Yext Inc (YEXT) 2021 Q1 法說會逐字稿

Good day, and welcome to the Yext First Quarter Fiscal 2021 Financial Results Conference Call.

(Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Yuka Broderick, Head of Investor Relations.

Please go ahead.

Thank you, Sarah, and good afternoon, everyone.

Welcome to Yext's Fiscal First Quarter 2021 Conference Call.

With me today are CEO, Howard Lerman; CFO, Steve Cakebread; President and Chief Revenue Officer, Jim Steele; and SVP Finance, Dominic Paschel.

Before we begin, I'd like to remind everyone that this call may contain forward-looking statements, including statements about revenue and non-GAAP net income guidance, cash flow, timing and size of capital expenditures, retention rates, market opportunities, business performance 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 growth, the evolution of our industry, our product development and success, including with Answers, the timing of the exit of our New York headquarters and general economic and business conditions, such as the impact of the COVID-19 pandemic.

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 obligations 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 quarterly and annual reports 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, I will turn the call over to Howard.

Thank you, Yuka, and welcome aboard.

First of all, I hope you and all your families are staying healthy and safe.

After a record break in Q4, we had the strongest pipeline we've ever seen heading into Q1.

But we saw headwinds in bookings and retention in March and April as customers delayed purchasing decisions due to the pandemic.

And I'd characterize what we saw as a tale of 2 cities.

In one city, we saw challenged industries like retail and food services.

A pipeline in these businesses typically didn't disappear, instead, it just slipped to later quarters.

And meanwhile, in the other city, we saw industries like healthcare and financial services performed strongly, showing signs of accelerated digital transformation where Yext plays a key role.

Approximately 25% to 30% of our ARR at the end of Q1 was in these challenged industries.

But now the divide is less severe, and we are seeing signs of recovery and we're growing faster in the other industries.

The pipeline is strong for Q2 and retention levels in May have already improved.

Needless to say, the last few months have been unprecedented for everyone.

But despite these challenges, our first quarter was incredibly productive with Q1 revenue of $85.4 million, growing 24% year-over-year.

The number of structured facts reached over 295 million, a 43% year-over-year increase.

We saw a huge increase in fact activity.

These are updates with 84% increase in the number of updates made on the Yext platform in the first month after the COVID-19 shutdown started.

This huge growth tells us that Yext is a critical part of a customer's digital transformation.

In fact, we believe now more than ever that the world needs official answers straight from the source.

There's been an explosion of questions asked on the web over the past few months.

Website visits from people seeking information from brands have increased by an average of 65% and by as much as 700% in some industries.

The pandemic has accelerated digital transformation and Yext Answers fits squarely into this trend.

As evidence of this, we launched Answers-powered websites with the State Department of the United States, the states of New Jersey and Alabama and the World Health Organization within a record 60-day period.

Each website was launched within a matter of weeks after the first conversation with key stakeholders, showing just how swiftly we can put their official answers online.

There is no better validation than the fact that world needs Yext than to have international agencies in the United States federal and state government bodies choose answers as the best way to ensure citizens and people get access to key information during a global pandemic.

Our work with government organizations is just one example of our rapidly expanding total addressable market.

Simply put, Answers takes us into new verticals that we never were able to address before.

We see nearly 4,000 enterprises in North America with $500 million of annual revenue that we can address with Listings and Pages.

But when we look at the broader opportunity to include those addressable by Answers, that number doubles to nearly 8,000 enterprises.

And with Answers, we can work with any type of organization because virtually every company has a digital presence and needs to provide official answers about their business.

That's why we positioned Yext as the official answers company.

We branded our search bar with the official Answers seal because we want to signal to consumers that a search bar powered by Yext means they're going to get the official answers to their questions.

So now for example, when you go and look at the World Health Organization's website and you run a search, you can see the Yext Answers seal, the official Answers seal right on their search bar.

And for a user of that website, this means they're going to get an official answer to the COVID-related question.

So going forward, we're going to drive sales efficiency with our new land with Answers sales approach.

The tip of the spear for land with Answers is the Answers Free Trial.

Any qualifying company can set up Answers site search on their site and see improved revenue generation, lower customer support costs and insightful analytics and what customers want to know what they're asking about their business.

We made it easier than ever for companies to see how their website is addressing questions with our No Wrong Answers challenge at nowronganswers.com.

Anyone can go there, you can see easily and automatically how company's website answers the most common questions about it on the web and then reach out to us for an Answers Free Trial to improve site search and experience.

Also, last week, we announced a strategic relationship with Adobe.

They are the behemoth in the digital experience space.

This opens up an entirely new avenue to drive Answers customers alongside our inbound and outbound channels.

Now every Adobe rep in the world can bring Yext Answers to their customers.

Adobe is our first go-to-market partner with Answers and opening up a partner channel will drive even greater sales efficiency.

We expect land with Answers to drive higher sales efficiency because it will lead to faster sales cycles, it's the time to show value to the customer is much shorter.

And just a few days of being live, we're able to automatically show cost savings and revenue generation metrics demonstrating the compelling ROI return on investment of Yext Answers.

And finally, we're focused on land with Answers, but we're going to also expand with the rest of our platform.

