Release Date: June 10, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Yext Inc (YEXT, Financial) announced a definitive agreement to acquire Hearsay Systems, which is expected to enhance their digital presence platform.
- Hearsay Systems generated approximately $60 million in revenue during its prior fiscal year, indicating a strong financial performance.
- The acquisition is expected to provide new tools and capabilities for joint customers, strengthening their management of the complete customer journey.
- Yext Inc (YEXT) continues to work with 9 of the 10 largest US banks and the 4 major wirehouses, showcasing strong industry relationships.
- The integration of Hearsay Systems is expected to be highly compatible with Yext Inc (YEXT)'s operations, potentially leading to significant synergies.
Negative Points
- Yext Inc (YEXT) has faced challenges with large customer churn, impacting year-over-year ARR growth.
- The company has experienced slower conversion of demand due to budget constraints and longer deal cycles.
- There is uncertainty regarding the integration plan for Hearsay Systems, with no detailed comments provided at this time.
- The full-year revenue guidance came in lower than expected, reflecting ongoing market challenges.
- Yext Inc (YEXT) has slowed down the pace of hiring for sales capacity, which may impact future growth potential.
Q & A Highlights
Q: Congrats on the Hearsay deal. Was this size always your intention, or how did the process evolve?
A: We believe the size of Hearsay is a great complement to our business. We focus more on how complementary the solutions are and their importance to our customers rather than the size. Hearsay's solutions and products are highly complementary, with a significant overlap in customers, providing valuable synergies.
Q: Can you provide more color on the full-year revenue guide? Is it related to slower pipeline conversion or budget scrutiny?
A: We are seeing similar challenges as others, including budget constraints and longer deal cycles. We are also focusing on solidifying customer relationships during renewals, which can challenge bookings and retention. We have slowed down our sales capacity ramp to match demand conversion, maintaining productivity improvements.
Q: Any more color on the overlap with Yext and the applicability of Hearsay's value prop to other verticals?
A: Financial services and healthcare are our largest verticals, and Hearsay's strength in financial services is highly complementary. We see opportunities for revenue synergies within financial services and broader verticals, particularly as we build out our social product.
Q: What gives you confidence in achieving mid-single-digit ARR growth by the end of '25 and high single digits by the first half of next year?
A: The large customer churn at the end of Q4 has been challenging, but we are proactively engaging with renewals to solidify partnerships. We have visibility into demand and are ahead in addressing renewals, giving us confidence in ARR growth in the second half of the year.
Q: Can you talk about the general growth rate of Hearsay's business and its impact on Yext's margin profile?
A: We will update our financial outlook once the acquisition closes. Hearsay operates entirely in the financial services vertical, and we see opportunities to merge their products with ours for a broader market. Hearsay's business is around cash flow breakeven, and we see opportunities for synergies.
Q: What are your expectations for the acceleration of growth in the back half of the year with the new AI modules?
A: We see AI as enhancing our platform rather than a standalone product. Examples include AI-generated review responses and automated recommendations. We expect a rising tide of AI adoption rather than a tidal wave, with increasing value over time.
Q: Can you explain the sequential dip in direct and third-party ARR?
A: The dip is primarily due to budgetary pressures and business realities during renewals. We prioritize long-term customer relationships over short-term ARR increases, which can lead to downgrades rather than logo churns.
Q: How should we think about the mid-single-digit ARR growth outlook by the end of this year?
A: We evaluate the pipeline, sales capacity, and renewals to apply a conservative lens. Despite challenges, we see growth in the back half of the year and a return to a more permanent state of growth.
Q: Can you provide more details on Hearsay's 300 employees and their roles?
A: Hearsay has a diverse team across all functions, similar to Yext. We will provide more details on the impact of the acquisition on our functional and financial areas in future calls.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
