• Revenue Growth: 13% year-over-year increase, including Hearsay Systems.

Release Date: December 09, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Yext Inc (NYSE:YEXT) reported a 13% year-over-year revenue growth for Q3, boosted by the acquisition of Hearsay Systems.
• The core Yext business is stable, with early signs of growth contributions from Hearsay Systems.
• The company is seeing early phases of a fragmenting search environment driven by generative AI, which is viewed as a positive opportunity.
• Yext Inc (NYSE:YEXT) has improved its operating efficiency and margin profile, with a focus on accelerating growth.
• There is a noted improvement in gross retention, net retention, and overall renewal rates over the past three quarters, indicating a stable customer base.

Negative Points

• The sequential revenue guide for Q4 suggests a potential decline, primarily due to foreign exchange fluctuations.
• Direct ARR (Annual Recurring Revenue) experienced a slight decline from Q2 to Q3, indicating some challenges in maintaining growth momentum.
• The company is still facing headwinds from customers potentially overbuying licenses, impacting ARR stability.
• Despite improvements, the company is not yet achieving its Rule of 40 target, indicating room for growth in revenue and profitability.
• The integration of Hearsay Systems is ongoing, with full benefits yet to be realized, adding complexity to operations.

Q & A Highlights

• Warning! GuruFocus has detected 5 Warning Signs with YEXT.

Q: Can you discuss how the fragmented search environment driven by generative AI is impacting customer conversations and potential pipeline generation? A: Michael Walrath, CEO, explained that the fragmentation of search environments is a major topic in customer discussions. As AI search experiences diversify, brands need to adapt their content strategies. This shift is seen as beneficial for Yext, as it aligns with their expertise in structuring and delivering data across various digital channels. The company is not making immediate predictions but sees this as a significant opportunity for growth in the coming years.

Q: Can you explain the sequential revenue decline in the fourth quarter guidance despite a strong third quarter performance? A: Darryl Bond, CFO, clarified that the sequential revenue decline is primarily due to foreign exchange (FX) fluctuations. The core Yext business remains stable, and the Hearsay Systems acquisition is contributing positively. The FX impact created an upside in Q3 and a downside in Q4, but overall, the revenue picture is stable.

Q: What insights have you gained from the Hearsay Systems acquisition, and how does it compare to the legacy Yext business? A: Michael Walrath noted that there were no major surprises with Hearsay Systems, which continues to show growth. The integration is progressing well, and the combined platform offers significant value to customers, particularly in compliance and communication. The acquisition is expected to enhance Yext's offerings and improve the selling environment.

Q: How is Yext approaching potential M&A opportunities, and are there any adjacent products you are considering? A: Michael Walrath emphasized that Yext's M&A strategy is driven by customer needs. The company is focused on expanding its platform to meet customer demands across different verticals, such as healthcare and data analytics. Yext remains disciplined in evaluating both organic growth and acquisition opportunities.

Q: Can you elaborate on the impact of FX on your guidance and the recent acceleration in deal activity? A: Darryl Bond explained that FX has a significant impact on the guidance, with a couple of hundred thousand dollars affecting Q4. Despite seeing some deal acceleration, the guidance remains conservative due to the dynamic environment. The company is confident in its stable business foundation and is cautiously optimistic about future growth.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.