Yext Inc (YEXT) 2018 Q3 法說會逐字稿

Good afternoon, and welcome to the Yext Third Quarter Fiscal 2019 Earnings Conference Call.

(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 nonhistorical 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, evolution of our industry, product development and success, market opportunities, adoption of accounting principles 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 statements 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-Q 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, let us begin by turning the call over to Howard.

Thank you, James, and thank you, everyone, for joining us today.

We had another great quarter with record revenues and continued growth in our mid-30% range.

To give you just a few highlights; revenue grew 33% over the third quarter last year; that's above the high end of our guidance.

Gross profit increased 34% and we also substantially improved our quarterly non-GAAP net loss margin.

And for the second consecutive quarter, we added nearly 80 new enterprise logos.

That's the most new logos we've ever added in 2 quarters.

We continue to see some of the best-known brands in United States, Europe and Japan choose Yext.

Brands like Air France, Lacoste, Papa John's, Krispy Kreme, Valentino, TUMI, Bang & Olufsen, the Texas Children's Hospital, The Body Shop, Thomas Cook, Pizza Hut U.K., Welcia Yakkyoku, that's one of Japan's largest drugstore and pharmacy chains.

So far this year, we have added well more than 200 new enterprise logos and that's nearly as many as we added all of last year.

And while we continue to add new logos, we're always looking for ways to grow with our existing accounts.

Let's talk about that for a minute.

This quarter, we signed renewals or expansions with AutoZone, FedEx, Boston Medical Center, Stop & Shop, SunTrust Bank, Ameriprise Financial, Hyundai and many, many more.

We believe every business and every geography needs digital knowledge management, health care, travel, financial services, food services, the United States, Germany, the U.K., Japan.

If a business has a website, that business needs Yext and that's because websites are dumb.

A website is nothing more than a big giant document that makes you think.

Let me tell you about what I mean.

Last month, we held our annual user conference, ONWARD.

ONWARD brought together leaders from around the world, including senior execs for many of our partners like Amazon, Google, Microsoft, Snaps and Waze.

It was our largest and most successful event ever, and we set a record with more than 1,200 attendees.

One of our speakers was Neil deGrasse Tyson, the world's famous astrophysicist.

If you wanted to know what time is he speaking, you'd have to visit www.onward18.com.

You'd read the Home page, you can guess where the agenda is.

You click the page you think it's on, and you've got to read the whole thing until you find his name.

Now he spoke at the end of the day, so you have to read a lot of text to get it.

A website makes you read.

It makes you think.

We believe that this is a user experience of the past and an experience built around dumb documents.

But today, the world is moving to smart databases that do the thinking for you.

I'd much rather be able to ask, "Yext, tell me what time Neil deGrasse Tyson is speaking at ONWARD" and just get the answer.

Today, every business in the world has a big giant dumb document, that's their website.

But we see a future where every business has a smart database, their brain.

And that's why at ONWARD, we unveiled the next generation of digital knowledge management, a revolutionary new concept called Brain.

Brain allows businesses to create and relate all the facts about themselves in an AI ready data structure, and here's how it works.

A business defines any fact about itself and it creates relationships with those facts, so it can create new entities which could be pre-built objects like locations or people or events, or they can create totally custom objects.

Then they can connect them together to establish a relationship.

Yext Brain acts as the centralized platform that powers our suite of products.

We added a couple of new products at ONWARD2.

The first is a new product called AI Pages.

With AI Pages, at the click of a button, the business can create an AI ready page for their website for any entities to run the Brain.

The second is a product we announced called Yext Think.

This is tightly integrated with Brain.

Yext Think is an answers engine that lets a user ask a question they want and get an answer from Brain like, "Give me a wealth adviser with expertise in tax planning who speaks Mandarin," or "I need an orthopedist near me that accepts Cigna insurance." Now we've all experienced the crappy site search box.

You search for something you want, you get a series of blue links connected to documents indexed by a keyword.

