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Yext Inc (NYSE:YEXT)
Q2 2020 Earnings Call
Aug 29, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

(Starts Abruptly) [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]

I would now like to turn the conference over to Conrad Grodd, Vice President of Investor Relations. Conrad, you may start your conference call.

Conrad Grodd -- Vice President of Investor Relations

Thank you, Andrea. And good afternoon, everyone. Welcome to our Second Quarter Fiscal 2020 Conference Call. With me today are, Howard Lerman, CEO of Yext; Steve Cakebread, CFO and Jim Steele, President and Chief Revenue Officer.

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, margin revenue retention, market opportunities, capital expenditures, business performance, financial outlook and other non-historical statements as further described in our press release.

These forward-looking statements are subject to certain risks, uncertainties and assumptions, including to those who led to Yext growth, evolution of our industry, product development and success. Market opportunities in general, economic and business conditions. We undertake no obligations to revise any statements to reflect changes that occur after this call. Descriptions of these and other risks are discussed in our reports filed with the SEC. During the call, we do also refer to non-GAAP financial measures. Reconciliations with the most comparable GAAP measures are available in our press release, which is available at investors.yext.com.

With that, we'll begin by turn the call over to Howard.

Howard Lerman -- Founder & Chief Executive Officer

Thank you, Conrad. Hello and everyone, and welcome to our second quarter earnings call. We are pleased to report another solid quarter for Yext. I'm excited to share our quarterly highlights driving these results. Revenue grew 32% over the second quarter last year and it exceeded the high end of our guidance. Unearned revenue during the quarter grew 42.4% year-over-year, and the number of structured facts, which is an indication of engagement and usage, grew more than 60% from the year ago quarter. We continue to see some of the best known brands in the United States, Europe and Japan choose the Yext. During the quarter, we signed contracts with leading brands like Travelers, Liberty Mutual, UCLA Health, Mack, Big Lots for Saatchi and Lloyds Pharmacy. We also signed expansions and renewals with big customers like FedEx, AT&T, Baskin-Robbins, MetroPCS and BBVA Compass.

In fact, last week, we signed a contract with my favorite broccoli cheddar soup maker, Campbell's. This is the first time in our company's history that we've closed the contract with the CPG company that's consumer product goods that doesn't have any physical store locations. Now how are we able to sign a CPG company with no physical store locations. One simple word, Search. Search is changing from links to answers and because of this, people are being retrained to ask longer questions instead of just typing in simple keywords. They're not asked -- only asking longer questions. They're also asking questions in more places.

The fact is that today's customer journey starts with the question, and if a brand doesn't answer a question, someone else will. So what do you need to answer questions. What you need is a knowledge graph and this is a structured database that contains facts and their relationships in a way that can efficiently be surface to answer questions.

It turns out, Yext powers a knowledge graph for every one of our clients. And collectively these contain more than 200 million structured facts and that gives us a huge headstart and be able to deliver a breakthrough new search product which we call Yext answers.

Let's take a step back. Today's site search products are not that smart and not that useful. Most sites, when you see that magnifying glass, you type in a query and you get junky results. Try it for example, go to key Proctor and Gamble's websites pg.com.

Now, the very first search result for their popular product, if you search for tide. Just type in tide, it gives you a Vietnamese result. You can't find what you're looking for. And when the user gets a result like this, they just go back to Google and it means Tide lost control of the customer journey and that the user is likely to see a competitor ad.

The Yext answers is a breakthrough news site search product that delivers a Google like experience for every company. It gives you answers, not links the user types is been a question on a company's website and Yext answers the question kind of like Google does, except it's all controlled by the brand and built on a brand's knowledge graph. It's simple to install and every single business with a website can use it. We're already seeing strong demand. It's an early access right now. But already, by the end of Q2, we've sold eight answers led deals and that's pretty impressive considering we're still in early access.

Now, like Campbell's, we signed a large healthcare company to answers. The number one use case in visiting a health system website to find a doctor and these are the kinds of questions that, Yext answers. Answers is the latest expansion of our platform, with answers we've got three products that's in the knowledge graph, answers, listings and pages.

We've got answers we just talked about that delivers a site search experience on Yext customers websites, where customers can search the knowledge graph and get answers. Pages, let's Yext customers create a page for every answer, which is a best practice for ensuring the right information shows up in a search engine.

