Release Date: September 04, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Successful acquisition and integration of Hearsay Systems, expected to drive top-line synergies.
- Positive customer feedback on the consolidation of Yext Inc (YEXT, Financial) and Hearsay Systems, indicating strong market acceptance.
- Stable to modest growth in Annual Recurring Revenue (ARR) expected for the year.
- Encouraging trend of 'boomerang' customers returning to Yext Inc (YEXT) after trying competitors.
- Strong cultural alignment and quick integration between Yext Inc (YEXT) and Hearsay Systems teams, enhancing operational efficiency.
Negative Points
- Hearsay Systems' revenue contribution is slightly dilutive to overall EBITDA margins.
- Continued macroeconomic uncertainties, including elections, interest rates, and geopolitical risks, impacting customer spending.
- Slower-than-expected improvement in the overall market environment, leading to cautious ARR growth projections.
- Challenges in achieving immediate revenue synergies from the Hearsay acquisition due to the need for further integration and product alignment.
- Potential dampening effect on reported ARR due to a shift from contractual to usage-based revenue models in the third-party reseller segment.
Q & A Highlights
Highlights from Yext Inc (YEXT) Q2 2025 Earnings Call
Q: On the updated revenue guide, is that all Hearsay contribution? Or is there any change to the outlook in the core business?
A: (Darryl Bond, CFO) The updated revenue guide includes two full quarters of Hearsay revenue since the acquisition closed on August 1. The guide reflects top-line synergies and joint go-to-market motions to accelerate both Hearsay and Yext businesses.
Q: Can you talk about the broader theme of consolidation of software vendors and how it's driven by customers?
A: (Michael Walrath, CEO) Customers are dealing with too much vertical software, creating workload inefficiencies. Consolidation makes sense to deliver better analytics, data platforms, and efficient workflows. This trend is expected to continue, driven by customer needs and the evolving tech stack.
Q: How do you think upsell into Hearsay or Hearsay upsell into the customer base will play out in the next 6-12 months?
A: (Michael Walrath, CEO) Opportunities exist where Yext has customers that Hearsay doesn't and vice versa. The consolidation theme is a tailwind, allowing customers to save money and operational expenses. The integration is progressing well, with joint customer conversations turning into partnership discussions.
Q: How quickly can you start to recognize revenue synergies from the Hearsay acquisition?
A: (Michael Walrath, CEO) The sales process and customer support are similar between Yext and Hearsay, with deal cycles aligning. Opportunities exist to extend Hearsay functionality beyond financial services and bring Yext products to Hearsay's financial services teams. Cost synergies will also contribute to improved margins.
Q: Are you continuing to see trends of Boomerang customers returning in the third quarter?
A: (Michael Walrath, CEO) Yes, we are seeing customers return due to unmet promises from competitors. We maintain infrastructure to quickly get them back up and running, solving their challenges efficiently. This trend is a credit to our global team's partnership mindset.
Q: On the guidance for the full year versus the third quarter, how should we think about the implied EBITDA margin for the fourth quarter?
A: (Darryl Bond, CFO) The implied Q4 EBITDA margin is around 22%. The legacy Yext business is in the mid-20s, but Hearsay is slightly dilutive. We see opportunities to expand margins through efficiencies and revenue growth.
Q: What is driving the move from contractual to usage-based pricing on the third-party reseller side?
A: (Michael Walrath, CEO) The shift is to meet customers where they are, providing flexibility for those who don't want to commit to a certain level of spend. This approach may dampen reported ARR but aligns with customer needs and can drive long-term value.
Q: How are you thinking about the impact of Generative AI (Gen AI) on your business?
A: (Michael Walrath, CEO) Gen AI is expected to drive significant value in the long term, though adoption may be gradual due to compliance and comfort levels in regulated industries. We are already seeing benefits in areas like automated review responses and listings recommendations.
Q: Can you provide more color on the adjusted EBITDA margin guidance and potential expansion in fiscal '26?
A: (Darryl Bond, CFO) The consolidated margin includes both Yext and Hearsay, with Hearsay being slightly dilutive. We will continue to run the business efficiently, focusing on capital allocation and investment returns to drive margin expansion.
Q: What are your latest thoughts on organic ARR growth and the impact of Hearsay?
A: (Michael Walrath, CEO) We expect stable to modest growth in ARR this year, accounting for macroeconomic risks. The integration with Hearsay is progressing well, and we are cautiously optimistic about future growth opportunities.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