You've got to click it and you have to read until you find your answer, but with Yext Think, you ask a question and you get an answer.

All from the Brain.

Now as powerful as that is, we've also added analytics to help the business understand exactly what consumers are asking.

This lets the customer do 2 things.

First, they can look and see queries, how they're trending, and they can be more responsive to those queries by expanding their content in the Brain.

We can even nudge a business to supply content to the brain that they know that they're looking for, so that creates a better experience.

And second, they can use this data to better understand what's driving the behavior of their targeted customers.

This makes Yext an even more powerful platform with an even stronger ROI value proposition.

In fact, we've seen customers who implement Yext achieve a 15x ROI or higher.

ROI from Yext comes from a revenue lift because their brand has become more discoverable in the search ecosystem.

And by the way, speaking of search, we looked at a sample of more than 72,000 of our customer locations in the U.S. and Europe.

This sample looked across a wide spectrum of verticals, including finserv, food, retail, health care and hospitality.

And when you compare their experience before using DKM, these businesses saw on average a 49% more views on search, maps and other services in their first 12 months from using Yext.

The ROI of Yext in digital knowledge management is clear improvement.

And as we continue to enhance it by adding new services to our knowledge network like our recent integration globally with Snapchat, that's one of the world's most active social platforms with over 180 million DAUs.

This new service puts businesses in control of the information consumers see about them in Snapchat Context Cards and Organic Venue Geofilters.

A business can power information like its name, address, phone number and hours of operation, and then consumers can easily find accurate information about these businesses in Snapchat.

The addition of Snap to our knowledge network says that they along with over 150 other services around the world with whom we work, understand the value of our knowledge base and the integrity of our platform.

As we look to the future, we believe there will always be new interfaces and new services that consumers use to explore the world around them.

Every one of those services is going to need a complete set of facts about a business to deliver its service, an intelligent service to you as a user, and that's why we founded Yext.

For more than a decade, we have innovated to put our customers in control with perfect information about them everywhere.

We always have and we always will.

And with that, I'd love to turn the call over to Jim.

Thanks, Howard.

As Howard said, we are very pleased with the year we've had so far and are excited with the energy and enthusiasm coming out of ONWARD as we head into the fourth quarter.

We continue to win new business this quarter, closing nearly 70 deals with at least $100,000 in contract value.

There is a broad range of deals, including new wins, renewals and expansions of existing accounts.

We also saw success in key verticals as well as across all of our geographies.

EMEA had its best ever quarter for new business.

In short, this was a very balanced portfolio of new business, which is something we love to see.

It tells us our success is not limited to just one specific region or one particular type of customer.

As Howard described, every business needs Yext, whether it's a large multinational corporation or a local mom-and-pop.

We've created a go-to-market strategy to address these 3 customer types: small, medium and large.

If we look at how we're doing across each of these, with small business, this quarter, we accelerated our move away from a direct sales approach in favor of going deeper with their partners to address single license accounts.

SMB is an attractive market, but we want to pursue this channel in the most economically rational way.

In mid-market, we have built out the leadership team, but are still in the early days.

Mid-market should be such a sweet spot for us given the profile of the customers, so we're looking to ramp share quickly -- as quickly as possible and have more work to do.

For our enterprise business, we could not be more pleased with the team we have in place and the results they have achieved so far.

Their pipeline is strong and we are continuing to ramp up the enterprise sales force to meet the demand.

We are very pleased with the momentum we are seeing in the market for enterprise.

This is evidenced by the terrific brands who have signed on to Yext and the growing number of customers who have signed 6-, 7- and even 8-figure deals with us.

One of the reasons we continue to win is because companies increasingly see Yext as a software platform that can do 2 things: First, we can improve the efficiency of their operations because the customer can manage their digital knowledge faster from a single source of truth, usually with fewer resources.

And second, as we improve the distribution of that knowledge, our customers often see meaningful lifts in revenue.

