Yext, Inc. (YEXT) Earnings Call Transcript & Summary

Hey, everyone. Thanks for attending the Annual Bank of America Global Technology Conference. And thank you for your continued support during the II season. We really, really appreciate it. For our next session, we are absolutely thrilled to be hosting a fireside chat with Howard Lerman, CEO from Yext. Howard, thanks again for taking the time, and welcome to the conference. And for the audience, if you guys have any questions, you know the drill, please use the Q&A functionality on the webcast, and I will ask the questions on your behalf.

So Howard, thanks again. Let's start from a very, very high level on Yext. Could you just please give us a brief background on yourself? And what is the opportunity that you are addressing? And how is Yext positioned to capitalize on this?

Koji, thank you so much for hosting me here at the Bank of America conference. I'm really excited to be doing this fireside chat with you. I look forward to a chat in person in the future. And my hope is that we're going to get everything back open and really going in the economy in the next few quarters, although we'll see what happens. At the highest level, I'm founder and CEO of Yext. I started Yext in 2006. And during the last 15 years, I've been trying to solve a really big problem. The founding principle of our company is that the ultimate authority on information is the source of that information itself, that is McDonald's knows what time their stores are open or how many calories are in one of their hamburgers or the World Health Organization is the authority on information that it is publishing about itself. And so 15 years ago, when we started Yext, search used to be that you would type in a keyword and you would get blue links back on a page. And today, when you run a search, you get answers back. Search looks dramatically different than Lycos or Yahoo! search of 1999 or 2000. And what's fundamentally happened is that Google has brought a sort of technique called natural language search or natural language understanding to consumers. What that means is now when you type in how many calories are in a Big Mac, you don't get 10 blue links back on a page that contain the string, how many calories are in a Big Mac ranked by relevance. But instead, Google just says, 535 or whatever the number is. They retrieve that answer from their own Google Knowledge Graph and just tell you directly instead of sending you to a third-party website. So we've witnessed a massive paradigm shift in the world of consumer search. But most enterprise search is stuck in 1999. When you go to most websites and run a search, you get keyword-based results back that look like they were made last century. You get blue links back. You get nonsensical errors back. This isn't just on websites, it's internally within corporations. It's on customer support sites, it's within applications. And so at Yext, our vision and our mission is to do what Google did to consumers, which is Google brought natural language search to consumer. Yext is going to bring natural language search or AI power search to the enterprise. And we have solutions to do that with our knowledge graph-based solution, our AI search on top of that. And we're doing this in 7 languages around the world, and that's what we're doing today.

Got it. Got it. Got it. And before we dig into the technology, I do want to ask you a COVID state of the state question. It's June 2021. Sure, it seems like the world is directionally heading in the right direction overall. I guess it's probably going to be a long way to go before things really get back to normal or whatever the new normal is going to be. But just really thinking about reflecting back over the past 16 months. How does the pandemic affect the business? What did you learn? And from your lens, is the pandemic still affecting the business? Or is it mostly behind Yext?

My favorite Winston Churchill quote is, "Never let a good crisis go to waste." And so in March of 2020, when we first began to understand the extent of what was likely to happen, we took a lot of steps. And one of the things we did was we told our employees, we were not going to lay anybody off. And it's interesting to see how that effect played out over time. Clearly, with the world shutting down and with locations being closed, when you're a company whose core product is built around traffic to Google -- off of Google Maps and driving traffic off of Apple Maps and from Alexa, our business was affected by that. And instead of kind of just hunkering down and hoping that the storm clouds would pass, what we said was, "Hey, let's use this opportunity to expand." And I mentioned that our original product, Listings, is our core franchise, which takes knowledge and puts it into Google and Alexa and Siri on behalf of the customer. And we realized that, hey, we are giving all these answers to all these other services. And we realized it's about 2 years ago that, hey, we have all the facts about McDonald's. We have all the facts about Altice. We have all the facts about big companies, and we're giving them to all these endpoints so that they can answer questions. But we thought that with the knowledge already there in a structured way for these world -- for the world's biggest companies that we could actually throw a hat in the ring and build an AI search product that let them answer questions just like Google can. And so we started to build this about 2.5 years ago. And when COVID hit, we really dialed it up and have seen extraordinary momentum and success from this new category of product, which sits on top of our existing product stack. And so I think I see a future, and we believe that there will be a future where the world -- our Listings product returns to sort of normal levels. And then you also have this incredible Answers product, which addresses not just the companies that were able to sell listings to before location-based companies, but an entirely new subset of customer, entirely new verticals, Koji, companies in different verticals that get beyond our traditional health care and financial services verticals, but get into CPG, that get into customer service. We launched a customer or what we call our Support Answers solution just a few weeks ago. It's to be able to sell to tech companies that want to be able to answer customer support questions and deflect case calls. So we have not let a crisis go to waste. You have seen challenges in 1/3 of our customer base, whether it's retail or hospitality, travel, those were challenged. And to this day, I'm not sure those industries have totally returned to normal. But at the same time, we've been able to have an expansive growth mindset and get into other places with new products.

