Earnings Call Transcript - YEXT Q3 2020

Operator, Operator

Good afternoon, and welcome to Yext Third Quarter Fiscal 2020 Financial Results Call. All participants will be in listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Dominic Paschel. Please go ahead. Thank you, Ben, and good afternoon, everyone. Welcome to Yext third quarter fiscal 2020 conference call. With me today are Howard Lerman, Founder and CEO, Steve Cakebread, Chief Financial Officer, and Jim Steele, President and Chief Revenue Officer. Before we begin, I'd like to remind everyone that this call may contain forward-looking statements, including statements about revenue and non-GAAP net income guidance. Gross margin, cash flow, market opportunities, capital expenditure, retention rate, business performance, and other non-historical 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, product development and success, including the introduction, prospects, and market opportunities of Answers, and general economic and business conditions. These statements reflect the company's current expectations based on its beliefs, assumptions, and information currently available to it. Although we believe these expectations are reasonable, 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 materially differ from those forward-looking statements are discussed in our reports filed with the SEC, including our most recent report on Form 10-Q and our press release that was issued this afternoon. During the call, we will 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 investor.yext.com. With that, I will turn the call over to Howard.

Howard Lerman, CEO

Thank you, John. Hello everyone and welcome to our third quarter earnings call. Revenue grew 30% over the third quarter of last year. Unearned revenue for the third quarter grew 32% year-over-year. The number of structured facts, an indication of engagement usage, reached 259 million which grew more than 65% from the year-ago quarter. During the quarter, we signed the largest new enterprise client deal in the history of the company with Subway to power brand verified Answers from more than 30,000 of its restaurants in the United States, Canada, and Europe. This is a massively important milestone. During Q3, we also signed contracts with leading brands like Liberty Tax, Pilot Travel Centers, Lucky Brands, and the Church of Jesus Christ of Latter-day Saints. We expanded and renewed contracts with the Toronto Dominion Bank, AutoZone, EGB, Wells Fargo, Qdoba, and H&R Block. We've never been more excited about the demand for Yext. However, in Q3, the launch of our new Answers product disrupted our sales execution. It elongated purchasing cycles as customers, who were down a path with Yext, got excited about Answers and wanted to learn more before buying Yext which slowed some deal cycles. That said, we have never seen a stronger pipeline and stronger market demand for the Yext Search Experience Cloud. While we have the most experienced reps we've ever had, still 45% are new since the beginning of the year. Introducing a new product to a group of reps, who are just getting comfortable with our existing products, presented a significant challenge for them to digest. Despite that, we have never been more excited about our future. We have an amazing new product in Answers, which we believe has doubled our Total Addressable Market (TAM). We now have 250 quota-carrying reps, the highest number and most experienced we've ever had. We believe we have the strongest pipeline and demand generation we've ever seen. We now have a complete search experience solution that every brand on the planet can benefit from, and we have never been in a stronger position moving forward. Let's talk a minute about Yext Answers, a revolutionary new product. With Yext Answers, anyone with a website can answer questions in their own domain and provide a Google-like experience. Believe it or not, most companies today can't answer basic questions about themselves on their own website. When a user can't get an answer from a company's own website, they bounce back to Google and run the same search, ultimately causing brands to lose control of the customer journey as the user gets lost in a sea of results and competitive ads, alongside third-party sources that are rife with misinformation. Yext Answers, based on natural language processing that accesses facts and the knowledge graph, keeps brands in greater control of the customer journey and increases conversion on a brand’s website. Unlike traditional site search, which is built on technology that uses keywords to return links to documents, Answers gives a direct answer to the question just like Google does, except it operates on a company's own domain. Brands across multiple industries have already