So we land with Answers and expand with everything else.

Based on the Knowledge Graph, our products put our customers in control of placing official answers everywhere, starting on their own website then across hundreds of platforms for people search.

And to talk more about all this, here's Jim.

Well, thanks, Howard.

We are very excited about the opportunity Answers presents for our customers and for Yext.

Howard talked about how the pandemic has accelerated the need for digital transformation for every business.

For example, we talked to one of the leading U.S. financial institutions, and they told us, "It's all about digital transformation and they're looking closely at their entire customer digital experience." They came to Yext because they know that's what we do.

We deliver a great client experience.

We are having conversations like this across a broad set of industries as companies recognize the need to provide accurate, timely answers and understand that Yext can deliver those official answers.

And we see that with a better customer experience, the result is higher conversion rates and lower customer support costs.

Let me review our first quarter sales metrics.

In Q1, we closed 73 deals with at least $100,000 in total contract value.

This includes 3 deals that resulted in at least $1 million of total contract value, including new logos and renewals of existing customers.

The total number of customers increased 36% year-over-year to nearly 2,100 customers.

This excludes our SMB and third-party reseller customers.

As Howard described, in Q1, we saw the tale of 2 cities, with verticals highly impacted by the pandemic such as retail and food services and other verticals, which are less impacted like financial services and healthcare.

For customers in retail and food services verticals, in some instances, we saw teams we worked with getting furloughed and many understandably began to cut budgets.

We also had some instances where customers were not able to meet their typical renewal windows and fell into a grace period.

And majority of those renewal opportunities associated with grace accounts had now been renewed.

Despite these challenges, we saw continued deal flow in food services, particularly in pharmacy and grocery.

We had renewals with Safeway, Albertsons and Rite Aid.

The new logo signings included a deal with Sainsbury's a leading grocer in the U.K.

In other verticals like financial services and professional services, we saw strong performance, proof that more brands are increasingly finding our platform mission critical.

Retention rates in financial services and professional services were exceptionally strong.

Large renewals included the U.S. Postal Service, Allstate Insurance and Centura Health.

We continue to close large new deals, including Lloyds Bank and [Drive-in] Financial.

In the first quarter, our sales team focused on our land with Answers sales motion to drive sales efficiencies while addressing an enormous business opportunity.

We're starting to see entirely new verticals open up to us.

We're now seeing interest from technology, CPG and digitally native companies who can see great ROI from increased conversion and lower customer support costs.

Regarding our sales force, we had nearly 240 quota-carrying sales reps at the end of Q1 compared to nearly 250 at the end of last year -- last quarter.

This decline is due to a normal seasonal attrition in a challenging hiring environment.

Our goal is to end the fiscal year 255 quota-carrying sales reps, which was our original plan.

In summary, I'm very excited about our future as The Official Answers Company and expanded opportunity set and increased sales efficiencies that will come with our land in Answers sales motion.

So now I'll turn the call over to Steve.

Steve?

Thanks, Jim.

Our first quarter revenue grew 24% year-over-year to $85.4 million, pretty good results under the circumstances.

Unearned revenue increased 22% year-over-year to $153 million.

As you know, we're focused on annual recurring revenue, or ARR, which we believe reflects the health of our primarily recurring revenue business model.

To that, ARR at the end of Q1 was $326 million, growing 24% year-over-year from the $262 million in the year ago quarter.

Q1 ARR was flat with Q4, both because of normal seasonality of the business in Q1, yet, of course, the pandemic impact we saw in bookings and renewals in March and April.

Our net dollar-based retention, which excludes our SMB customers, was 106%.

That was the same as Q4.

Our net dollar-based retention for direct enterprise, which excludes our SMB and third-party reseller customers, is 107%.

Now just to remind you, this is a trailing 12-month number.

GAAP gross margins were 75.2% this quarter and that compared to 74.3% last quarter and 76% in the year ago quarter.

The change in gross margin was driven primarily by higher lease expenses and hiring in our services organization over the past year.

However, publisher cost remains stable.

Total GAAP operating expenses were $93.4 million compared to $71.5 million in the year ago quarter.

Compared to the year ago, the primary drivers of this increase were, again, the overall growth in headcount as well as higher real estate costs.

Given current business conditions, we're managing our operating expenses carefully while continuing to make investments to support our Answers to net sales motion, which we think will drive higher sales efficiency.

We've gone to replacement only hiring for the company, but we're still growing quota-carrying headcount.

In addition to the continued savings on travel-related expenses, we're rethinking our approach to marketing costs and other OpEx areas that aren't directly tied to driving revenue growth.

And we're looking for improved efficiencies in these areas.

Q1 GAAP net loss was $29.2 million compared to $19 million in the year ago quarter.

On the basis of 116.6 million weighted average basic shares outstanding, net loss per share of $0.25 this quarter compares to $0.18 loss a year ago on the basis of 106.5 million weighted average basic shares outstanding.

Q1 non GAAP loss, excluding stock-based comp, was $11.9 million compared to $5.7 million loss in the year ago quarter.

Our Q1 non-GAAP loss per share of $0.10 compares to $0.05 loss a year ago.

Cash and cash equivalents were $249 million as of April 30.

