Good afternoon and welcome to the Yext First Quarter Fiscal 2019 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to James Hart, Vice President of Investor Relations. Please go ahead.

Thank you, Andrea, and good afternoon, everyone. Welcome to our quarterly conference call. With me today are Howard Lerman, CEO of Yext; Steve Cakebread, CFO; and Jim Steele, President and Chief Revenue Officer. As a reminder, this call cannot be taped or otherwise duplicated without the company’s prior consent. Before we begin, I would like to remind everyone that this call may contain forward-looking statements, including statements about revenue and non-GAAP net income guidance, cash flow, gross margin, our industry outlook, market opportunities, business performance, financial outlook 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’s growth, industry, product development, market opportunities 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 statement to reflect changes that occur after this call. Descriptions of these and other risks that could cause actual results to differ materially from these forward-looking statements are discussed in our reports filed with the SEC, including our most recent report on Form 10-K 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 investors.yext.com. With that, we will begin by turning the call over to Howard.

Thank you, James, and thank you to everyone for joining us today. We had a great quarter, achieving record revenues and delivering positive quarterly operating cash flow for the first time since we became a public company. A few other highlights. Revenue grew 38% over the first quarter last year, which was well above the high-end of our guidance for the quarter. Gross margins increased 100 basis points from the first quarter of last year to 75% and our license count continues to grow at about 50% on a year-over-year basis. These results demonstrate how leading brands from around the world are increasingly selecting Yext. With the investments we’ve made in adding to our sales capacity, particularly at the enterprise level, we’ve seen a lot of momentum over the past year. We won more than 60 new enterprise logos, including leading brands like Wendy’s Telefonica Germany, Nordstrom’s and 21st Century Oncology, and also one of the largest automakers in the world. We also signed renewals with many large existing customers like Rite Aid, like Volvo, University Health System, one of the largest insurance providers in the United States, as well as one of the largest specialty retailers in the United States and many, many more. This list shows how we’ve had great success across so many different types of vertical markets from auto to healthcare to foodservices, financial services, travel, hospitality, retail and more. Digital Knowledge Management is relevant to nearly every single segment of the economy and it is becoming table stakes for any business of any size. Every company that is using a website today to present information about itself will need a DKM solution to take control over how that information is presented in the places where consumers are looking. Customers of Yext understand that the rise…

Well, thanks, Howard. I’d like to share two customer stories with you. The first is our first enterprise deal that we did in Japan that Howard just mentioned. And although we officially opened our office in Japan only late last year and we hired our first sales rep there just a few months ago, we’re really excited to close our first enterprise sale in Japan during the first quarter. This was a great win for us. And I would like to walk everyone through how this deal came together, because I think it really illustrates our sales process in winning new business. TBI is a holding company based in Tokyo with more than 3,000 employees. They have hundreds of locations across fairly diverse categories, including restaurants, real estate and beauty. Within the restaurant group, they have about 30 different brands that they brought together from various acquisitions over the years. So they were going through a major rebranding exercise to consolidate the brands and they were looking for a solution that would help them more easily manage all of the digital knowledge for these restaurants, including everything from where the restaurants are located, their hours of operations, their menus, photos of the dishes, et cetera. Prior to looking at Yext, TBI had been spending millions of dollars on paid media in an effort to help consumers find these restaurants. And they had about 20 employees, who were internally managing the content that they were trying to publish into all these various search companies and digital services. However, they were not satisfied with the results they were getting and they were looking for a more organic way of getting customers into the restaurants. When they first came to us, they were originally looking to test a solution across just a handful…

Thanks, Tim. We’re really pleased with our results. Our revenue was $51.1 million this quarter and reflects an increase of 38% over the first quarter last year. Direct small business was still relatively flat and now comprises less than 10% of our revenue base. When you exclude the direct small business, our company revenue grew 44% as compared to the year ago quarter. We continue to see growth from a mix between new and existing customers. We’re seeing very healthy up-sells within the existing base, driven by the new features that we’ve released over the past year and, of course, increased license counts from them. Our net revenue retention was even with last quarter’s measurement of 109%. And as discussed last quarter, we expect retention to remain slightly below our historic levels through the impact of the merger between two large resellers. Keep in mind, this retention metrics on its trailing 12 month calculation, so it’s going to take a bit of time to get back to our normal ranges. But importantly, our enterprise and mid-market retention has remained at historical levels. Deferred revenue increased 46% from the year ago quarter to $83.9 million. But let me point out that during the quarter, we closed a couple of large deals with shorter billing terms. While our standard agreements are for annual terms paid upfront, there are certain transactions where it makes sense for us to accept shorter terms. If these deals had been annual deferred upfront, we would have grown 50% range and more in line with our historical. Over the past year, more than 10.6 million attributes have been added to our platform, or nearly 30,000 on average each day, and this is an increase of nearly 53% year-over-year. In licenses to Yext’s digital knowledge platform increased about 49%…