To give you just 1 example, the largest ear, nose, throat and allergy practice in the United States, ENTA, has over 200 physicians in 42 clinical offices and see over 80,000 patients a month.

The marketing team at ENTA was finding it very difficult to manage all of their digital knowledge.

Physicians move between offices, changing their hours, and making other updates to their profiles.

ENTA found that it would take weeks to update information on their website.

They are also adding doctors to the practice and previously handled this process manually.

This required a lot of time reaching out to online directories to get new information posted.

Now with Yext, they add information and make updates with just the click of a button.

Yext also improved the discoverability of their business and has driven more patients to the proprietary appointment booking tool.

In fact, they saw appointments grow more than 200% within 3 months of launching with Yext.

That's a 3x improvement in the number of patients.

That means where they had 1 patient booking an appointment, they now see 3. And just 2 months after launching with Yext, they saw their highest monthly traffic ever and a year-over-year increase of 40%.

These results are exciting and should power digital knowledge management.

Many customers have told us how they've achieved a strong return on their investment in Yext through some combination of higher traffic, higher revenue and improved efficiencies within their operations.

With that, I'll turn the call over to Steve.

Thank you, Jim.

As Howard and Jim have mentioned, we're pleased with our results this quarter and over the first 9 months of the year.

The revenue of $58.7 million grew 33% over the third quarter last year.

If we exclude the decline related to direct SMB, revenue increased 38% this quarter and 41% over the first 9 months.

As Jim said, we're focused on enterprise, which is performing very well.

We're just getting started in mid-market and transitioning away from direct SMB.

Growth is coming from a mix of new customers, expansions, upsells with existing customers.

Our new -- our net revenue retention was 109% this quarter.

And just to note, our retention in enterprise and mid-markets continues to be consistent or even a bit stronger than our usual levels.

Deferred revenue increased 40% from the year-ago quarter to $83.2 million.

And as we previously discussed, we'll see variability in this balance from time to time.

We remain comfortable with our long-term trends and as Jim discussed, we're pleased with our business opportunities.

Now looking at profitability, gross margins were 74.7% this quarter.

This is an improvement of 100 basis points over the third quarter last year and it reflects improved economies of scale.

We continue to be comfortable with operating our gross margins in the mid-70% range.

Total operating expenses increased from $49.9 million in the third quarter last year to $68.7 million this quarter.

The largest driver to this increase was sales and marketing.

This was primarily due to the higher headcount of quota-carrying sellers.

In addition, ONWARD happened in the third quarter as compared to the fourth quarter last year, so incurring these expenses sooner this year.

Looking at other expense lines, both R&D and G&A as a percent of revenue were in line with last year.

Quarterly GAAP net loss increased from $17.1 million a year ago to $24.8 million this quarter.

On the basis of our $99.6 million weighted average shares outstanding, net loss per share of $0.25 this quarter compares to $0.19 loss a year ago.

In looking at non-GAAP results, which exclude stock compensation, quarterly non-GAAP net loss went from $11.1 million a year ago or 25% of revenue to $11.8 million or 20% of revenue in the current quarter.

That's a 500 basis point improvement and continues our trajectory of improving non-GAAP loss margin on a year-over-year basis.

Our non-GAAP net loss of $0.12 per share this quarter compares to the $0.12 non-GAAP loss per share a year ago.

Our press release has a comparison of non-GAAP results to GAAP.

Now let's turn and look at the balance sheet and cash flow.

Cash, cash equivalents, marketable securities totaled $107 million as of October.

Net cash used in operating activities this quarter was $22.6 million.

If you remember, we told you last quarter to expect a greater use of cash this quarter.

This use of cash was mostly due to the timing of certain factors like that of ONWARD, deal flow, billings and collections.

But we do continue to make progress with our cash flow overall.

Over the first 9 months of the year, cash flows improved by nearly $5 million from the year-ago period.