We believe our balance sheet is strong and position us well to weather any current economic environment.

As you know, in March of 2020, we replaced our prior revolving credit facility with a new $50 million credit facility, believing this action has fortified our balance sheet as well.

Net cash flow from operations for Q1 was a negative $700,000 as compared to a positive $800,000 in the year ago period.

This reflects the spending controls put in place during the quarter to counter a more challenging revenue environment in Q1.

CapEx was $21.3 million compared to $800,000 in the year ago quarter.

We continue to make progress with our building projects in New York, Washington, D.C., Tokyo and Paris.

But we expect the remaining CapEx related to these projects to be about $49 million and the remaining costs to occur within fiscal year '21.

Although schedules could be impacted again by COVID-19 pandemic, once these projects are completed, we do not have any further major facility expansions planned for the future.

Excluding the facilities build out, we expect CapEx to return to their normalized mid-single-digit millions.

Clearly, the facilities build-out is a meaningful use of cash in fiscal '21.

And the timing is unfortunate with the global pandemic occurring this year.

But it's been part of our long-term plan and with our increased focus on efficiencies, we are comfortable with how we're managing our cash.

As part of our efforts to manage costs in the face of the business disruption, we've accelerated the exit date of our lease for One Madison Avenue to August 31 this year, 4 months earlier than our previous date of December 31.

So we'll save on lease expense for those 4 months and that cash savings will be about $2 million.

Turning to our outlook.

We expect Q2 revenue to be between $84 million and $86 million.

We anticipate non-GAAP loss per share of between $0.11 and $0.13.

This reflects the impact of a loss of $0.02 due to the charges during Q2 related to our expected exit of One Madison Avenue.

We expect weighted average basic share count of approximately 118.5 million shares in Q2.

From a full year perspective, unfortunately, we're withdrawing our guidance for fiscal year '21 due to the limited visibility of future periods at this time.

So to wrap things up, I'm optimistic about Yext future because of what you've heard today.

We have a strong Answers solution, a strong pipeline, a focus on improving our operating costs and a great new partnership with Adobe.

And finally, I just want to welcome Yuka Broderick as our Head of Investor Relations, following a more than 15-year career on Wall Street.

Dom obviously will continue to be part of our IR efforts, but he's also going to get involved in operational goals in APAC and Lat Am.

With that, let me turn the call back over to Howard.

Well, thank you, Steve, and welcome, again, to Yuka.

I am excited about our progress in delivering official answers and our improved land with Answers sales focus.

We're thrilled about the initial response to our Answers Free Trial and our No Wrong Answers campaign.

We have a strategic new partnership with Adobe.

And with it, the ability to reach so many more potential Answers' customers.

And above all, we are driving for revenue growth while focusing on greater sales efficiency.

Thank you, Howard.

Sarah, can we please open to questions?

(Operator Instructions) Our first question will come from Naved Khan with SunTrust.

I had a couple of questions.

First of all, just on the pretrial of Answers, what percentage of your enterprise base is opted into it and are trying it actively?

And what kind of interest have you seen so far from those that have tried it out?

And the other question, just kind of related, just around the international launch of Answers.

Can you sort of just brief us on which countries you already have rolled this out?

And what's the schedule like for the rest of the world?

Great, Naved.

I'll take -- I'll go ahead and take that one.

This is Howard speaking.

We've seen really strong response from enterprises and mid enterprises and mid-market customers from around the world in taking advantage of the Answers Free Trial.

It's particularly easy to boot up a customer with Answers when they're already using the Yext Knowledge Graph.

So if you're an existing customer, there's a strong interest, but we also are using Answers to expand into entirely new segments that we've never sold into before.

And that's an equally exciting area because we were able to land with Answers in industries like technology and industries like CPG that don't have the ability to purchase our traditional Listings and Pages products.

So we're really fired up about the ability to use Answers to sell to any company, as I think we noted, more than 8,000 enterprises that do more than $500 million of revenue, more than doubling the potential accounts we can land into.

We're working hard to get Answers live every language.

Without promising any specific dates, what I can say is that, in Q2, it is our intention to launch Answers in the romance languages, Italian, French and Spanish and then get there, hopefully, in teutonic languages like German as well.

But we have on our road map French, Spanish, Italian, German, Japanese and Mandarin.

Great.

And then maybe just a quick clarification.

So of the customers that are trying it out, what is the conversion sort of into them becoming paying customers for Answers as well?

Well, it's pretty early to give you a exact number, but the value is very compelling.

Remember, Yext Answers delivers 3 things: first, customer intelligence; second, increased revenue; and then third, lowered support costs.

And the coolest thing about it is that once you put the Answers box up there with the official Answers seal and people start asking questions, we're able to instantly and automatically classify queries as either cost savings or revenue generating.

So for example, if someone goes to a financial services website and searches for adviser, we know what that's worth to them because they've told us that using our conversion tracking.

So we're able to quantify the exact value that's being delivered out of the search by Yext Answers.

And the initial results are very promising.

There's very strong action on site search.

And the kinds of questions people are asking, we see very high engagement rates and very high click through rates, which are an indication of the high search quality.