Thanks, Steve. I wanted to close today with a quick update about ONWARD. It’s our Annual User Conference in New York City. Intelligent services are changing the way we live and the way we do business. Marketing professionals and technology leaders need to understand how knowledge is powering their business. ONWARD brings together the smartest minds in marketing and technology to explore how artificial intelligence, digital assistance and intelligent services will shape our world in the years to come. We have announced that astrophysicists, Neil deGrasse Tyson will be our keynote speakers. He is a recipient of 20 honorary doctorates in the NASA Distinguished Public Service Medal, and he’ll share his unique perspective on the future of science and technology. We really hope to see you in October. Thanks for joining our call. This was a great quarter. We had record revenues, 38% growth, increasing gross margins, strong growth in licenses, our first positive quarter of operating cash flow since we became public company. For more than a decade, Yext has innovated to put our customers in control with perfect information about them everywhere. We always have and we always will. With that, we’d love to open the call for your questions. Operator, can you please provide the instructions.

We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Mark Mahaney of RBC Capital Markets. Please go ahead.

Great. I think I’ll ask about Japan and maybe other international markets. So congrats on the win in Q1, you allowed any expectations for your ability to bring in other deals from Japan. And I know you have other international markets, but they were later to launch. Is something – are there learnings from the scale or the speed of the ramp up in Japan that are replicable in other markets? Thank you.

Hey, Mark, Jim Steele. Yes, we definitely learned from the experience in Europe. We opened our office in London probably close to two years ago and then Paris and Berlin at the beginning of last year. And we have a formula that actually has worked very well in those three geographies and we applied it to Japan. And we also did the same thing in hiring known performers in the market. As you’ve heard before, [indiscernible] worked for me at sales force for over 10 years, and he built sales force Japan from nothing to hundreds of millions of dollars in his 10 years there. And he knows how to scale businesses and he’s very, very effective at hiring the right people. We’ve got just a great team that we’ve built over there. And we – I go over there on a quarterly basis and Howard’s been over there many times. So I’d say that, we’re leveraging the success we’ve had in Europe with Japan. And it’s like everywhere we find, we have to educate the market. And I’m convinced, if everyone, if every CMO of every company saw what we deliver and the solutions we bring to the table, they’d all be clamoring. So, our focus is on getting the message out and becoming more discoverable as a business as we expand internationally.

Okay. Thank you, Jim.

Our next question comes from Alex Zukin of Piper Jaffray. Please go ahead.

Hi, this is Taylor Reiners on for Alex. Thanks for my question and congrats on a year as a public company by the way. Maybe a question for Howard. That was an impressive stat you mentioned from Mary Meeker’s presentation around the 900% increase in near me searchers. I was wondering you mentioned last quarter a greater awareness in the market and you’ve seen an uptick in RFP activity versus even Helical sales. Could you maybe give us an update on how that’s trended year-to-date? And then maybe – or how much RFP activity is impacting your pipeline at this point?

One of the exciting things about digital knowledge management, it’s a global opportunity. Around the world, we believe ultimately, every business that has a website is going to need to take that unstructured content sitting on their website, structure into a Knowledge Graph and think it into every service that we use in our lives. And whether it’s a business in Japan or in Paris, they’re going to need to take every entity on their public website, build out all the attributes for it, put it everywhere. The world is beginning to wake up for that. And as we noted last quarter, we started to RFPs come in for Digital Knowledge Management. We’ve started to see folks call themselves digital knowledge managers as their job titles, where our opportunity is to create this category. It has a gigantic TAM. It has more than a $10 billion TAM. We’re the first mover in this huge market. We’re – and to Jim’s point, we’ve got one of our – one of the challenges of being first is that we’ve got to get the word out. When we’re sitting with a customer, they always see the need. We just got to make sure that we are always sitting with the customer. And so, as things like Mary Meeker’s report come out that show the gigantic increase in near me certainly 900% in three years is a stunning increase in math-based results, which are highly commercialized. And by the way, that’s only one of the ways that Yext is able to impact our customers. It doesn’t include voice search and all those other types of intelligent services like Uber that people use. This is the macro trend behind our business, the rise of AI powered services. Every time – and by the way, it’s not like the report itself is what’s driving this. It’s the actual trend that’s driving it. The world is waking up to DKM. It’s reflected in the fact that we added more than 200, I think 230 enterprise logos. Last year, we added 60 new enterprise logos. This quarter, we grew our revenue 38% this quarter. You can also see the attribute count growth. So it’s not only like the customers that are beginning to use – the customers that are beginning to use the platform are using it more deeply. We grew 53% in the comparable period last year. The demand is strong around the world, and it’s our opportunity to capitalize in that demand.