And we're still targeting to be operating cash flow breakeven for the fourth quarter, but this as well is dependent on timing of deal flow and certain other factors.

Let's turn to expectations going forward here.

First, regarding the impact of our adoption of ASC 606.

At the end of this year, we will no longer qualify as an emerging growth company.

Accordingly, we expect to adopt 606 at the end of the fiscal year.

You'll see this when we release our fourth quarter and full year results.

In the meantime, we're going to continue to evaluate its impact on our financial statements.

We've not completed that evaluation and our guidance provided today remains consistent with our past practice and is on a 605 basis.

With that, we expect fourth quarter revenue of between $62 million and $63 million.

That takes a full year revenue range to $227 million to $228 million.

In terms of profitability, we expect our non-GAAP net loss per share to improve meaningfully from the third quarter due primarily to the timing of ONWARD and other spend.

Accordingly, we see a loss of between $0.09 and $0.10 in the fourth quarter.

This assumes a weighted average share count of approximately 101.7 million shares.

For the full year, we expect non-GAAP net loss per share between $0.41 to $0.42 and that's based on an assumed weighted average share count of approximately 98.5 million shares.

With the new features and services we've recently announced, our business opportunities remain strong.

As both Howard and Jim have indicated, we're making great progress with a strategy that we believe has a potential to build a very large and highly differentiated technology leader.

With that, let's open up your questions.

Operator, can you please provide the instructions?

(Operator Instructions) And our first question comes from Mark Mahaney of RBC.

Let me ask 2 financial questions.

Steve, could you just walk through the variability of deferred revenue?

What factors would cause that to go -- to accelerate or decelerate?

And just maybe give us some thoughts on how was -- what that number could look like next quarter?

And then, just on the guide, I know you reiterated you're breakeven in terms of cash flow for the fourth quarter, have you talked at all or could you talk now about how we should think about cash flow going into next year directionally?

Sure.

Thanks, Mark.

And with regard to deferred revenue and we've had this conversation a number of times.

It is seasonal with our business as well, but there is a number of things that influence the deferred number on the balance sheet.

One is our billing, so if we have monthly semi-annual, quarter-annual, now we continue to drive our customers to annual.

But as we've had in previous quarters, we do take semi-annual and quarterly to monthly billing depending on the deal.

And a lot of some of the smaller businesses are still on monthly, so that mix continues to move around.

We continue to drive it to annual, but it does influence any calculations that you're going to have.

Obviously, since we're enterprise-driven right now in terms of big deals, deal timing has a big influence on that, too, in terms of when we may close a deal and when we build that deal.

So those are the 2 big variables that influence a lot of what you see in deferred revenue and a lot of what we look at in terms of billing.

I'll also say that the third component is, we have a pretty seasonal business here, so Q1, Q2, Q3 all act and behave slightly differently.

So those 3 effects will impact what you see in deferreds and a year-over-year basis oftentimes.

With regards to cash flow, you're right, we're driving this company as best we can to get to cash flow breakeven for the fourth quarter.

In terms of longer-term cash flow, a couple things.

We're still working on next year's budget, so I can't speak specifically to what might be next year.

I will say that -- and I think, we've proven this since going public.

We said we will continue to drive non-GAAP margins and improve those year-over-year and we're still driving towards breakeven.

This is no exception.

We've done that this year so far and will continue to do that.

We've also said that our longer-term business goal is get to cash flow breakeven.

I think we're doing that as well.

We've lowered our cash burn in the first 9 months and I think we're going to continue to focus on that.

That said, it's really important that we make sure we invest in this business and look for the opportunities of growth expansion and we're going to do that.

But I think, you'll look at the historical trends that we've done and we're on our trajectory to drive this company to break even.

The timing is something that we've not talked about and it's still uncertain based on our business opportunities.

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

This is Clarke Jeffries on for Brent.

First question for Howard.