And every time someone asks a support question, one other thing that's going on in the world right now is that support has been -- customer support in many companies during the COVID-19 pandemic are receiving huge volumes of calls and tickets.

And on average, I think, a support call, we produced a paper on this costs $4.90.

So every time with an answer, a great strategy for a company is to put up our Answers bar to catch people before they call.

Because if you can answer a question, it's going to save you $5.

And we can show the company within the analytics, the exact questions people are asking and the answers we're giving in order to deflect a bunch of those calls and we can estimate the savings, and then we can estimate the revenue and we add that together to compute a value, which they can then compare to their annualized costs to get the sense of what their ROI will be.

Our next question comes from Mark Murphy with JPMorgan.

Howard, I was interested in Answers and just how it performed sequentially.

I think you had said it had done -- I want to say $1.5 million last quarter.

And is there any way to compare that?

And could you estimate the influence that Answers has had on other deals?

Well, Answers is a huge influence on other deals.

I think last quarter, we talked about a company Vanguard, which is a new type of company we never could have sold to before.

If Answers led and then we drag in Knowledge Graph and Pages and expand with that.

So it's our strategy going forward to land lightly with Answers and then expand from there.

And that's what you see from many of our very successful SaaS peers as a light land and then expanding with Platform and other features.

Answers is the perfect product to land lightly, especially right now because there's more questions than ever and being able to deflect a lot of those questions with site search is a powerful technique to reduce cost and drive revenue, which we can immediately quantify.

And we're willing to do it for free.

And so that's a pretty compelling offer, especially when we do the implementation for free.

And if you, for example, like a company like JPMorgan, already have a bunch of data in the Knowledge Graph, a bunch of facts there.

And then quickly, as we see what people are asking, you can continue to build out your Knowledge Graph to be able to provide them questions.

So it's a very exciting time, and we're really focused on supporting the vast quantities of questions.

There's been an explosion of digital questions.

It used to be you walk into a bank branch and ask a teller a question, but you can't.

You can't ask questions in the physical world anymore.

So what do people do?

They turn online and they search online.

And when they have a question for a cable company or a bank or a financial services company, they can do 1 of 3 things.

They can pick up the phone and call, they can visit the website and either drive chat or they can run a site search.

And the site search of those 2 -- of those 3 options is by far the cheapest.

The first 2 costs between $3 and $6 each per session.

So it's a very compelling kind of way to get folks started, especially as there's been a transition from physical questions to digital questions.

Okay.

So if we're thinking the ACV bookings from Answers maybe is down sequentially in Q1 from the big Q4, but it's kind of having that halo effect on some of the other deals.

Is that a fair way to think about it?

I don't think we're characterizing any of the exact ACV from Answers.

But what I can say is that this is the lead which we are leading our deals now.

Okay.

Okay, great.

I wanted to ask as well, I think you've commented on adverse impact in the month of March and in the month of April.

Did you not sense any kind of improvement in the sort of bookings, cadence in April maybe it's a question for Jim.

And also, could you just comment on maybe what kinds of differences in turn you're seeing during May and maybe how long that might take to get back to pre-COVID kinds of levels?

Jim, do you want to take that?

Sure.

Yes, Mark, definitely in March things slowed down while our customers are trying to figure out how to work from home, how at the same time, we were all trying to do the same thing.

So there are certainly a lot of adjustments we all made in March, in particular.

And the activity level, I'd say, really shot up in April and May.

And as our teams figured out how to communicate better and more directly with the customers, how we got more comfortable talking to our customers digitally.

And so I would say I was super impressed with the level of engagement.

We -- obviously, we had some deals slip.

I don't -- I haven't seen deals that just totally went away.

Customers were still very interested, still want to pursue, but their budgets, a lot of them got cut, as I mentioned, and some of the teams that we were talking to actually got furloughed, but we did see tremendous activity, financial services, mortgage and any of the services related businesses did very well.

Obviously, hospitality and retail took a big hit.

One of the things that we saw a real spike in the customers using our services.

I think, in the month after the COVID-19 kind of lockdown in mid-March, we had something like an 84% increase in just the activity level from our customers using the Knowledge Graph to update things like hours of operation and just information about their sites and their businesses in terms of what was being offered.

So the real change that we saw, too, was just how our customers are telling us how mission-critical, how essential our service was with all of the chaos going on in the world in March and April.

In particular, they used our services in their time of crisis.

And also, it presented a lot of new opportunities for us that we talked about with the government and, in particular, state of New Jersey and Alabama, both put up COVID-19 information hubs using Yext within weeks.

They had their hubs up and running, the same with the U.S. Department of State.

From the day that we sent the Under Secretary of the State an e-mail to the time that they actually went live was 17 days, and he told me directly, that was probably a record performance for any technology they've ever deployed in the state department.

That was pretty impressive, and they're using it now for -- to support 100 different countries around the world and all their expats that are -- were trying to get repatriated during this crisis.

Same with the World Health Organization.

So we found that we were able to spin up Answers site very quickly for our customers.

And we learned that through this crisis, and we've deployed it, like Howard said, we land lightly with Answers and then we expand from there.

We might come in with an Answers focus on a particular set of FAQs.