transformed their websites with Answers during its early adopter period, including BBVA USA, Three Mobile, and IHA. These customers and many others we've already signed and are live, are already seeing results. Let's talk about one for a moment, Three Mobile. They have managed to utilize Yext Answers to achieve significant customer insights. Previously, they were using Yext to power their store locations and listings. But now, with Answers, they have extensive knowledge about what their customers are looking for. Graham Johnson, their Chief Selling Executive, previously emailed our team stating, "It was great to see the insights and suggested content from the first day. Some of the search terms alone have opened up our eyes to some massive missed opportunities, both commercially and experientially." We are just at the beginning of customer success with Answers. We launched this product, but we're already on a run rate to handle over 5.7 million searches and deliver a stunning 2.8 million clicks per year. Data first proves that people are using site search, and second, that the Yext Answers search engine is delivering quality results so superior that users are engaging with the results by clicking. In fact, one of our large financial clients informed us that they've already seen a 25% increase in conversion on their website when their customers use Answers versus their old site search, and this is a significant improvement. With Answers, Yext can offer brands a comprehensive solution to enhance their search experiences everywhere from one single platform. Every customer journey starts with search. Today's modern search experiences go beyond just linking to documents; they understand questions and provide answers sourced from a knowledge graph. With the Yext knowledge graph, brands can create entities to represent every fact they wish the world to know about them. This serves as the foundation of our platform and our strategy to build applications on top of the knowledge graph that allow our clients to power search experiences to meet their customers everywhere. For instance, Listings leverages customer locations and their knowledge graph to be published in Google Maps and voice search applications like Siri and Alexa. Next, our Pages product enables companies to build a website or web page for every fact highlighted on their knowledge graph, optimized to appear in search. Now, with Answers, a company can answer questions about any fact stored in their knowledge graph in a Google-like experience on their own domain. If a particular fact changes, such as a health system adding a new insurance accepted or a financial services company launching a new credit card, they simply update their knowledge graph and, in an instant, their customers can access the latest facts, whether it's on Google, Facebook, Alexa, or now on their own website as well as in their site search. We are positioning this comprehensive solution as the Yext Search Experience Cloud, delivering brand-verified answers wherever consumers search. Every customer journey begins with a search. The Yext Search Experience Cloud provides the answer. With Answers, we believe the total addressable market for the Yext Search Experience Cloud has effectively doubled. Answers is opening up new industry segments like CPG and technology and new entity types for existing customers wanting to provide answers about their businesses. We are already seeing success selling into new segments illustrated by wins like Campbell's, while also expanding entities with existing customers like Three Mobile, who now want to answer any question about their business, not just about their locations. Given that every customer journey begins with a search, we believe the Yext Search Experience Cloud will become a critical component within our customers' DXP, or Digital Experience Platform stack. This positions us well to capture share within the $14 billion DXP market, which Gartner estimates is growing at approximately 14% per year. In total, we now believe our addressable market opportunity has expanded from the $10 billion figure stated at the time of our IPO to more than $20 billion with the addition of Answers, and we are well positioned to capture share driven by our comprehensive Search Experience Cloud Platform. We've never been more optimistic about our future. We have a complete search solution and an exciting new product that effectively doubles our TAM. We have the most experienced and tenured sales representatives we've ever had. Above all, we find ourselves at a pivotal time when the world needs Yext. This information is running rampant online. Our mission to power the truth and drive our customers toward more transactions from their search experiences has never been more important.