One of the articles that crossed our desk earlier this week was the Bank of India experiencing branches of its bank having the phone number changed.

Fraudsters trying to direct phone traffic away from the physical location.

Wondering, if you could just maybe have a quick take on that, on the situations like that?

If that can be a demand driver for your business and maybe as it relates to the international market, the relative dependency on search engines and how some markets may see greater value in your solution.

It made me think I wish we had already set up our operations in India.

We are ready to go.

It underscores the fact that digital knowledge management is a global opportunity.

Every business in the world, whether you're small business or a multinational enterprise or you're a bank in India with regions across the entire subcontinent needs to have a structured set of information and take control of their information everywhere.

And it underscores what can happen when you don't do it.

It's funny, finserv is one of our biggest categories.

We work with tons of banks and financial services institutions around the globe that can benefit from Yext.

I wish we were already in India and set up.

Jim, maybe we'll send you there soon.

I'm ready.

Great.

And then, a question for Jim.

Still strong enterprise logo adds.

Still strong 100k deal activity.

Anything you could comment about sort of what is the nature of that -- those kind of maybe even mid-season kind of strong adds and maybe anything you could talk to the pipelines at the year-end, maybe on the million-dollar deal activity?

Yes, sure, Clarke.

So the enterprise business is really one of our great success stories.

We started almost 2 years ago with building a whole new focus on the enterprise, and we had a number of great logos.

But we were selling a product maybe a couple of years ago, and we've really shifted, and last year was kind of our year of transforming that enterprise team to focus on selling the platform and selling a solution and that's a very different way to engage.

It requires new skills, and some cases, we hired many new people.

We trained our team on how to engage in the enterprise.

Most importantly, we hired great enterprise leadership with Dave Rudnitsky, whom I worked with for 20 years at Salesforce and other companies.

And in Europe, we hired 3 amazing MDs that have tremendous enterprise experience.

And in Japan, we did the same thing.

So enterprise has really been a great bright spot for us and as we like to talk about the logos and these significant brands.

And what we're focused on is building sea-level engagements within these big enterprises and that's helped us a lot as we've gone from selling products to selling a solution and a platform.

So -- and on top of that, our client services team has done just an amazing job at driving very high world-class performance in terms of renewals and retention in the enterprise space; that's really been just a total bright spot.

The TAM there is enormous.

The pipeline, I'm not -- I can't give you any numbers on that but I can tell you that's something I think about every single day.

We focus on it.

So it's really now just executing in the enterprise.

We're hiring like crazy.

It's about capacity.

And it's a big investment in enablement to make sure that our enterprise team is well equipped.

So that's what I'd say, plus we have a great product roadmap and it certainly helped with ONWARD to announce Brain and Think and our enterprises love that and they see the evidence of us really building the platform are supported by that announcement.

Our next question comes from Naved Khan of SunTrust.

A few questions and maybe a clarification first.

So I think, Steve, you said that or maybe, Jim, you said that one of the factors is seasonality in terms of deferred growth in billings and how it affects deferred.

Can you just sort of clarify how the seasonality is in the business between 4 quarters, so that we have a better understanding, and then I had a couple of follow-ups.

Yes, Naved, thanks for the question.

I mean, we are a software company.

In technology, generally Q1s are light, Q2s are good, Q3 some can be light if you don't have a good August or start slow in August and then Q4 is strong.

So you'll see that reflected if you're doing calc billings.

And as I've said before, for a company of our size at this stage, calc billings is a rather volatile metric to be looking at.

But it does -- but -- and I appreciate everybody does it, but I believe that we're on track and I think the message is seasonality will move deferred revenue around this; you guys all know.

But our enterprise business is really doing well and we continue to believe that the product roadmap, the excitement that came out of ONWARD is something that we are looking forward to in the future.

And by the way, thank you for your business.

SunTrust Bank was an expansion and renewal in the quarter.

We appreciate it.

We will make sure that there are no scammers taking over your Google listings.