And then as they start to see success quickly, they can add other kinds of Answers to answer the questions that their customers and their constituents are asking.

So we obviously had some renewals that got pushed out.

The large majority of those renewals have already been renewed with us early in the second quarter.

So we feel good about that.

So from a sales perspective, I feel like the sales team has really adjusted well after the initial shock in the second half of March.

And I feel like with the record pipeline that we continue to have, the tenure of the sales force, the new enablement tools that we have with this Answers Free Trial and then No Wrong Answers campaign and challenge.

We're actually in very good shape going into the second quarter here, obviously, notwithstanding the more health crisis and some of the financial issues that we're dealing with the customers.

But -- and also the new TAM that Howard talked about, we resegmented our whole organization to go after pretty much a 2x opportunity in terms of the TAM.

So we're all excited about that as well.

So -- and we're continuing to focus on hiring and hitting our original hiring programs.

So I think with all that said, we're in as good a position we can possibly be in given the challenges that all of us are facing right now.

Okay.

That's great to hear, Jim.

I appreciate all that detail.

One last one, Howard, just on the Adobe relationship.

Is there a chance you could give a little more color on that in terms of -- is there any contractual commitment there?

And maybe you can just talk about how you think the Adobe reps can kind of broadly retire quota out there in the field by selling Answers?

Well, part of our strategy is to add.

We've got our inbound and outbound channels driving -- beginning to drive Answers Free Trials.

And part of our strategy is to fire up a partner channel as well that can refer as partners, and that's really the genesis of our Hitchhiker program.

And Adobe is the first company that we are working with to refer Answers Free Trials to us where they're only site search partner, and they are our first Answers site search partner.

And so what better company to do it.

And from a product fit perspective, many -- most of our customers, many of our customers use Adobe's Experience Cloud in some way to power pieces of their websites.

And Adobe exited the site search business a couple of years ago with search and promote.

They sunset their product.

And so it's a great opportunity for us to bring an amazing new type of site search to their customers and their reps are able to refer companies to Yext and retire quota by any deal we get when we pay them a commission out.

Our next question will come from Koji Ikeda with Oppenheimer.

And I actually just wanted to build upon that last question on the Adobe partnership.

I guess could you talk a little bit about the genesis for expanding that relationship with Adobe?

Was it Yext driven?

Was it Adobe driven?

And then from the Yext standpoint, how should we be thinking about any changes to the Yext go-to-market strategy to support the new partnership from here?

Well, we're really focused on sales efficiency.

We believe that, first off, our new Answers product is a -- is the best tip of the spear we've ever had.

And it can land at any company of any size around the world when we support that geography and language.

Every company that has a digital presence needs to have official answers on their site.

And we validated very early on that people like the site search feature.

It gets a ton of usage and for our customers drives a ton of value in the form of intelligence, revenue generation and cost savings.

And you can quantify this because we can actually see the physical queries that are coming in.

You can see when someone says, "Hey, I want to upgrade my account," how do I upgrade my account online or you can see a query that's like, I need to find a new doctor and make an appointment.

And we can quantify those, assign them a value and actually track the real conversion so that revenue can be seen all driven through Answers.

And so when you look at this gigantic TAM, which is every company out there that has a digital presence, you think about, well, how can we activate this TAM, generate awareness of what we can do?

And how can you do that especially right now in an era where travel is limited and events are -- live events are limited.

So what better opportunity to sort of reboot, if you will, your ability to go out and target customers with a new approach that is lighter touch, lighter landing and then upsell from there.

And a free trial offer fits that perfectly because it generates inbound demand.

Our reps can go outbound with a free trial offer to new prospects and new customers.

And then the third leg of that stool is partnerships.

And what better partner to have bringing this free trial offer for a website product to -- than Adobe.

They exited their site search business, and we just happen to have a site search product that's amazing.

So let's leverage all that.

And I think there's a ton of excitement.

So I look forward to kind of seeing where that goes.

Howard, this is Jim.

Maybe, Koji, I can add to that.

A couple of years ago, when our team, Marc Ferrentino, who's our Chief Strategy Officer, and his team went to the Adobe Summit, and we didn't really participate other than just to be at the conference.

We didn't have a booth or anything, but we saw so many of our customers there, and so many of them were asking us wow, you guys have this great solution, Adobe has this great solution, why can't you guys work together?

So last year, we went big at Adobe Summit and had, I think, the second largest booth next to like Accenture at the entrance to the big exhibition center.

And we had so much traffic.

All of the Adobe customers and partners and Adobe employees were coming by.

And you probably know, we have a number of ex-Adobe employees at Yext and everyone got excited about working together and Answers was really what brought it all together.

When we announced the Answers at the same time Adobe was exiting with their site search product, it just presented such an amazing complementary relationship because Adobe with their experience manager, they are the best at creating content with their -- for their customers on their website.

And we are the best at bringing traffic to their website.

And now with Answers, with our site search product, answers we are the best at helping customers, visitors to a website, get the right answers so we can convert them on the website so they don't bounce back to the Internet.

And it's the perfect complementary relationship, and we are so excited.

We now have the entire Adobe sales team that will get compensated for referring Yext Answers to their customers.