And listings integrates the data in a knowledge graph directly into 150 voice assistance, map apps, third party services like Google and Amazon, Bing, Facebook and many more. And because the market opportunity is so large, we think that answers is going to be a natural entry point for many companies. It's potentially available to any company with the website. It's no longer limited to physical locations. This will significantly increase our total adjustable market. We're launching answers in general availability at ONWARD. I am so excited to share more details about answers on our next earnings call. With our mission of perfect answers everywhere, Yext is leading brands into the future of search. We've been doing this for more than a decade. We always have and we always will.

And with that, I will turn it over to Jim.

Jim Steele -- President & Chief Revenue Officer

All right. Thanks, Howard. We continue to build momentum across the business in all geographies, vertical markets, enterprise and in mid-market. We continued to win new business this quarter, closing over 90 deals with at least $100,000 in contract value and 10 deals that resulted in at least $1 million in total contract value, including new logos and renewals of existing customers versus seven deals the same period last year.

International did exceptionally well in Q2 and our investments in Europe and Japan are starting to pay dividends. In Europe, we had a big logo names such as Chalcedonian, Versace, Ted Eye, Arcadia Group and Diageo and significant expansions at IWG Regus, Philip Morris and Barmenia.

Japan's most impactful deal the quarter was replenished. One of the largest food service companies in Japan. With international revenue only 17% of total revenue in the quarter. There's still much to go after. Along with their international investments. We continue to build and invest in enterprise and mid-market sales teams commensurate with the opportunity we see ahead.

Total quota carrying sales reps increased nearly 35% year-over-year to 203. And under Patrick Blair's leadership, we made significant progress in building out our mid-market team, where we're attracting the best people in the business to build a solid foundation. And speaking of attracting the best to the team, I'm pleased to announce that we hired my former colleague from Salesforce, Mary Fratto Rowe, as our new EVP and Chief Customer Officer.

Mary will lead our global clients success, professional services in consulting and client delivery organizations. She'll be responsible for the entire end to end client and partner experience with the Yext. In Mary's most recent role at Salesforce, she was Senior Vice President of the Customer Success Group responsible for the America's Professional Services, where she oversaw a team of more than 13,000 people. During her more than 13 years at Salesforce, Mary was responsible for more than 1,000 customer implementations globally and worked directly with the company's largest and most complex customers.

She also led the Global Advisory Services Division of the Salesforce Success Cloud. Advising customers on the most strategic solutions for their businesses. I worked with Mary for more than a decade at Salesforce, and I've seen Mary's incredible impact on customer success firsthand. We are so excited with the answer product launch and the customer energy enthusiasm going into onward.

So now I'll turn the call over to Steve to walk you through the quarter in more details.

Steve Cakebread -- Chief Financial Officer

Hey, Jim. It was a solid quarter. And a quick note before we get into the numbers. I'll just want to remind you that we adopted ASC 606 in the fourth quarter of the prior year and ASC 842 for lease accounting last quarter.

Our second quarter revenue grew 32% to $72.4 million. That's above the high end of our guidance. Our small business revenue, just for reference, was $3.2 million for the quarter. Unearned revenue, which we formally reported as deferred revenue prior to our adoption of 606, increased 42.4% from the year ago period to $122.7 million. Due to the lumpiness of our enterprise business, we'll see variability in this balance throughout the course of the year. And as a reminder, last year our unearned revenue was high due to our largest initial deal ever signed Morgan Stanley.

As of July 31st, we had $259 million in remaining performance obligation our RPO, which is relatively unchanged from Q1. And our backlog includes another $32 million of revenue that's under contract, that subject to accounting exclusions. On that basis, we have $291 million in estimated future revenue under contract.

Our overall net revenue retention dropped about -- to about 108% and that's below our traditional 110%. But it was driven by some mergers. A partner in Europe that was closing business and one of our other European partners, who serves a very small end of our business line, reduced their license count as renewals to their solutions slowed.

We do expect over time to return to our more traditional levels. Gross margins were 73.4% this quarter, a slight decrease of 100 basis points over the second quarter last year, and that's driven primarily by the timing of some onetime publisher fees. We remain comfortable that gross margins will continue to be in the mid 70% range.

Total OpEx increase from $60.3 million last year to $83.4 million dollars this quarter. The primary drivers of this increase was the overall growth in headcount, including the increase in our quota carrying sales rep count along with the new leases in New York, District of Columbia and London. We will be incurring double lease expense in New York until the completion of our new global headquarters in 2020.