Jim Steele, President and Chief Revenue Officer

Thanks, Howard. As Howard noted, the launch of Answers is significant, but did delay our deal cycles. Despite this issue, we continued to win new business this quarter, closing 88 deals with at least $100,000 in total contract value, compared to 71 deals in the same period last year, including three deals that resulted in at least $1 million of total contract value, inclusive of new logos and renewals of existing customers. The total number of mid-market and enterprise customers increased 46% year-over-year to 1,766 customers. This is notable since Howard just explained the Answers upsell opportunity path. This means we have an expanding mid-market and enterprise customer base available for upsell with compelling products like Answers. It's worth noting that the sales cycle for a typical enterprise seller can take multiple quarters, especially on deals exceeding $1 million. The sales cycle for a typical mid-market seller is about half the time of an enterprise seller. Even though these sales cycles are longer, total contract values are significantly larger in mid-market and enterprise than in small business. The deal with Subway, which Howard announced, marks Yext's largest new enterprise client deal in the company's history and comes after a multi-quarter due diligence and sales process. In addition to Subway in Canada and Europe, we also had very nice wins internationally. In Europe, we added logos such as Motability Operations, the Abbeyfield Society, Assata Stores in the UK, and Reeva in Germany, along with a significant expansion at Marston's, Charlotte, Tilbury, and the Body Shop International. Japan saw significant impact this quarter through exhibio, one of the largest sporting goods companies in Japan. I'm pleased to say we've built an exceptional sales team worldwide; nearly 20% of our total employee base are quota-carrying sales reps. This represents a significant increase from the start of the year, growing 45% to 250. We've now exceeded our sales hiring targets for the year and I believe we're laying a strong foundation to capture the enormous business opportunities that Howard mentioned. We will continue to hire the best talent. Now in the fourth quarter, we are focusing on driving execution and efficiency, particularly across enterprise and mid-market. We now have the comprehensive solutions, marketing, sales enablement, go-to-market team, and the opportunity online to realize their full potential.

Steve Cakebread, CFO

Jim, thank you. While the launch of Answers and the momentum generated at ONWARD19 are not reflected in our current financials, they do position us nicely for long-term sustainable growth from our expanded market opportunity. Our third quarter revenue grew 30% to $76.4 million. Revenue excluding small business customers grew 34%, highlighting the increasing role of our enterprise and mid-market investments. Additionally, international revenue grew 67% year-over-year to $13.6 million. Unearned revenue increased 32% from the year-ago period to $107.5 million. As of October 31, we had $252 million in remaining performance obligations, or RPO. Our backlog includes another $32 million in revenue that's under contract but subject to accounting exclusions. This results in a total of $284 million in estimated future revenue under contract. Net retention was 107% for the overall company, which is comparable to Q3 last year. In our enterprise and mid-market, net retention was 110%, again consistent with Q3 last year as well. Gross margins were 73.3% this quarter, down from 74.6% last year. This decline is driven in part by hiring in our services organization, along with additional lease expenses. Keep in mind, year-to-date, gross margins remain at 74.2%, and we feel comfortable that over time, our gross margins will continue to hold in the range of 73% to 77%. Total operating expenses increased from $66.7 million last year to $98.8 million this quarter. The primary drivers of this increase were overall headcount growth, including the rise in our quota-carrying sales reps, and new leases in New York, the District of Columbia, and London. We will be incurring double lease expenses in New York until our One Madison Avenue lease expires in December 2020. Typically, the annual run rate for our lease at One Madison Avenue is $4.8 million per year, while the annual rate at 61 Ninth Avenue is $10.3 million a year. Once our lease at One Madison expires at the end of December 2020, our run rate for our lease in New York will be approximately $10.3 million annually. In Q4 of this year, our lease expense at One Madison will be $1.2 million, and $2.6 million at 61 Ninth. Our net loss for the third quarter increased from $22.9 million a year ago to $42.7 million this quarter. On the basis of our 113.5 million weighted average basic shares outstanding, the net loss per share for this quarter is $0.38, compared to $0.23 loss a year ago, calculated against 99.6 million weighted average basic shares outstanding. The non-GAAP net loss, excluding stock-based compensation, increased from $10 million a year ago to $21.6 million this quarter. Our non-GAAP net loss per share this quarter has risen to $0.19, compared to $0.10 in the previous year’s quarter. Please refer to the press release we issued this afternoon for a reconciliation of GAAP to non-GAAP results. Cash and cash equivalents stood at $245 million as of October 31, 2019. Net cash used in operations for the third quarter was $31.8 million, compared to $22.6 million in the year-ago period. The biggest drivers were the increase in headcount, changes in unearned revenue, and our new leases. ONWARD19 expenses also impacted the current quarter. In terms of guidance for the fourth quarter, we expect revenue to be between $79 million and $81 million, and during this period we anticipate a non-GAAP loss per share of between $0.15 and $0.13. This reflects the impact of $0.03 resulting from our new lease agreements in New York and DC and assumes a weighted average basic share count of approximately 115.2 million shares. We do expect to be operating cash flow positive in the fourth quarter, consistent with past seasonal trends. Looking at the full year, we now expect revenues between $296.5 million and $298.5 million. Our non-GAAP net loss per share range is now expected between $0.51 to $0.49 per share, which includes a $0.09 impact from the new lease agreements in New York and DC based on an assumed basic weighted average share count of approximately 111.8 million shares. We remain focused on growing the business, driving toward non-GAAP breakeven, and achieving operating cash flow breakeven. Heading into the fourth quarter, I'm excited about the new initiatives discussed by Howard and Jim. We’ve exceeded our hiring plan this quarter, resulting in a 45% year-to-date increase in the size of our sales team. We grew our mid-market and enterprise customer base by 46% year-over-year. We've launched a game-changing product in Answers, and the customer feedback has been overwhelmingly positive, with initial market response looking encouraging. We have also seen a 65% growth in the number of facts represented in the Yext Knowledge Graph. As mentioned, we have a solid solution in our Search Experience Cloud Platform and a consistent message to articulate our business. I feel confident about our ability to leverage this opportunity and drive toward our long-term plan. With that, we will turn it back to the operator to open for questions.