So this is a very exciting partnership that we believe will generate great returns.

Just one follow-up for me, and I'll hop back into the queue.

Great growth on that customer metric growing at 2,100.

I was wondering if you could give us a sense from a high level of how much ARR those 2,100 customers are generating right now.

Yes.

At the moment, we haven't broken all that out, but we're working on that when we have some Investor Day, we'll give you some better information.

But most of our investment has been in enterprise.

Those are enterprise accounts.

We're driving that growth.

And most of our quota-carrying sales reps are there as well.

But for a later day, but we'll get you that information.

Our next question will come from Stan Zlotsky with Morgan Stanley.

This is Hamza Fodderwala in for Stan Zlotsky.

First question for you, Jim.

I'm wondering how you guys have shifted to a remote selling motion in the past couple of months?

And within that, how you guys feel you can perform in a more low-touch sales model as well as onboard new hires?

Does that change sort of the typical time to ramp to full productivity at all?

And how you guys are sort of thinking about all that?

Yes.

Thanks for that question.

This is Jim.

So the good news is, we hired a lot in the past year plus.

So we came into this year with a plan to get to 255 sales reps at the end of the year, and we're at about 240 right now.

So we don't expect to hire dramatically for the balance of the year.

And so that means that a lot of the folks that we hired in the last 12 to 18 months, they're already at that point where we see the tenure is looking good.

They've been -- they're getting closer to being fully ramped.

Of course, it isn't help to have the COVID crisis in Q1.

But we -- so we are still hiring, we still have onboarding.

Obviously, we're doing it remotely, so that presents different challenges.

But I have to say after the end of March and beginning of April, the teams really got into a grove working remotely.

We found that customers were a lot easier to connect with than by the, say, the middle of April and through May.

And just like us, the customers were looking for tangible projects that they could get their arms around and actually make a difference for their companies.

And once we got through that initial shock wave, the first 3 or 4 weeks after the crisis, I'd say we really saw a tremendous increase in the engagement level.

And our teams -- I'm a perfect example, Jeez, I've spent my 40-year career flying around the world, nonstop, like I've never been home in one place over that period in time for more than a week at a time.

And now it's been 3 months.

And yes, we all get a little avid on Zoom calls every day, but it's really so important just to keep the engagement level high, the communication with each of our sales teams, we're spending a lot of time making sure checking in on people in the first few weeks.

And of course, we continue to do this.

The focus was always on everyone's health and their family's health and people got into their comfort zone.

And now I feel like we're making probably more outbound calls than we've ever had in our history, and there's just a lot of engagement, obviously, over e-mail.

So I'm actually shocked because I've been a face-to-face relationship selling sales exec my entire career, and you have to work hard at it when it's digital and over the phone.

So I'd say, we've been very fortunate to luckily through some of the Answers engagements that I mentioned, like the government ones that are very urgent to deal with the crisis, we've actually demonstrated the value of Yext in a way that might have taken a different turn or taken longer, if we didn't have this urgent crisis on our hand.

That's great.

And I'll echo the sentiment on the Zoom calls.

A follow-up for, Steve, if I may.

Steve, you talked about savings from lower travel and event expense.

And then you also spoke about sort of rethinking some of your marketing initiatives to the ones that are driving revenue.

So my question is how much of those savings do you think are more temporary in nature, right, because we're in pandemic versus efficiencies that you think are going to be sustainable coming out of this?

Well, I think there's a couple of things, and Howard can probably speak to the marketing as well.

But I mean, this whole opportunity for us to rethink how we connect with everybody.

Jim talked about sellers, the same thing with the marketing events and other things as you know we canceled on road this year.

Again, I think we've had more engagement with our customers.

We've driven more leads than we've ever driven.

So it's going back and looking at that, it's being more sophisticated with the data that we have and the systems that we have to give everybody, not just the sales organization, but all of us higher productivity levels and better information.

So we're using this to obviously change how we go-to-market and introduce our new solutions and develop relationships with Adobe, but we're also rethinking, in fact, how we do business to make sure that we get efficiencies as we come out of this going forward.

So everything is up for grab.

Lead gen is the most important, and I think we've done a great job in that area.

Our next question will come from Mark Mahaney with RBC.

I want to -- if I could ask 3 questions, please.

First, in terms of the sales force now, are there still -- is everything Zoom perfect?

Or are there execution challenges in winning over and closing deals?

So like I guess that's just a simple operational question.

Are there still COVID-related operational challenges?

And I guess, this is for Jim, or do you feel like you've really been able to work through all those and your efficiency is kind of back at norm?

Secondly, Steve, could you just comment on gross margins?

They've been down modestly, but they have been down 4 quarters in a row.

Is there something to think about the gross margins going forward?

Is this kind of the new normal steady, up, down, anything like that?

Maybe the last question is this -- and just Jim's commentary about shifting from face-to-face meetings to work from home.

It does seem like that's a -- it's kind of hard not to conclude from the last 2 months that we, as an economy, as a culture are moving towards partial, total, somewhat, but it's at least somewhat work from home.

Does that have any big broad implications for Yext either positive or negative that an increasing amount of work will be done remotely at least?

I can...

Jim, why don't you go first?