Good to hear.

So a follow-up I had was on the, I guess, earlier this year, you said, you kind of mentioned a goal of sales -- direct sales being 20% of the overall headcount.

Now that we're getting close to the year-end, do you feel you're going to hit that number or just kind of give us some commentary there?

We -- I don't think we're announcing our -- the number yet.

We're going to announce that at the end of the year.

But Naved, we are hiring very aggressively not just in the enterprise, but mid-market, on our partner team as well and you will see those -- we'll tell you the numbers at the end of the year, but that's been our goal.

And every week at management meeting, that's the first thing Howard asks.

Let's go through our hiring and capacity because this is really -- we've been talking about this for a while.

This is a market that we've been building and capacity is everything.

And then the enablement of that capacity, so we are hiring aggressively in the sales organization and you'll hear us tell that story at the -- after our fourth quarter.

And then one last question, if I may.

So can you just sort of comment on the clients' willingness to upgrade to higher tier packages, such as Professional or Ultimate, what are you seeing there?

Yes, we're -- in the newer geographies like in Europe and in Japan, we're kind of in the landgrab mode, where we're going in and so we have a lot of new business and a lot of new logos and you'd expect that business to be highly skewed towards new, new landings.

And in the U.S. now, where we've had a more mature business, we've been here for a few years and we've got great success in the enterprise.

You will see that our mix is pretty even.

We're not -- I don't think we're talking about the percentages, but we see a lot of customers upgrading to either expanding their footprint with us to new locations and new entities.

We've talked about the health care business, where doctors are not locations; the way we look at that, that's a new license opportunity for a doctor, for example.

Even though they might have a certain number of medical facilities like the example I used with ENTA, but -- so we're seeing a lot of customers expanding their footprint as they've been successful in one division.

They come back and say, okay, now we're willing to look at this other division and that's additional licenses.

We're also seeing customers expanding to our pages, for example, from listings and reviews as well and now, with events.

So we're seeing -- I mean, that's really our strategy.

It's land and expand strategy.

And it's -- we're a couple of years ahead in the U.S. and I'll expect now with the strong base that we have in Europe and starting to see in Japan, we'll see that same kind of progress.

Our next question comes from Stan Zlotsky of Morgan Stanley.

Maybe just -- and look, I hate to beat on billings, but this is just preempting the questions that we were going to get tomorrow morning.

Is there any maybe big deals that slipped out of Q3 and into Q4?

Because you did mention the 80 new enterprise logos, which is very much in line with what we saw in Q2.

But it's just a little odd to see the deferred revenue dynamics and just a sequential quarter-on-quarter decline in billings.

And maybe just kind of more broadly about -- for Jim, what are you seeing as far as just like the productivity and the consistency of execution within your sales organization?

And then just a very quick follow-up for Steve after that.

Well, thanks for the question, Stan.

I'll talk about Brain.

So Stan, on billings, there was nothing of note that came out in terms of big deals moving around and we have a couple.

We're an enterprise business, so you're always going to get that, particularly in Q3, Q4 timeframe, while people assess budgets and everything.

But I think this is again when you do the calculation, it is volatile.

You can go look back and see these numbers moved around quite a lot.

In terms of the deferred, again that's somewhat influenced by seasonality.

This quarter has August in it, when we lost a lot of Europe in August obviously.

So I think there's a point I'd like to make is, the number does move around because we're still too small and a small change will move that number around and make it somewhat volatile.

The fact of the matter is that we had a really strong enterprise quarter, which you saw in the logos.

We're building our mid-market and feel really good about that and it's still a little early days, but it's starting to grow.

We've got the right team in place and we had small business, which we're trying to transition.

And -- so I don't think there is anything wrong with the business.

The metrics just kind of move around a little bit more than we'd feel comfortable, but nothing of any bad note.

And then...

Yes.