Got it. Got it. No, that's super helpful, Howard. And it sure sounds like you're on the leading edge of digital transformation. And of course, that's something we hear over and over and over again. And as likely the pandemic is a catalyst for digital transformations. Yext works with some of the biggest companies in the world. It works all the way down to small businesses, too, and across a diverse set of industries, like you just said. So I guess from your lens, what are you seeing out there overall for digital transformation trends? And what does digital transformations, that term mean for Yext?

Well, it's funny. Just today, we launched the Zendesk solution, and you can go to our website, and you can see at yext.com/integrations/zendesk. And our Zendesk integration enables a user of Zendesk, a customer of Zendesk to connect their Zendesk account to Yext, pulling all their support articles into our Knowledge Graph and then get a modern AI-powered search on the top of their help site that gives a Google-like result back instead of a traditional simple keyword search, so that a user, a customer looking to get a question answered can get that question answered as opposed to making a phone call or even supporting a ticket. In fact, we have a case form deflection integration where the -- as the user begins to type their ticket in, we're looking at the text they're typing, and we show the answers on the right rail to hopefully deflect the user from having typed in the question. And then on the Zendesk side, internally within their own app, Zendesk app, the agents on their desktop get a Yext search so that they can be using one universal knowledge graph and one universal platform for all the answers, on-site, internally, everywhere. This is a very appealing thing. And to your question on digital transformation, we're very excited about this category of search or this category of answers simply due to that explosion. I was talking to Mikkel, their CEO -- the founder and CEO of Zendesk a couple of weeks ago, and he said, "Gosh, tickets have just exploded." Customers are expecting a digital response. Support teams are literally right now crushed with tickets. And it's because in this pandemic, people have just shifted from, hey, I used to be able to walk into a store, for example, and get answers from a rep in many industries. And now I can't do that. And so I started to get trained to go to a ticketing site and get an expected usual response, and that has just caused tickets to explode. So there are so many different ways that this intersects. If you think about employees working from home, the need to access information, the need for an employee working from home, to be able to get all of the employees at their fingertips, who were their coworkers. What systems should they be using? And that's a whole new set of challenges that I think search is uniquely positioned to solve. And as digital transformation explodes, AI search holds the promise of being able to lead people to the answer as opposed to them hunting and pecking everywhere. So we're seeing digital transformation and customer success. Remote work, and it's just exploded clearly. And then for the traditional marketing answers where customers just want answers from a website, we've obviously seen great success quantitatively from that, which we talked about in our earnings calls and at our Investor Day, the number of companies that are out there that want to upgrade their search and really be able to handle that digital transformation is staggering.

Got it. No, Howard, that's super, super helpful. And you alluded a little bit to kind of the future of work, I do want to ask you a big picture question there. Especially since you guys recently opened your new headquarters in New York, New York. Congratulations on that. I saw some pictures of it. It looks like a pretty awesome building there. So when you're thinking about the future of work, when you're talking to your customers and prospects and even really thinking about Yext itself as an organization, how are you thinking about big picture, the future of work? Is it work from home, work from anywhere, in the office, come back to the office, full time, hybrid office, remote office? I mean, how are you guys thinking about that?