Sure.

I'll start.

We just did an employee survey that our Chief People Officer conducted and found that something like 80-some odd percent, I think it was -- I'm not sure if it's 80% or 84% of our employees said that they feel like they're being productive and as productive at home, as they were before.

So I think I really believe that in this environment that we're dealing with these challenges, people want to have a sense of purpose and feel engaged and have something tangible.

And so we have worked so hard as a company to have those reach outs and make sure that we're checking in with everybody, and we are holding ourselves accountable, like, of course, we have mental health days and other breaks, we need it for sure.

But people really want to be part of something and feel that sense of purpose.

So I feel like, I mean, this is hard for me to say because I've been on the road my entire life.

I really feel like we've kind of cracked the code that we know how to deal with customers when we're remote and we have a compelling solution.

It's a lot easier with the Answers than maybe some of our legacy products.

And that's why Howard described this land with Answers kind of this light approach get in there.

It's so easy to explain.

It's such a compelling business case with increase -- you can see what your customers are asking for, with the intelligence that we get back on their searches.

And we can immediately see the impact on lower cost because they're not waiting on some support line, waiting to talk to do somebody to answer their questions.

We're offloading those costs.

And then the revenue generation, yes, we're helping them get discovered digitally versus face-to-face, and that's an important transition that our customers that we talk about all the time, digital transformation that I think has accelerated.

So I think -- look, if some were to tell me, we had to do this for the next 6 months to a year without a face-to-face meeting, if they told me that 3 months ago, I would say, geez, there's absolutely no way, like that's not the way I've sold in my career.

Now I actually believe we could do it.

Yes, there's challenges and there's adjustments we have to make and there's no real substitute to face-to-face, but I think people tend to be more efficient.

We get right.

I'm probably not making -- I was going to say we get to the point faster, which the way I'm answering the question might not speak volumes about that.

But it does get to the point a lot faster with these Zoom meetings.

You're not just hanging around.

You're not going out for drinks or dinners or sitting on a plane or a subway or a bus.

When you're working, you're working.

And it's very -- it can be very effective.

So yes, I think we've learned a lot, and I actually believe that we could conduct business like this for a long time if we had to.

Steve, you want to take the gross margin?

Yes.

Yes, the gross margins, Mark, I mean, they do vary simply because of the revenue seasonality that we have.

But it's also true, we've been boosting our professional services and customer support organizations.

So you're seeing that reflected in somewhat of a -- on average uptick this past 12 months or so.

I still feel comfortable.

We've said that the gross margins hang in the mid-70s, and I think we've been in that range for a while, and we'll kind of oscillate around that.

I don't see any systemic changes to that at the moment because PruServe and others are people-driven.

They've also borne a little bit of the brunt this year of our facilities expansion.

But I think that will start to normalize over the next year or 2. But we kind of guided mid-70s, I don't see that changing fundamentally in the near term.

Hey, Mark, this is Howard.

I'll take the last question about the sort of macro trend as the world moves towards, I don't want to say, permanent work from home, but probably a fundamental change in how people are working and where they're working.

And maybe as to buyers from Shopify said the end of office centricity.

I think this benefits us in 2 primary ways.

The first is our own internal adapted sales and marketing process, what we call land with Answers.

And a critical component of that is, I think we said 25% to 30% of our ARR base is in industries that are fundamentally challenged.

With Answers, we can target all kinds of new industries.

So we're focused on an entirely new set of verticals.

And in doing that, to break into these new verticals, we are doing so with a free trial offer, which is very compelling because most companies right now are being crushed with customer support questions.

And the more we can deflect, the more they're going to save.

Every time someone gets an answer from the official answers bar on their website, they don't call into support.

They don't do a live chat that company can save $3, $4 or $5.

And so we've got a very compelling free trial offer, which removes the friction of a heavy sales approach and instead is a light land approach where we can then expand and upsell our platform from there.

So that's the first way this remote world benefits.

Yext is in our new and improved sales and marketing process internally ourselves, which we believe is going to increase our sales efficiency.

But the other way that this increases -- this improves the criticality of Yext is simply that without people going into the physical world as much, there is just an absolute explosion in digital services and particular digital questions because you can't walk into a place anymore at the same way and ask questions.

You have to do so through a mask, and you have to rotate through.

And what this is doing is it's accelerating the digital transformation from every company and being able to provide an official answer to a question is a foundational component of that, and that all stems from the Knowledge Graph.

Ever since our IPO, the foundation of everything we've done is structured content in a Knowledge Graph.

And whether that ports to Listings, ports to a website or now ports to a search bar on a website.

This is a foundational component for every company.

We see it ourselves.

We see the huge volumes coming in for our company, for our customers.

We see a huge volume coming in from the government agencies, which we support, like New Jersey or the World Health Organization.

And the kinds of questions people are asking, when you see them, it makes this real.

It's not questions that you might think.

It's questions like which businesses are approved and where can I find a COVID-19 testing center?

And how can I file for unemployment?

These are real questions that bode for real answers.

And the volumes are simply staggering.

They're beyond our expectations, and they, without doubt, prove that people have questions more than ever, the world has questions more than ever, and they demand answers, not just answers from the Internet, but answers from a website.