Second quarter net loss increased from $19.4 million a year ago to $29.3 million this quarter. On the basis of our $111.8 million weighted average basic shares outstanding, net loss per share of $0.26 this quarter compares to a $0.20 loss a year ago. Non-GAAP net loss excluding stock comp -- stock based compensation increased from $8.4 million a year ago to $12.7 million this quarter. Our non-GAAP net loss of $0.11 per share this quarter compares $0.09 in the year ago quarter. It was $0.1 favorable to the high end of our guidance. Please refer to the press release we issued this afternoon for a reconciliation of GAAP to non-GAAP results.

Cash, cash equivalents and marketable securities total $274.2 million as of the end of July to 31st, 2019. Net cash used in operations for the second quarter was $11.4 million as compared to net cash used in operations a $4.4 million in the year ago period. The biggest drivers again were the increase in headcount and our new leases.

We've demonstrated over the last fiscal year, our business model is capable of generating healthy cash flow. As such, we decided to accelerate our investments in people and facilities in 2019. We've already begun to build out the mid-market sales team, which will start to come online next year. The ramp and sales cycles for a typical mid-market seller about half the time of an enterprise seller, and these faster ramp times in overall size of the mid-market opportunity should help smooth the revenue lumpiness we experience from landing larger sized deals within the enterprise channel over the next few years.

As to guidance. In the third quarter, we expect revenue to be between $75.5 million and $76.5 million. And in the same period we anticipate non-GAAP lost per share between $0.18 and $0.19, which reflects the investments we need to make and facilities people and all by the way, onward is an event in Q3. This assumes a weighted average basic share count of approximately 113.6 million shares.

Turning to the full year, we're raising the revenue range that was $297 million to %300 million. It's now guided to $299 million to $301 million. We're tightening our existing non-GAAP net loss per share range between $0.41 and $0.43. This is based on an assumed basic weighted average share count of approximately $111.9 million shares.

Let me turn it over to Howard about ONWARD in October.

Howard Lerman -- Founder & Chief Executive Officer

All right. In just nine weeks, over 16,000 marketers in search technology leaders are going to join Yext at the Marriott marquee in Times Square for Onward 19, and this year's theme is The Future of Search. It's October, 29 and 30. Our attendees are going to hear from Magic Johnson, from Seth Godin, from experts in today's leading technology and search, including Google, Amazon, Bing, TripAdvisor and so many more as we discuss the paradigm shift and search from chaotic results to brand verified answers. And we're going to launch answers there.

ONWARD has sold out every year and we hope to see you there. And with that operator, we will open up the line for Q&A.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instruction] And our first question will come from Koji Ikeda of Oppenheimer. Please go ahead.

Koji Ikeda -- Oppenheimer & Co. -- Analyst

Nice quarter, guys, and thanks for taking my questions. I had a question here on sales capacity. So the business increased its sales headcount 35% year-over-year. And that's really great considering we're hearing the hiring environment is really, really tough out there. I was wondering to comment a little bit about, you know, the headcount between the enterprise and the mid-market segments and maybe comment a little bit on that 35% growth. Was that target? Was that on target with the plan or maybe was that a little bit ahead of plan? We're behind plan and i have a follow up for you.

Howard Lerman -- Founder & Chief Executive Officer

Yeah. So Koji, a couple things there. Obviously, we continue to focus on Enterprise and we've been hiring a number of enterprise sellers, but the big growth is obviously in mid-market. We've got Patrick Blair here. He's world class in building out that kind of business in a lot of the sellers we hired over the last couple weeks have been mid-market sellers, but we are on our targets. I mean, we're hitting our numbers. We feel good about it, the recruiting environment. You're right. It's hard. But we are being with leadership we have in the business model that we have, we're able to attract great talent.

So feel real good about where we're going and the sales capacity needs to get built up. You know, you'll talk about productivity and I'll sit there and say, GM [Pphonetic], I'm not in the 32 NFL markets. You've heard me say that before. I keep encouraging, Jim to go to more markets. But New York, Chicago, San Francisco, Dallas. That's a start. But we need to be in a lot more market. So we are going to continue to recruit into, as Howard described, some really exciting products coming up in the future.