Well, I can speak for what we're going to do at Yext, and then I can also speak to where I see the future going. At Yext, we believe that the iPhone couldn't have been created remotely. We don't believe that great products can be invented remotely. We do believe that there are certain types of roles, which can be handled remotely. Field sales, for example, they weren't in the office before the pandemic so why would they ever go back to an office. Though, inside sales, I do believe that there's energy and technique that you get from being on a sales force next to someone else, and you hear a line they just used and boy, you adopt it yourself quickly, and that doesn't happen remotely. So I know there's a lot of CEOs out there saying, "Hey, remote work, it's here to stay. It's a permanent thing." But I also wonder if they themselves have a benefit if that is the case because people have to buy that technology. I don't personally -- at Yext, we're going to -- we're in-office kind of culture. And so after Labor Day, we're going to expect people to come back to the office and be there. That doesn't mean we won't have flexible circumstances and extenuate situations, and I think there were people from before that work remotely. I think what we're saying is, "Hey, it's just going to go back." We're going to, at least, at our company, make it go back to what it was. Overall, though, I do think you're going to see a mix of remote-first cultures and you're going to see a mix of in-office cultures. I'm personally less convinced that hybrid is going to be a thing. I think it's going to be somewhat of a binary outcome because it's kind of hard -- I'll tell you right now. At Yext, we've opened up our New York headquarters. We have a ton of people going in every day. We require a proof of vaccination to enter the building. Once you're in that building, you don't have to wear a mask, you don't have to be socially distant. It's just normal life. And I haven't seen energy like this in 1.5 years. And what it's causing is the most powerful force on the planet to bring more people in. And you know what that powerful force is, it's the same force that powers Instagram. It's called FOMO. There is nothing like seeing your peers in an invigorating brainstorm or a -- in a session or getting pictures of folks engaged and happy and excited speaker and feeling like you're not there to bring -- to make you feel like you want to be there. So I think that's going to be a pretty tough thing to balance for companies that want to pull off the hybrid thing. So clearly, the technology is there, but even you saw Apple, Tim announced last week, they expect to be in the office, he said 3 days a week. My guess is that, that's a starting point, and they're going to expect people to come back because they're trying to make another iPhone. And you can't do that over Webex.

Yes. Yes. No, that makes sense. Awesome. So I wanted to talk a little bit about the competitive differentiation. What do you see as Yext competitive -- I guess, primary competitive advantage out there? And what is the catalyst for a prospect coming to start a conversation with you? And I guess, typically, what are customers using prior to adopting Yext?