I would just add to that, Stan, that with the enterprise especially, and some of the big deals, you're always going to see that lumpiness.

It's not a linear kind of growth necessarily.

It's highly based on buying cycles and so every quarter's going to be different on the enterprise.

With that said, we're doing great in the enterprise across-the-board, especially in Europe in the third quarter.

And so the consistency is something we, obviously, strive for across the 3 different types of markets that we are going after between enterprise, mid-market and SMB, just to piggyback on what Steve said.

I mean, SMB, we made a very strategic decision that our partners can do such a much better job selling into that market.

It's a much more economical way to do it, so we definitely plan to, as we've done, move that from direct to indirect.

And so you're going to see maybe a bit of a lag on the SMB side on the very low end, the onesie-twosies.

Mid-market, we've really -- we're about a year behind where we were with enterprise.

When I came in, my main focus was on enterprise and we hired a executive at the end of last year, a guy I used to work with at Salesforce, Dave Lehman, to run our mid-market and he's brought in new leadership.

He's brought in new processes.

We've hired a bunch of people there and that's where we'd expect to see.

As I said, we think that should be a huge sweet spot for us and we'd expect to see that market really start to perform in the coming quarters.

So every market we go after is different, every type of customer is different, every geography is different and they all have different performance results and we're always looking for that balanced performance.

And right now, I'd say the big plus for us is the enterprise business and when we see that on mid-market, we'll be happy to tell you about it in the future.

Okay, awesome.

That's very helpful.

And maybe, Steve just a quick follow-up.

You mentioned 41% growth year-to-date in the enterprise part of the business.

Could you just -- maybe I -- and I missed it, I was jumping between quarter and between different calls, but did you give the exact growth rate in the quarter ex SMB?

Yes, we did.

38% for the quarter, 41% for the 9 months year-to-date.

And again, we talked about before too.

The SMB business is falling off here, so it's significantly smaller and that's somewhat creating a volatility in deferreds right now too.

Our next question comes from Tom White of D.A. Davidson.

Surprise, surprise, I've got question about Brain.

But maybe before that, just one on guidance.

So it looks like you guys raised the full year revenue outlook by maybe slightly less than the amount of the third quarter beat, I guess, versus the midpoint of the guide anyway.

Anything in the fourth quarter that's maybe looking a little bit different than it was a few months ago?

And then just on Brain, would love to hear your early observations maybe about how customers are starting to use the custom entity functionality?

Specifically, I guess, I'm particularly interested in the mix kind of between them creating entities for their sort of first-party assets versus ones that are sort of purely for distribution to kind of third-party sites and curious about kind of what that first-party to third-party mix might look like over time, if you have any predictions?

Okay.

I'll -- on Q4 guide, it's our largest quarter and so I think we're very thoughtful about what we're going to do.

We have obviously a lot of brand-new business to bring in, but also we have large renewal.

So there is nothing there.

Like I said, we feel really good about where we're at and what we're doing, but we are pretty thoughtful since Q4 is always a huge number for us.

Couldn't be more excited about Brain.

It's a -- we unveiled the beta version at ONWARD on stage with us, demoing it.

We had Steward Health.

We had Wendy's and Morgan Stanley showcasing their use of the Brain.

Brain is a breakthrough product.

It enables a company to create any type of entity they want and to relate them together in a way that is designed to power their knowledge and search in their third party search services and voice search, and Alexa and Google Assistant and also in their first party search experiences using our product called Think.

And Think and Brain are highly tightly integrated.

They allow a company to get structured -- to give their end-users answers instead of documents that are searching on their website.

It's funny.

A decade ago, Google went through the shift of blue links on a page when you searched to 1 box answers, maps answers.

So just telling you the answer when they know it.

Today, we see that companies are going to begin to be able to do the exact same thing.

Instead of going to a website and searching for a nearby typing in location or give me a doctor that has certain attributes and getting a set of documents that match that query back, a company can now -- will be able to with Brain, put those answers into the Brain and just get answers back.