Operator, Operator

Thank you. We will now begin the question-and-answer session. Our first question comes from Koji Ikeda with Oppenheimer. Please go ahead.

Koji Ikeda, Analyst

Hey, great, guys. Thanks for taking my question. So I had a question considering the future growth profile of the business next year. With the launch of Answers, it sounds like there was excellent momentum, but that did push out some of the sales cycles, resulting in a guidance that looks somewhat modest for the fourth quarter. So, given that you're a subscription business and have previously discussed 30% sustained growth, do you still feel confident that you can achieve 30% growth next year?

Howard Lerman, CEO

Thanks, Koji. This is Howard, I'll take that question first. Look, we launched an amazing new product in Answers during Q3. Anytime you launch a new product, there can be some disruption. It's the first major product we've launched in five or six years. It did slow the deal cycles for upsells and for new customers. Think about it this way: if you broke your iPhone and then 30 days later, Apple was releasing the iPhone 11, you might contemplate whether to buy the iPhone 10 or to wait for the 11. We did have some deals that were delayed as a result of launching this product. Second, we kicked off a planned enablement roadshow at the beginning of the quarter in preparation. This involved about 200 reps being taken off the field for a few weeks, which we knew would limit their selling time. However, we didn’t anticipate it would significantly elongate the deal cycle in the quarter. Finally, the sales execution issue we experienced following the launch of Answers must be considered. Given that 45% of our reps are new this year, they're still getting accustomed to our existing products, therefore introducing such a new product with differing buyers and dynamics proved to be a speed bump for them. However, our pipeline has never been stronger, and we feel stronger market demand for the Yext Search Experience Cloud. The early feedback from new initiatives we’re launching is promising, and I want to emphasize our commitment to innovation. We believe every company with a knowledge graph, and indeed every business that has a website, will need one in order to manage all the facts about their brand and to consolidate all customer search interactions. Every customer journey begins with a search, whether on Google or on a website, and we aim to be the company that provides the answers to those searches. We see this as an exciting and strategic opportunity to advance our position, doubling our TAM with the launch of this new product. We possess the most comprehensive team of sales reps and a complete solution in the Yext Search Experience Cloud, and we sincerely believe our best days are ahead.