Koji Ikeda -- Oppenheimer & Co. -- Analyst

Got it. Thanks for that. And as a follow up, how should we thinking about the pace or maybe the cadence of hiring for the rest of the year? Thank you. And our great quarter. Thanks. Thanks for taking my questions.

Jim Steele -- President & Chief Revenue Officer

Yeah, I know, Koji. Good question. I mean, it is a process and so it does take a little bit of time. And we are doing global because we are also hiring people in Europe as well. So we have goals. We've been on track on those goals and I don't see any reason why we won't continue to be on track with those goals till the end of the year.

Operator

Our next question comes from Naved Khan of SunTrust. Please go ahead.

Naved Khan -- SunTrust Robinson Humphrey -- Analyst

Yeah. Thanks a lot. Maybe a quick clarification on the sales headcount. I guess, it's a pretty robust pace of hiring, but if I had to think about -- if you're leaning more toward mid-size, what's the enterprise? Is it more of the mid-size headcount that's making up the new hires or how should we be thinking about that?

Howard Lerman -- Founder & Chief Executive Officer

I think a couple of things here. One is we've never had a mid-market. So the numbers you're going to see obviously show the fact that we're starting from zero and building that, but we are still hiring enterprise sellers and putting in regions. And like I said, we're not in enough cities in the US, let alone Europe. So there is a there's a conscious balance there. It just looks like and you're going to hear the numbers look grand, because mid-market, as you know, are smaller deals with more people, but they turn quicker cycles.

So, we're looking at both. And obviously you'll see numbers that'll keep coming up. So I don't know other than to say when we find great -- when we find great sellers, we're going to hire them and it's not going to matter whether it's enterprise or mid-market.

Naved Khan -- SunTrust Robinson Humphrey -- Analyst

Thanks. And then -- thanks for breaking out the legacy SMB revenues. Can you just talk a little bit about the growth in this enterprise how -- I think last quarter you said, enterprise had grown close to 40% is the price growing somewhat in the high 30s. Is that the right way to think about it?

Howard Lerman -- Founder & Chief Executive Officer

Yeah, I think if you look at our Q2, there's a couple opportunities that we had. One is we had a monster Q2 last year, so our competitors are -- if you -- well, for this quarter is a bit challenge because we need to have a big deal like Morgan Stanley and it's tough to replicate that in -- right now, which is enterprise business, which is timely and deal driven. So, I wouldn't read too much into the changes in our growth rates in enterprise. The team is doing a great job. They're hitting -- their overall marks and we feel comfortable about where we're out with that. It's just that we had a monster compare last year and we feel really good about pipeline and where we're going for the rest of the year.

Naved Khan -- SunTrust Robinson Humphrey -- Analyst

Great. Thanks, guys.

Operator

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

Brent Bracelin -- KeyBanc Capital Markets -- Analyst

Great. Couple of questions, if I could. I'll start with Howard, this is more of a technology question, but it does look like Google did announce a change their core algorithm. I think that was back in June. Can you remind us when Google makes big changes to the algorithm, how does that impact customers? And how does that impact your business as well? And a couple of other follow-ups. Thanks.

Steve Cakebread -- Chief Financial Officer

There's no real impact because what we do, Brent, is help customers organize all the facts and their knowledge graph and build pages and also sink them into maps. So there's been, I think, dozens of changes all the time and -- there, we're focused on, is getting the right answer to the end user. You know, when someone asks the question about Burger King, we want to make sure that the correct answer is there. And Google's algorithms are going to always try to help the user get the right information.

So we don't see a business impact from algorithm changes in Google as we're focused on getting the right answers out there.

Brent Bracelin -- KeyBanc Capital Markets -- Analyst

Super helpful and then I guess, shifting gears to Jim here on kind of the answers product. I know Howard sounds excited about it. We'll learn more about it. But I was just trying to understand, as you think about just a packaging pricing? How should we kind of think about answers? Is the intent to lead with the answers suite and that becomes the main product bundle. Walk us through kind of packaging, pricing and positioning around become answers product, you know, it certainly seems like there's a lot of interest there. But just want to understand the go-to market around it?

Howard Lerman -- Founder & Chief Executive Officer

First off, the go-to market is fundamentally a little different because the time for answers is every single business that has a website, every single business that has a website needs to answer the question. And that's our opportunity. So instead of being limited to accounts that had physical store locations or had physical people at a place, now we have significantly increased the number of accounts that we can go after. And that changes how you think about doing marketing and doing some demand gen and doing thought leadership and how you get out there to drive in down demand.