Awesome. Thanks. And then just maybe a follow-up for Steve. The commentary on deferred revenue was helpful. I know you don’t guide to deferred, but could you maybe give us some color on how we should be thinking about modeling deferred from a seasonality perspective? I mean, if it’s possible, we could see an acceleration later in the year as the dynamic you mentioned normalizes?

Well, we don’t guide to deferred, because our business does have differences in terms of when we take deals in the billing size. I think, as I’ve mentioned, these deals were somewhat of an exception. If you normalize, it would be in the 50% range, and that growth has been fairly stable for the last couple of quarter. But it’s still driven and we’re going to take deals to continue to expand our logo base, which it did in this case.

Awesome. Thank, again, and congrats.

Thank you.

Our next question comes from Brent Bracelin of KeyBanc Capital Markets. Please go ahead.

Hi, this is Alyssa on for Brent. One question I had on your new Yext for Insurance release. I know you already had a strong presence with insurance customers. So I was hoping you could kind of talk us through what this new kind of vertical solution adds. How you’re thinking about bundling and pricing? And then kind of compare and contrast how big of a vertical relatively is this for you today and how you could start evolving going forward?

We consider insurance to be one of our financial services verticals. Financial services is the top five vertical for us, it’s huge. The Yext for Insurance offering, it does a couple of things. It more – it lays out more clearly within our Knowledge Graph the specific attributes for the insurance agent entity. It provides features for huge carriers to manage their captive and non-captive agents. There’s a lot of nuance to how that can be managed. And I think we touched on this a little bit in the call, there are deeper features as it relates to approvals, because insurance is highly regulated. They can’t just allow an agent, for example, to update something in Knowledge Assistant and then how to automatically update across the world that has to go through an approval queue. We added more sophisticated features, nuance features uniquely for that vertical. It’s a pretty exciting opportunity. We’re significantly underpenetrated relative to the opportunity in the insurance vertical despite having a couple of large marquee accounts. We see opportunities to sign more of those. We’re seeing opportunities to go into the mid-market insurance companies and to go into Europe and sign up all the insurance companies there, we – where we are just getting started in terms of that vertical. It’s a gigantic opportunity, and that’s just one part of the financial services vertical. Every insurance agent on the planet is going to need to structure their digital knowledge, get into a Knowledge Graph, and think it into Google and Facebook maybe even WeChat, maybe even in Mandarin.

Thank you.

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

Thank you so much, gentlemen. Good afternoon. So a couple of questions for me. First one, the reviews product. It’s been out in the market for, I think, a-year-and-a-half. Just want to see what kind of feedback you’ve been getting from customers on that one? And then a couple of quick financial questions.

We’re really excited to review products. It’s a feature. There’s a few different pieces of reviews. There’s response, there’s monitoring, there’s first-party generation. Those exist in different packages in our lineup, in our product lineup, we see a lot of customers upgrading to get to deeper access to reviews. I don’t think we’ve guided on the specific penetration by package type, but it is without a doubt a compelling feature set for many of our customers. Reviews are super important, because just to take a step back here, every intelligent services is three layers, their UI, their AI and their Knowledge Graph. The UI could be how we experience it, that’s how it could be a web app, it could be a map, it could be a mobile app, it could be VR, it could be a car. The AI is what decides when you ask a question to the UI, how – what answer to give you. In the case of voice search, you get one answer. In the case of maps, you might get a couple of answers. One of the most important factors for where you rank in an unbranded question like give me the best cardiologist in Midtown Manhattan is reviews. It is absolutely critical to have good reviews. And the reviews impact is driven by really three parts, the relevancy, which is the recency and the number of reviews you have. The rating is one of the factors in addition to recency in number. So it’s supercritical for brands to be paying attention to this. Our TripAdvisor integration now allows customers to monitor their reviews in TripAdvisor. Their response from that we only announced it, I think, a couple of weeks ago has been tremendous. Reviews are a critical part of DKM. It helps not just make sure your knowledge is out there, it helps you rank in the algorithms of these AI services.

Got it. That’s very helpful. And a quick couple of questions for Steve. What are some of the puts and takes around the gross margin improvements year-on-year?

Well, the biggest one has been publishers and us getting more efficient and effective with them. As we’ve talked about before, we’ve moved from publisher – we do pay publishers, but the cost per transaction keeps going down as our volume grows. And a number of publishers we just don’t pay obviously like Facebook and Google and others. And those that we do pay are R&D and one-time. So you’re seeing predominantly this increase in gross margin coming from year-over-year the fact that we’ve been changing our business behavior in terms of compensation. That’s why I say that this year, we’ve said mid-70s is about where we want to see the model, because that obviously is going to start to work itself out of the system and be normalized. We still will pay publishers transactionally, but that’s become less. We still – we’ll pay some publishers for R&D fees one-time. But that’s why, I think, we’ll see this year the model starts to get us in the mid-70s, so we kind of hit that this first quarter.

Okay, perfect. And then maybe just a slightly different way to ask the deferred revenue question. As we think about the full-year of fiscal 2019, is there any reason why the calculated billings as far as the revenue plus change in deferred should diverge from the revenue growth?

Well, like we – like you saw this quarter, we took some fairly. large logo deals with different payment terms in annual. So as I’ve always said, the mix in our deferred in terms of payment terms is still fairly volatile and a deal can change that fairly dramatically. So while we don’t really – I look at billings, but it’s not my indicator, it’s still revenue growth. And I don’t think we’re going to be able to normalize just given the diversity of the deals that we do right now, the types of businesses that we deal with. The fact that we are in this case, we took some great logos down, but the payment terms were slightly different. That’s going to happen and we’re going to carry on with that right now, Stan. So I don’t know that you’re going to be able to model it out any differently than what we’ve done in the past with the volatility that we have.

Got it. Perfect, guys. Thank you.

Our next question comes from Mark Murphy of JPMorgan. Please go ahead.

Hi, good afternoon. Thanks for taking my question. This is Matt Casa on behalf of Mark Murphy. Howard, it seems like Google My business has been making some improvements to its product one of which includes a new dashboard for managing a multiple locations. Now I understand Google really only extends to Google properties and perhaps it’s just a nonstarter. But I’m just curious to get your thoughts about what Google’s doing?

The Google My business is typically focused on the S&B. This small businesses that wanted by AdWords and manage their content within Google. Of course, you can start to manage multiple locations. Our opportunities in the enterprise where companies like we mentioned these insurance companies are managing tens of thousands of entities. In order to do that, you have to upload a spreadsheet into Google. And in order to do that, you need to have a system of record to store that information in the first place, that’s where Yext comes in. We provide our customers with that system of record with their, what we call, Knowledge Graph, which is essentially a database schema that contains all the entity types in their business. The attributes and how they are related, which is a pretty important point. And then syncs it automatically into Google, syncs it automatically into their website, into Facebook, into over 150 different services now obviously, including TripAdvisor as well. So where we really make a big advantage is by automating what would otherwise be a manual process. You’d have to kind of manually manage all that stuff all the time. With the Yext, you can use features like Knowledge Assistant to text in your Memorial Day hours and then boom, it’s updated everywhere, including on your own website and on your own mobile app and every third-party service out there.

Okay, great. Thank you. And then on GDPR, does that – do you see that having any effect on your Yext either positive or negative, or is it just sort of not in your purview?

Yes. Yes, that’s a good question. I mean, it’s obviously topical. We’ve done like all good tech companies. We’ve embraced GDPR and have rolled it out on a global basis in terms of how we want to treat private data. The reality of it as though our solution is really facilitating customers to get the data that they have publicly available. So we put in our processes and practices around GDPR, but it’s not really a big impact on us like you might see in a lot of other companies, because our customers, as Howard described, and that single source of truth dashboard really want that data to be made publicly available. But we do have control, so we do have and comply with GDPR. and that’s obviously we like everybody else send notices that set our terms of service are changing and we’re aware of it. But it has less impact on us than you would find in a normal SaaS company.

Yes. Thanks, Steve.

At this time, we show no further questions. I would like to turn the call back over to James Hart for any closing remarks.

Well, thank you, Andrea, and thank you, everyone, for joining us today. We look forward to coming back to you in a few months time. I guess, that will make it towards the end of the summer to report on our second quarter.

Thanks, everybody.

Thank you, all. I appreciate the time.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.