So let's take a step back and just do a quick history lesson in search. The search technology that most companies use today is either Solr or Elasticsearch. And Solr and Elasticsearch are both open source technologies somewhat. And they're based off of a technology called Lucene, which was made by a PARC engineer, Xerox PARC Engineer named Doug Cutting in 1999. This is fundamentally a keyword-based search engine. It works the same way that Lycos did in 1995. It works the same way as Yahoo! or the original G word search. The thing that has changed is we have shifted, at least Google has. We set the expectations for what a search should give you. When you ask a question, when you ask Alexa a question, there's no web results. It's just an answer. They're so much smarter, and they use natural language understanding or natural language processing to deduce the intent of your query to break it up, to say -- if you say something like where is the nearest Pizza Hut location. When we hear the word location, we know that you're probably looking for a location. And if you type that into Google, you're going to get maps back in the search results. So natural language understanding is the first differentiator between Yext and every other enterprise search platform out there. We have natural language understanding. And that natural language understanding, Koji, is based off of a knowledge graph. And a knowledge graph is a brain-like database that contains all the structured facts that you may want to present, that your organization, you want to present to the world and do so in a way that end users can find it. Now natural language understanding and knowledge graph go hand-in-hand. You can't really have one without the other, and here's why. It doesn't do you any good to be able to understand a query like what year was Marco Polo born if you don't know the answer, it was 1251. You might know. You're able to say, "I can tell." that you're getting to Marco Polo's date of birth. He's a person. We want his birthday, bam, I need to go look for it, it's not there. It's not in a knowledge graph. So the next thing that makes us completely different than every other search platform out there is that we're based on a knowledge graph. And a knowledge graph is a big giant database that contains facts. And it just so happened that given our first kind of core business listings, we have all of this knowledge, amassed about the world's biggest financial companies, health care systems, their doctors, their physicians, all those locations, all their people, all their information that they wanted to put into Google. So it was kind of -- we were starting from this wonderful kind of platform of knowledge, this reservoir that let us get going. The third thing that makes us really different. And this is subtle but very important is what we call multi algorithm. When you run a Google search today, you don't -- everyone focuses on, oh, what's that Google algorithm? That's actually not the correct way to think about it. When you run a search on Google, Koji, like you get Google runs, it triggers dozens of algorithms to run simultaneously. Sometimes it's extractive Q&A. Sometimes it's named entity recognition. Other times, it's a simple semantic search. But what they're doing is every one of those different user interface elements, whether it's maps or snippets or knowledge cards or the links or people also have asked or FAQS, those are all different algorithms that Google is running together and they blend their search results together to give the user multiple options, each of which utilize a different algorithm. So we have what's called a federated architecture that utilizes multiple algorithms. And importantly, our customers are able to say when you search for a location, we want maps to appear. When you search for -- when you ask a question, we want a direct answer using birth or an identity recognition. When you ask a -- when there's an FAQ, we want to run extractive Q&A, which can sort of mine the answer out from semi-structured text like in a customer support document or knowledge base. So multi algorithm, knowledge graph and natural language understanding are the 3 search differentiators. But there's one more, too, which is really important, which is that we're a platform that can handle a company's facts everywhere. You put your facts into our Knowledge Graph, the Yext Knowledge Graph, and they won't just be on your own site and your own customer experiences, but they'll also be in Google and Apple and Alexa and all of our networks. So one single platform to handle your on-prem and off-prem search. Now that's a very compelling value proposition. And by the way, finally, we are -- and I feel like an infomercial right now because if you call now, we will give you a deal. Just kidding. Finally, one more thing is that we're low code. You don't have to be a machine learning specialist to build a search engine. And I should be clear, Elastic and Solr have many use cases. They are great for when you're a big company and you want to do something very custom and very specific. If you want to build your own -- and there are a number of applications where Spotify ought to build their own personalization engine. There are many companies that should build their own search engine. But our vision is to give every company their own Google, which they can customize and upload their knowledge into, but they don't have to have machine learning specialists and data scientists to stand that thing up. And the consequence of that is, hey, it's natural language is better, but it's also faster. The time to value is really quick because all you have to do is put the knowledge in and go. And it's cheaper because you don't have to hire a team of specialists to be able to stand the thing up.

Got it. No, Howard. That was an awesome, awesome, awesome answer to that question. And search, enterprise search, not new. It's been around forever. I mean, Google used to sell an appliance. They used to put in a rack that used to do enterprise search. And that went away a couple of years ago. But I guess, who are you seeing out there competition wise, when Yext is out there pitching an enterprise search deal for a big organization?

Well, you see, like I said, you see Elastic, you see Solr. There's legacy players, Coveo is out there. They're a legacy player. They all use just Lucene keyword-based approach to answering questions. And I believe that's our opportunity to disrupt. What's funny is sometimes you go into a company, you see really old stuff, like Endeca, which Oracle acquired like in 2008 and runs -- it's not even in the cloud, it's an on-prem kind of thing. And that's more for e-commerce search, which is 1 of the 5 categories of search that we see that we can go after. But yes, there's a lot of homegrown stuff. There's a lot of custom stuff. And really, I would say that a lot of times, we compete with IT building a search engine on top of Solr or Elastic. And so you go to a line of business owner, and the decision is, hey, should we buy it out of the box, search as a service with natural language and a knowledge graph that can handle on and off-prem search or our IT folks have some expertise built up in Solr. They have expertise built up in Elastic. By the way, Amazon has an -- hosted Elastic instance. So they've -- again, that core lower level technology is something that you'll see. Microsoft has cognitive AI services, which is their Azure-related stuff, but you have to be a developer to do that. And so the decision for an enterprise is, hey, we're going to build a search engine and have the expertise in-house to do that. And when we build it, do we build it on Azure, do we build it on Elastic, we build it on Solr? Or should we just turn on this Yext AI search engine, which can work tomorrow and give Google-like results back. And so that's the decision that enterprises make. And in many cases, to the line of business owner, we're a really great option because they don't have to get IT involved and they can just go.

Got it. I got it. Howard, I just want to quickly clarify here on Answers. It does -- I understand it does create an answer on a corporate website, enterprise website. But is there an opportunity out there maybe for you to help Google respond to a question out there? Like here are the right tools, and here is the right data points to get an answer. I mean is that an opportunity, too, for Yext?

Well, every time you run a query in Google for a customer of our Listings product, we are helping because we're supplying them with the complete knowledge graph of that company. Same with Alexa, same with Siri. So clearly, they don't need any algorithmic help. What they do need is they're on a constant quest for knowledge. That's why they invest huge amounts in crawling, in data sources and as a primary trusted supplier of probably one of the bigger ones of authoritative knowledge about companies formatted in a way which they can understand, we're helping. And really, what we're hoping is that our customer's customer get the right answer about whether it's a bank or whether it's a health system. Health care this year has been a wonderful category for us. You can go to some of the biggest health systems in the world and our search will be right front and center, right on their website. And that's pretty neat. And you can see the kinds of questions that people are asking. And every time we're helping a user get the right answer on health system's website about a doctor or about a COVID treatment or about -- people ask really specific questions in health care, for example, because I mean, people don't just say, "Hey, give me a doctor." They say, "Hey, I need a certain kind of cardiologist that accepts my insurance, that's in my area who speaks Spanish." And that's the kind of thing that natural language can really help with.

Got it. No, that's really helpful, Howard. And just thinking about your legacy verticals, thinking about Listings and it worked well. You could think about restaurants or maybe financial services, but you've really branched out with Answers. I mean, can you talk about a little bit more about that expansion opportunity and what Answers can do to address different types of verticals out there?

Two of the deals we talked about in Q4 on our earnings call were Altice and Samsung. And we sold them both Support Answers. There are 5 categories of search as we see it today. Marketing answers, support answers, developer answers. That's for a company that wants to put -- a tech company that wants to put a search box in their own product. So that you can search on, say, Slack or you can search in G Drive. So this happens usually. That's developer answers. E-commerce answers is companies that are Shopify entrepreneurs, who are building their own e-commerce product search engine. And the fifth is workplace search. And that's internal, behind the firewall. That's knowledge management, and so Altice and Samsung are both now customers of our Support Answer solution, that second category. And let me tell you, the Support Answers has strong potential. Every company needs it. You can go to help.yext.com and on search. And universally, it's a terrible keyword-based search. Meanwhile, their support teams are being crushed with calls and tickets. So anything that they can do to deflect calls has a clear ROI because it saves them money. Every time someone gets their answer online and doesn't have to pick up the phone and call or fill out a ticket and wait, you don't just save money, $10 or $12, you also have made the customer happy. So there's very clear ROI metrics and customer success or customer service for Support Answers. And those 2 deals, we never could have sold -- Samsung doesn't have physical locations in the same -- they're a product company. But being able to power their support site for some of their products since for Altice who is a media conglomerate and cable, to be a telco, to be able to handle and help them with their customer support, this is an entirely new set of applications for unique and powerful technology. But Altice is a good example of an expansion. I mean we work with them for years and Listings and have just sort of gone now vertically across the organization, it's still handling their customer experience. But for a company like that, being able to have a single knowledge graph with answers that appear in Google and also in their own site is a very powerful and compelling value proposition. And Koji, our vision for the future is to give every company their own Google, internally and externally.

No, that makes sense. If you need to figure out what Yext does, I should be going to yext.com and not Google and typing in Yext, what does Yext do, right? So...

I'll tell you a funny story about that. The minute we put Yext Answers live on our own site, branded searches for the keyword Yext went down by 33% in Google overnight. And the corresponding number started to happen in our own search box. What that means is that people prefer to search about us on us. It doesn't mean to suggest that people don't still search -- their search is often in Google. But it turns out that it is your best and most loyal customers who are already going to your sites, who are already trying to get the answer from you. And if you don't give them the answer, they bounce back to Google and try to get the answer from Google, and that is a suboptimal customer experience and Google will show them competitor ads and try to approach them. So for any CMO, customer experience head, chief customer officer, wants to control that digital customer experience, there's nothing like an answer to be able to help them keep that customer on their own site.

Got it. Got it. I got a question from the buy side here. On the Listings, the Listings part of the revenue here. And it's not a focus of the business. Clearly, the future is all about Answers, but Listings does still make up a good chunk of the revenue. I guess, what are you seeing in the Listings business? Are you seeing any sort of green shoots of recovery? Or anything -- any sort of color on the legacy Listings product? And what's going on there? How is the focus going there?

I wouldn't say that we're not focused on Listings. We are. I think we saw a platform solution. So we spoke to a company, I mentioned Altice or whoever, they're buying our Listings, they're buying our Knowledge. There's all sorts of a knowledge graph. And sitting on top of the knowledge graph, we then give the listings to companies, and then we can also power Answers all throughout that single shared platform. It's a very compelling value prop because with one edit, McDonald's changes or a company changes one single fact in their knowledge graph, and it's updated everywhere and also in their own sites. It's a very compelling proposition. So Listings is still a focus for us. It's a big business. There's no reason to believe why it can't be what we thought it could have been before the pandemic. It was clearly affected by the pandemic. I think we said on one of our calls, maybe it was Q4 that Google Maps views year-over-year were down 50% -- 5-0% from the previous year. I don't think anyone expects that to be a permanent situation. I don't think we have seen the full recovery from that. Certainly, in the United States, things are trending better. But if you look around the world, there's still lockdowns and shutdowns. And so I continue to believe that Listings will be everything we thought it was before and Answers is something kind of extra special that can be expansive on top of [ that ].

Okay. Okay. Got it. And kind of a one financial-ish question, the pricing model for the business, maybe for those that are new to the name, new to Yext, just learning about it today. Can you just briefly go over how Yext and Answers and Listings is priced out there?

Yes. We are a SaaS company. So -- but we use a capacity-based model. So you purchase a certain search capacity, you prepay for the year. When you burned up that search, you can either upgrade or you get charged for overages. Most companies will upgrade. That capacity applies to Pages, too, which is a product that post structured knowledge on websites, and they can come either from a serve -- from a page or from a search. And then for knowledge, for Knowledge Graph, that's priced per entity. So the amount that you store in your knowledge graph goes up linear when you first package that and you upgrade from that.

Got it. Got it. And as we roll out of the pandemic here, Mr. Rudnitsky on his go-to-market strategy, I mean, how do we think about the go-to-market strategy? What sort of investments is he making? What are you guys targeting? I mean, any sort of commentary on how to think about where Yext is going with the go-to-market strategy over the next 12 to 18 months?

We're going to keep doing what we're doing. We're going to focus on hiring quota-carrying reps, we're going to focus on making sure we have coverage in all territories. I will say that, my goodness, with the expansion of Answers getting into support and soon workplace, the number of customers that we can sell to has doubled. For example, Samsung couldn't have sold to them before, but we can now. So we need reps to cover the territories, and we feel like we've got pretty good coverage now, but we want to continue to increase that coverage. It's -- I will say, last year, the sales model changed. DR, Dave, it's David Rudnitsky comes from a heavy event-driven, in-person big deal mentality sales model, relationship-driven sale. And that has been challenged with not being able to hold events, not being able -- we used to host a big event, ONWARD, each year. We did not do that last year, and we don't have plans to do it this year. So we not only had to change last year kind of how we thought about our product and strategy, but also how we did go-to-market. But that said, every transaction you've seen up through Q1 was practically through over Zoom, over Slack, over digital channels. And so I think what you're going to see is a two-pronged kind of direct sales approach, big deal-driven, top down. And then at the same time, if you look at Zendesk thing we did today, we launched a data solution, that's more bottom-up. That's, hey, let's go and use BDRs and use demand gen techniques to find companies that are using certain products, call it Zendesk, call it service cloud, call it Adobe, where we have an amazing partnership with Adobe, and kind of do some more bottom-up types of stuff there to find mutual customers and upsell from there.

Got it. Got it. Howard, we are out of time. Awesome conversation as usual. Great to see you. Hopefully, there is going to be an in-person ONWARD event sometime in the future, always a great event. So congratulations on everything. Congratulations with the new office opening, and I can't wait to catch up again soon in person, hopefully. So thanks again for your time today, Howard.

Thanks for having us, Koji.

Thank you, sir. Appreciate it. Yes. Thank you. Bye.