So those are all opportunities to do more on top of what we're doing now to get our reps bigger territories and to get them doing more stuff. That's the first thing. Now, in terms of the pricing and packaging, you'll have to come to ONWARD and stay tuned for what that's going to be. I'm not ready to announce prices are going to be, but you can think about it being almost exactly like we sell pages and listings today where a customer's got to buy our knowledge graph platform. It's price per entity per year. Once you have an entity like, say, a doctor in the knowledge graph, then you pay an additional license fee. If you want to put them in listings, you pay an additional license fee if you want to build on the page. And if you want that entity to show up and answers, you'll pay an additional license fee for that too.

So it's going to be all built on the knowledge graph platform and the answers is our third product that you can now buy on top of knowledge graph in addition to listings and in addition to pages.

Brent Bracelin -- KeyBanc Capital Markets -- Analyst

Got it. Super helpful. And then Jim, as you think about a much larger opportunity around answers. Are you rethinking kind of go to market at this point. Is how do you know -- you broaden the reach?

Jim Steele -- President & Chief Revenue Officer

Well, definitely, as Howard mentioned, any company that has a website. We talked about CPG and use the Campbell's example. It opens up a whole new set of opportunities for us and many, many more accounts that we -- In the past, if we were looking at our market opportunity, like we described in the S1 and when we went public a couple of years ago, is all about what was in Google Maps or 100 million companies in Google Maps and we looked at that as about a $10 billion TAM.

Now, it completely changes because you have all these companies that don't -- they're not location based necessarily. They -- but they have customers, consumers that are getting on the website that want answers, just like they go to Google to find and we want to give that same experience that they have when they're in these third-party search engines once you get to a website, so that it improves that customer experience and ultimately has a higher conversion rate to close revenue for that company.

So our market and part of why we're adding a lot of salespeople is we see tremendous opportunity in our existing market with listings and pages, but now we're basically adding a third major application on top of the platform, that knowledge graph and all leveraging the same kind of data set.

Brent Bracelin -- KeyBanc Capital Markets -- Analyst

Got it. Helpful color there. Just a couple of quick ones here for Steve. Here, obviously, if I wanted to start with calculated billings. This has been a pretty volatile metric. If I look back over the last, a couple of years, hasn't been all that indicative, but it is the lowest growth rate we've seen in a couple of years. So was that just tide to tough compares? Was linearity a little different this quarter? Was it a partner driven stuff? Walk me through the factors that impacted billings kind of this quarter.

And then just could you touch on the gross margin that also fell below 75% for the first time in a while. So just walk me through those two issues. Thanks.

Steve Cakebread -- Chief Financial Officer

Sure. So, as you know, I'm not a big fan of your calculated billings number because we have a mix of billings between quarterly, semi-annual, monthly, et cetera. So it's not really reflective and interestingly enough, every time we beat your number, it's been great. And every time we miss your number, it's a problem. And I don't think we've got any problems with billings this quarter we are on our plans. We feel really good about what's going on. I just think that metric is very volatile for a small business of our size.

Primarily when it's driven by large enterprise deals that they end up themselves. Timing is everything. So, if I had a deal last quarter or this quarter that moved a couple of days, your account number would be very, very different. So I don't really focus on that count billing, but I do look at making sure we're generating growth in deferreds or unearned revenues as the new things. We did the new thing and we did that and RPO or our backlog continues to look solid. So I can't help you on the calculated billings issues there, but I think we're on track for where we want to be.

In terms of gross margins. You know, we've always said that, we do pay R&D fees for some of our new publishers and depending on the timing, you're going to see that number move up and down. I still feel really comfortable that we're in the mid 70s as the gross margin it's going to stay there. We brought on some interesting new publishers and made some payments this quarter and they'll manifest themselves, as you see it, in the ongoing and future years for this stuff.

But there's no fundamental change in gross margin. It's the time -- It's a timing issue in terms of payments.

Brent Bracelin -- KeyBanc Capital Markets -- Analyst

Very helpful color and I'll see [Indecipherable]. Thanks.

Steve Cakebread -- Chief Financial Officer

Thanks for asking me the question.

Operator

Our next question comes from Mark Mahaney of RBC. Please go ahead.