That's the official answer.

And every organization, every company, they put out their official information on a website and it follows logically that, that same company ought to be able to answer a question from that website in their own search.

And they just haven't had the ability to do that with traditional index-based document search, and that's why Answers are just so new, so different, and they can try it out for free and see the value that we think it's a super compelling offer.

And we're seeing that as companies are coming to Yext as even the World Health Organization during the midst of the biggest pandemic in 100 years puts up Yext in a record few weeks.

I mean the ability to get attention from these kinds of organizations underscores the criticality of this feature.

They're not screwing around with stuff they don't need right now.

And we're there for them.

We're going to be there for a lot of other companies and the vision here is to emerge from this, a totally different company with a new and improved sales efficiency internally, but also being able to provide these answers -- these official answers to the world.

Because one thing I hope you'll note is that when you look at the answers bar that's up there, you'll see the Yext feel in every single one of them, the Yext official answers bar.

You can see it in the Girl Scouts website, for example, you can see it in the World Health Organization.

So this is up on so many companies' websites.

That's our intel inside.

That's our integrated marketing campaign, and we don't pay a dime for that.

That's all our own free marketing that we hope to use to convey to a consumer that when they run a -- when they have a question, when they see that seal, they can get the official answer.

Our next question will come from Tom White with D.A. Davidson.

Just a couple of follow-ups on the comments around renewals.

Of the customers that missed their renewals, I think, and fell into the grace period, I think you said the majority are back.

I'm just curious if you can give us any color.

Are those that have come back kind of specifically tied to parts of the country or geographies opening up?

Are they tied to the kind of the underlying industry rebounding?

And then also on renewals, can you just remind us if there's any kind of lumpiness or seasonality of renewals?

I guess I'm just wondering if the economy kind of is more or less fully opened by the end of the summer.

Does that maybe bode well for renewals, maybe presuming that they're kind of weighted towards the end of the year?

Tom, it's Howard.

I'll take that question.

What we have seen with renewals is a tale of 2 cities, where we saw pretty much normal retention rates with the industries, the city that is strong, these industries that are performing, and then we saw weaker than normal retention rates in those that are challenged.

I do think we say we saw retention levels return and improve in the month of May.

Yes.

This is Jim.

And Steve lost his line, he's calling back in too.

So that's why the silence there for a minute.

But the -- yes, the renewals are definitely seasonal.

Second half is much bigger in terms of our renewals, especially fourth quarter.

So first quarter tends to be a little lighter.

And yes, like Howard said, some of the renewals, especially in the most affected industries like retail and hospitality really got put on hold and customers just had -- they were dealing with their own business crisis.

And they held off on renewing.

And we finally got them.

And it was not because they didn't want to renew.

They saw the value.

They just had a backlog of other priorities that they were dealing with and budget challenges.

So it took a little longer to get through, but they have since, for the most part, have come through in the beginning of the second quarter.

So that's really the sort of renewals.

Financial services, I think we had a record performance in first quarter, probably the best quarter we ever had in terms of renewals.

So it really is industry dependent and customer by customer.

But we're feeling like second quarter is off to a great start with renewals.

And we've got such great customer relationships that we feel very confident that we'll be back on track here with renewals.

And Tom, one final point.

When we look at the industries that were affected, eventually, they will go back to business.

And so Mary Fratto Rowe who came up from Salesforce, customer success organization, to lead ours.

Her organization was inundated with request even from these troubled industries on either modification of hours of in-store operations, what have you.

So there's still a need there, and we stand to serve those verticals, too, as they start to regain their strength.

Sarah, I think our final question will come from Brett with Berenberg Capital Markets.

Two for me.

So if we compare your new go-to-market strategy where you lead with Answers to, say, your previous go-to-market strategies, will this result in a lower initial contract value, which could potentially lead to a revenue headwind over the medium term, if you're, I guess, historically landing with a larger contract value?

No.

So I guess the Answers has a similar contract value upfront to...

Yes.

It will have a slightly, right, we're trying to land with lower contract value, but you can make up for that in volume and faster sales cycles.

Okay.

And then maybe just one for Steve or Jim.

Do you guys have any -- or I guess, what percentage of contracts are on annual plans?

Or what percentage are on quarterly plans and of the customers that have asked for maybe payment accommodations, have you seen a decline in the number of those requests since maybe the peak in March or April?

Jim, I'll take that.

Predominantly, we get annual contract, but we have had over the last 60 days, 90 days, people asking for semi-annual and quarterly.

So that's picked up a little bit, not significantly.

And our team reaches out to the -- to our customers when they're looking for accommodation to make sure both of us are winning there.

So there has been.

I don't think that's slowed down that much yet, particularly you've got European renewals because it's been hard good over there.

But we've been able to accommodate all our customers.

We feel comfortable that it's not impacting our business in any way.

And in fact, just been, Jim and I've experienced in the past when you do this, the customers come back louder and stronger and work with you because they know you're trying to take care of them.

So yes, a little bit more quarterly, but not anything dramatic to change our business model.

That concludes today's earnings call.

Thank you, everyone, for joining us.

We look forward to meeting you throughout the quarter.

Thank you.

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