Jim Steele, President and Chief Revenue Officer

Yes, thanks, Koji. This is Jim Steele, just adding some context here. At the beginning of the third quarter, we were preparing to launch Answers. We brought our sales team together, as Howard mentioned, which pulled them out of selling mode to provide training on a new sales cycle and customer dynamics. Our previous approach involved engaging primarily with external digital ecosystems, which our clients viewed as less sensitive. However, dealing with an internal website raised the stakes, and we found ourselves engaging with different stakeholders, often including the CMO, CIO, and Chief Digital Officers, leading to complex dynamics with different budgets. The training we conducted coincided with heightened interest and resulted in a flood of customer nominations for early adopters. We received approximately 130 nominations, which indicates the overwhelming excitement from customers. For instance, during this training phase, we engaged a large healthcare company already involved with Yext on Knowledge Graph and Listings. When we introduced Answers, it ignited great interest, but the process of integrating it into their existing framework brought about a different path involving multiple executives and budgets, causing some expected delays. That said, our demand has never been stronger, we are better positioned than ever to engage sales, and we are optimistic about the growth opportunities for the coming year.

Howard Lerman, CEO

I'll just remind everyone, we did achieve a 30% revenue growth in Q3. Unearned revenue increased by 32%, and we finished the quarter with a backlog of $283.7 million, putting us in a strong position for Q4 and beyond. Our product offerings and the strategies Jim outlined indicate that our long-term growth plans remain intact. Our clear focus now, however, is on Q4, as it drives our fiscal year '21 guidance, which we will detail next quarter once we finish Q4 budgeting. I feel optimistic about our positioning as a company concerning our products, our sales team's capacity, and our strategic efforts to expand our TAM, all of which provide us with significant opportunities.

Koji Ikeda, Analyst

Great. Thanks for taking my questions.

Operator, Operator

Our next question comes from Naved Khan with SunTrust. Please go ahead.

Naved Khan, Analyst

Thanks a lot. I have a couple of questions. You mentioned various factors that might have influenced this quarter, including some lost time training the sales reps as well as longer decision-making periods. If we think about Q4, how much of that impact was one-time related to training versus cycling issues? Also, you mentioned the clean pipeline. Is there a catch-up expected at some point as more conversions occur in the pipeline and customers look to deploy more dollars? How should we think about that? I had anticipated that Answers might actually expedite sales, given its compelling nature, could you help us walk through your thinking?

Howard Lerman, CEO

Thanks, Naved. It's Howard. I can clarify. We do not view this as a multi-quarter issue; we expect a seasonally strong Q4. It's not a catch-up quarter. Our deal flow is strong, but these larger deals, in light of a new product, do require more time to close. We have an ongoing need to educate customers on how Answers fits into our existing services and drive budget alignment for new products among the C-suite. Ultimately, I’m optimistic that we will balance out in Q4 what was missed in Q3 because of our strong pipeline and excellent market demand.

Naved Khan, Analyst

Additionally, I was curious about the new customer count, including mid-sized increases. Can you share the contributions from mid-sized customers at the moment and how you see that evolving?

Howard Lerman, CEO

Certainly! We’ve just recently made inroads in our mid-market strategy. Much of our business still comes from larger enterprise accounts, and the recent hiring surge in Q3 was focused in mid-market areas. Therefore, expect mid-market to contribute more over the next year. Still, the complexity of larger deals means that in this quarter and the next couple of quarters, enterprise deals will likely dominate our portfolio.

Jim Steele, President and Chief Revenue Officer

Also, we encourage you to stop by Subway on your way home to support our newest largest customer.

Naved Khan, Analyst

Thanks. Regarding headcount, can you update us on your expectations? Should we expect a slowdown in the hiring pace or are you maintaining appropriate levels?

Howard Lerman, CEO

We are aligned with our hiring strategy across the company and will continue pushing ahead. While we're likely bringing new sales reps and developers to health various locations, we won't ramp up our overall hiring as quickly right now. We must assimilate the large number of sales reps we recently hired, ensure they become productive, and find the right opportunities to accelerate our growth. Nonetheless, we are still hiring both in sales and development.

Naved Khan, Analyst

Thank you.

Operator, Operator

Our next question comes from Mike Murphy with JP Morgan. Please go ahead.

Unidentified Analyst, Analyst

Hey guys, Adam Burshey on for Mark Murphy. I have a question on Yext Conversion Tracking. Some partners during ONWARD mentioned that this is the feature they are most excited about. Independent of the sales cycle elongation, do you have feedback on how this may be impacting the sales process by making it easier for customers to track ROI?

Howard Lerman, CEO

Yext Conversion Tracking allows customers to monitor not just clicks but also conversions as they define it. This new feature, which debuted at ONWARD, is part of the existing packages and enables customers to analyze the effectiveness of features in a new way. I don't believe this feature impacts sales execution directly. Yext Answers helps illustrate users' search behavior and captures what customers inquire about and respond swiftly. It enables a user to convert on the results page, much like a Google search can. Our customers, including several banks already utilizing this functionality, are realizing tangible benefits. For example, one client reported seeing a 25% increase in conversions through Yext Answers versus their former site search, which underscores the real impact it can have.

Unidentified Analyst, Analyst

Thank you, and as we continue building out our indirect sales channel, can you provide insights on the uptake of the Hitchhiker certification program? How well is it being adopted amongst major SIs?

Howard Lerman, CEO

The Hitchhiker program allows customers to gain expertise and become super users of our product. The interest in becoming certified Hitchhikers has been tremendous. Think of it like the Salesforce-certified administrator model. We've had a huge response, and these hitchhikers will play a vital role in helping companies set up their platforms, maintain their knowledge graphs, and create foundational structures, thus ensuring that data accurately flows through various systems. Hitchhikers are critical in keeping our customer search experiences up-to-date and optimized.

Operator, Operator

Our next question comes from Tom White with D.A. Davidson. Please go ahead.

Tom White, Analyst

Thank you for taking my questions. In the prepared remarks, I noticed you mentioned the robust pipeline and demand coming out of ONWARD for Answers. Can you provide any insights into the trajectory for unearned revenue growth in Q4? Additionally, I wanted to confirm if Steve indicated that you’re still comfortable with the 30%-ish revenue growth target shared previously, despite any elongated sales cycle?

Steve Cakebread, CFO

Certainly. In terms of our long-term strategy, we firmly believe that the 30% plus growth is intact and perhaps even stronger now, given the expanded market size, improved sales quality, and emerging new products. However, we should proceed with caution due to our reliance on larger enterprise deals, which can exhibit volatility from quarter to quarter. Regarding Q4, it's important to acknowledge what ONWARD creates in terms of demand, particularly when we launch new products. We have plenty of work to do, and while we are optimistic about our opportunities, the larger deals take time to finalize and require alignment on budgets and personnel across multiple departments.

Tom White, Analyst

Great, thanks for the color.

Operator, Operator

Our next question comes from Mark Mahaney with RBC Capital Markets. Please go ahead.

Unidentified Analyst, Analyst

Hi guys, this is Mike Chen for Mark. I wondered if you could provide some more detail about your international strategy. You've mentioned Germany and Japan as strong markets. Can you elaborate on other top-performing markets and where you may need to increase headcount?

Howard Lerman, CEO

It has been around three years since we opened our office in Northern Europe and established our UK operations, and also about 2.5 years since we opened Germany and France, which have both yielded strong results. As Steve mentioned, we've seen 67% growth, driven primarily by luxury retailers in Europe. We boast major retail names from France and Italy among our clients. Financial services have also been strong. Overall, we're optimistic about our international markets and have strategically appointed Wendi Sturgis as our CEO for Europe to spearhead our operations. Furthermore, we employ three strong managing directors across those three regions. Our experience in Japan has also been successful, where Udo San has played a significant role since his hiring. We serve customers in 150 countries and actively maintain our operations in China to support global brands operating there. We foresee international markets as excellent growth opportunities, but we are careful not to expand too rapidly. While we have strong potential in several markets, we are taking a considered approach.