Mark Mahaney -- RBC -- Analyst

All right. Two, if I could just keep following up on that gross margin. So Steve put it down. Did sound like there was something onetime ish. Is it a onetime ish publish or fee issue? Is that it just a timing issue? Just clarify that and then get back to -- I know somebody asked about the answer's Yext answers and package and pricing and I guess you're in a hold off on providing a lot of detail on that. But I think you said there were eight Yext answers deals in a recent period or in the last quarter.

So maybe let me try this were those two, with those add on sales to existing customers or with those lead sales to customers you would hadn't had before and would one of those have been was the Campbell's Soup Company was at one of the customers since that would be more natural for them since they don't have the retail locations any more color you can give on what the market opportunity? But what the go to market strategy or success has been so far with that. Thanks.

Steve Cakebread -- Chief Financial Officer

Mark. You know, it's kind of funny when you think about what answer is, its structured search. Every other product in the world is index based search, which gives you documents back when you search for something. That's actually how Google works, where there's two parts to Google. If you search for McDonald's, the very first thing you see might be maps and knowledge cards that's structured, answers powered by a knowledge graph. And then under that you see links which are powered by their indexes search. They blend them together to give the user, you know, a certain experience. And so with all the existing sites or stuff out, there is all index based or document search. And were Yext had an enormous advantage in a head start is in a structured search which are all powered off a knowledge graph.

For every single one of our existing customers, we have a knowledge graph that contains collectively more than 200 million facts and so the ability to give an answer back from structure comes from having all that structure data. So for any of our existing customers, it's pretty straightforward for Yext to spin up and answers instance and be able to answer questions about their business because we already have their knowledge graph. We already have their data, we're putting into Google, we're putting it into all these other places. And so, we can sure do a demo with answers kind of almost -- I don't want to say totally done, but a pretty good working demo and say, hey, let's run a quick pacer challenge -- run your P&G, go ahead and search for Tide on your own site and you're going to get Vietnamese and all these weird results back. That's your number one product. It's kind of a weird results for your end user and by the way, your website is featuring prominently your search box its right in the middle.

Now, let's flip this around and run a search that gives you the actual answer and gives you information about the product and availability of the product that gives the end user, that customer the answer there. And that is index search versus structured search. And so in our case, because we already have all these knowledge graphs, we've got a huge head start for any existing customer Yext. In getting them answers, that's going to be a core part of our go to market, without question.

But in addition to that, you have the potential new logos here is, you've heard Steve say, you've heard Jim say it. It's a significant amount more than, than we've ever been able to go after before. And of the eight deals, for example, Campbell's Soup is an entirely new logo. We never had any relationship or the ability to -- they don't have physical store locations this year. This category CPG, it's endemic of the fact that, oh, my gosh, every single -- one of these brands is a website and people are hitting it all the time and they're searching for stuff and getting junky answers. And when they get a junky answer, they go right back to Google. And then Google shows a competitor ad and the companies lost control of the customer journey. They might have lost the customer. And, that's not a good thing.

And so we can show up with something that just works and simply do install. Now, when it's the new logo, we've got to get the information into the knowledge graphs we've got huge head start for any existing customer of Yext and getting them answers. It's going to core part of the packaging here is, hey, go ahead, let's take a large hospital system. They may want to start with doctors and then as they see the searches that are coming in that they're not answering it, people are searching, for example, for symptoms, they may want to add that to their knowledge graph. They'd have to pay for additional entity licenses in the knowledge graph and in answers.

And they'll be a whole program around how that's all going to work. So we see a great feedback cycle here between the ability for someone to -- within a company to see a question that's being asked and to put entities into answers and into the knowledge graph. And I think you may have asked also asked a question about gross margins.

Howard Lerman -- Founder & Chief Executive Officer

Yes. So on the gross margins, Mark, these are onetime engineering payments that we pay the new publishers. Timing is sometimes uncertain because it's when they complete it. And so we had some onetime publisher payments that came in at this point in time.

Steve Cakebread -- Chief Financial Officer

And they are new publisher.

Howard Lerman -- Founder & Chief Executive Officer

And they are new publisher.

Steve Cakebread -- Chief Financial Officer

You're going to have to come to ONWARD to see who they are. We're very excited about it.

Mark Mahaney -- RBC -- Analyst

Yeah. Okay. Thank you, Steve. Thank you, Howard.

Steve Cakebread -- