDA multiple perspective. This becomes a really important tool in our capital allocation strategy, and I'm sure Mike will have some additional comments.

Michael Walrath, CEO

Yes. I think we're going to look at the buyback as an opportunity. I think we've reduced the overall share count over the last three years, and I think we'll continue to drive that type of anti-dilution through the business, especially with what we think is the stock price being very attractive. As far as our options around buyback versus M&A, it's not necessarily an either/or situation. So we have a really strong balance sheet; we have cash; we have cash flow; and now we have a great partner, BlackRock, and a debt facility that would enable us to look at, and be opportunistic about highly accretive acquisitions. It feels like this will continue to be a good time to look at M&A opportunities. Again, I just don't think that this is necessarily an either/or situation. You can see we bought a lot of shares in Q1, and we continued to buy shares in May because we provided the year-to-date or through the 530 number there. We feel great about that investment just as we feel great about the M&A transactions we've had with Hearsay and Places Scout.

Operator, Operator

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

Rohit Rangnath Kulkarni, Analyst

A nice quarter, guys. Just on the organic part of the business, net ARR and net retention rate is up. That's a very healthy sign. Any color as to what is driving that with regards to upsell or any improvements in GTM that you may have implemented? And then I understand both companies are now fully integrated, but is there anything you can share regarding the core Yext growth rate, excluding Hearsay and Scout?

Michael Walrath, CEO

Yes. I think the first question was a little hard to hear you right, but I think it was about net retention and what's driving it. The good news is we're seeing gross retention and net retention both increase. What I observe in the business is we're fighting a lot of -sort of good enough at half price for a long time in the business on many of our core products, especially the listings products. I think in this marketplace it's getting harder and harder to manage brand visibility because you have to go so much beyond just the core GMV page at this point. That is having an impact in customer value perception across our products, and that's going to be an anti-churn metric for us, both in terms of logo churn and also downgrade churn because it's really not going to be an environment where you can afford for a brand to be missing out on opportunities to generate visibility. So we're encouraged to see that the market and our customers are very focused on this, and I think it's helping a lot that we have best-in-class products here, and the perception of value of those products is getting the attention they deserve due to the fragmented search environment. I forgot what your second question was, I'm sorry.

Rohit Rangnath Kulkarni, Analyst

Just any other color on the growth in the underlying core Yext business, excluding Hearsay and Scout?

Michael Walrath, CEO

Yes. I mean, I think we're in a similar place in terms of the stability of that ARR. There are two things that are going to help us there: retention, and we are seeing progress on that front; and upsell opportunities come from the chance to attach more products. I think the value perception of our core will help a lot with the gross retention situation, especially as we get into our heavier renewal periods, which are usually in the back half of the year. You can move the needle somewhat in the first half of the year, but most of the book lines up for renewal in the second half, and there you have the opportunity to really change that math. On the upsell, you need innovative products that customers value in order to drive those upsell opportunities. We're encouraged on both fronts and really excited about the customer reception for Scout. Our customers are watching AI disrupt the landscape in which they manage their digital visibility, and they need AI products like Scout that will help them combat challenges and take advantage of the fragmentation.

Rohit Rangnath Kulkarni, Analyst

Okay, great. Could you elaborate on the urgency behind this loan facility you have from BlackRock? Are you seeing any specific kind of urgency in pursuing some growth initiatives that led to doing it now?

Darryl Bond, CFO

Rohit, it's Darryl. One of the primary reasons was that our credit facility with SVB was expiring at the end of the calendar year. We needed to do something as we leverage that for availability to collateralize letters of credit with leases and things like that. During discussions with BlackRock, we realized they're a great partner and well-known. They felt good about our business. We looked at the opportunity. As Mike mentioned, with our perspective on M&A and the opportunities that may arise, it made sense to do something a bit larger. The SVB facility was written years ago, around the time we did our IPO, and some of the covenants were meant for a smaller company. In our conversations, we felt pretty good about the terms and covenants we received and the flexibility it provides us to invest and grow the business.

Michael Walrath, CEO

Yes. The only thing I would add to that, Rohit, is that we've done two acquisitions in the last year. One of those was what we think is a highly accretive strategic acquisition of Hearsay, and obviously, Places Scout was smaller but very strategic. We’re really happy with both acquisitions and believe there are more opportunities. We’re going to be diligent and disciplined buyers, but this environment is creating opportunities just as it is for organic growth. Having a facility in place with a partner like BlackRock makes it easier for us to be smart and agile when it comes to those opportunities.

Operator, Operator

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

Michael Walrath, CEO

I'd just like to thank everyone for joining and for all of your support, and I look forward to speaking with you again next quarter.

Operator, Operator

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