Unidentified Analyst, Analyst

Got it. Can you explain again why your gross margins declined quarter-over-quarter and year-over-year? And while you stated that they remain in the 73% to 77% range, can we expect this to be lumpy from one quarter to the next?

Steve Cakebread, CFO

That's a valid observation. Our financial results can indeed be lumpy due to our focus on enterprise business and associated revenue volatility. This quarter, we made conscious investments in customer service and support. While we’ve initiated the Hitchhikers program, our customer support aspects have required ramp-up time for our services as we introduce answers and expand. I’d categorize our margins as lumpy primarily due to the nature of big deal cycles that govern how we generate revenue. Our year-to-date gross margins have kept in the mid-70s range, reinforcing our outlook.

Unidentified Analyst, Analyst

Thank you.

Operator, Operator

Our next question comes from Stan Zlotsky with Morgan Stanley. Please go ahead.

Stan Zlotsky, Analyst

Thank you for taking my question. I wanted to revisit the Answers product. How much larger are the deals that include Answers?

Howard Lerman, CEO

I’d estimate they are roughly double.

Stan Zlotsky, Analyst

Regarding deals that slipped out of Q3, have any of them closed in Q4 yet?

Howard Lerman, CEO

Yes, a few have closed, but more deals remain open. We continue to chase substantial potential, as you are aware that larger deals can fluctuate. Moving deals between quarters often occurs. However, we still have several $1 million deals pending completion and expect them to gain traction as well.

Stan Zlotsky, Analyst

Got it. In discussing billings, I know you typically don't cover that, but you have a significant seasonal Q4 on the horizon. Given that you've reported a 12% growth in Q3 against a tough comp of 49% year-over-year, how should we perceive billings entering this significant Q4?

Steve Cakebread, CFO

I will refrain from detailing billings specifically, but the Q4 revenue forecast reflects our Fourth-quarter dynamics. As previously stated, our business saw limited bookings during Q3, impacting our performance. However, we anticipate strong demand in Q4 thanks to new product launches and expansions of our existing solutions, and we'll report relevant year-over-year growth metrics in RPO and other installed base metrics next quarter.

Stan Zlotsky, Analyst

Thank you!

Operator, Operator

Our next question comes from Brett Knoblauch with Berenberg Capital Markets. Please go ahead.

Brett Knoblauch, Analyst

Hi folks, thanks for taking my question. I'm interested in understanding the recent investments over the past several quarters. When should we expect returns on those investments, and when might we see operational leverage manifest, considering that OpEx growth has consistently outpaced revenue growth?

Steve Cakebread, CFO

There are a few critical aspects to consider. We will indeed continue investing in our sales, marketing, and development sectors due to our promising products and expanding market potential. As Jim mentioned, we will also work on refining sales efficiencies and boosting productivity, given our growing awareness of that need. Our overhead will include necessary accommodations for the number of facilities we occupy that are now in operation, which will weigh on efficiency for at least the next fiscal year. As we transition past fiscal year '22 and refine our operating efficiencies, we anticipate seeing improvements. Scalable operations integrated with substantial product offerings and persistent customer demand will leverage productivity in the years to come.

Brett Knoblauch, Analyst

What is the expected trajectory for hiring in the upcoming year, given the 45% increase this year?

Steve Cakebread, CFO

Hiring decisions are directly influenced by our Q4 performance. We remain committed to hiring developers and sales reps in markets ripe for opportunity, yet we will have to balance hiring within overall corporate metrics as we observe performance outcomes in Q4.

Brett Knoblauch, Analyst

Thanks, Steve. Thanks, everyone!

Howard Lerman, CEO

Thank you, Brett. Ben, we will conclude today's conference call. We look forward to reconnecting with you in the coming weeks and January. Wishing everyone happy holidays.

Operator, Operator

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