We see Yext as the platform of truth, the source of truth for every company that today has a website that's a dumb document, that's going to need to structure their information in a smart way for third and for first party, as you pointed out, Tom, assets that is one place to update third and first-party services, their Brain.

Our next question comes from Alex Zukin of Piper Jaffray.

So maybe just another crack at the deferreds.

I'll ask in a different way.

If I look at the sequential deferred in 2Q, it was actually a lot stronger than your historical seasonal patterns, which lends credence to that volatility comment.

But I guess, is that the -- is one of the reasons for the third quarter kind of sequential weakness was that actually maybe some business got pulled into 2Q from 3Q?

Or is it more of the pushing from 3Q to 4Q?

A lot of it has got pushed -- pulled into Q2 for sure.

And a lot of enterprise deals are as Jim described, timing is always a challenging part of this.

So it's a little bit of all of those.

That's why, like I said, the deferred number is still 40%, looks really strong.

But that's also why we have the optimism around the business that we're in and what we're doing.

So yes, a little bit of all those, Alex.

Yes.

And then maybe just to that optimism then, looking beyond billings, looking beyond deferred, I know you're not giving guidance to fiscal -- to the next fiscal year, but just some high-level commentary around your confidence.

I mean, you can see where consensus estimates are at.

Any confidence or commentary around just 30-plus-percent growth being an intermediate goal?

Well, like I said, we haven't really gone through our numbers yet.

I mean, we have consistently believed that over in the long term, we'll be able to grow at 30% plus.

So that's not changed, but we need to look at all the factors in terms of our product and the roadmap, which continues to grow, which is a positive.

The building out of the sales force as Jim described of hiring enterprise and mid-market sellers now because that's a big area and, I think, that's the area that we need to build up to get some of the seasonality and flexibility taken out of the system.

But all in all, I think, we feel pretty good about where we're at and what we're doing.

But we just need to get through our budget and planning.

We have another 60 days to see what next year is going to look like.

Got it.

And then maybe on dollar-based net expansion, as you lap DexYP, and I apologize if you mentioned this in the beginning.

I was also jumping between calls.

As you lap that merger, I guess, where should we expect that number to trend?

Is it fair to expect it to trend back into kind of the 1 teens?

Or is kind of 109% or less than 110% the new normal?

Alex, sorry, it's Howard, I wanted to jump in here and add something to the optimism.

When I look at our business, I look primarily at our non-SMB growth.

That is to me the critical thing that we're looking at every day because that's where we're making the investments in the business to grow.

And so when I look at 41% year-to-date, 38% in the quarter, I'm feeling really good about our, first off, obviously, Q4, the guidance we've given.

But looking next year and beyond in our ability to continue to deliver results particularly as SMB becomes a smaller and smaller percentage overall of our mix, even if it maybe kind of shrinked a little bit faster than we'd even wanted it to originally just because of the fact that we're totally focused in these other areas.

So the optimism I see is in that 41% that we've seen year-to-date and the 38% and the vast majority of our business that isn't a drag on everything else.

Got it.

That's helpful.

And then, maybe on the dollar-based net expansion.

Steve?

The dollar-based net expansion, yes, I think, again, we're using a 12-month rolling metric.

It's clearly leveled out right now to 109%, 110% range.

So we feel good about that.

You will see as we get into enterprise to mid-market because as I'd mentioned, we're not losing logos.

We stay really good with our accounts.

But it still will take some time to get us back into the 113s.

This concludes our question-and-answer session.

I would like to turn the conference back over to James Hart for any closing remarks.

All right.

Thank you, Andrea, and thank you, everyone, for joining us today.

We look forward to reporting our fourth quarter results to you next year.

But in the meantime, hopefully, you enjoy the holidays, and if you have any follow-up questions, please reach out to me.

I'll be available.

The conference has now concluded.

Thank you for attending today's presentation.

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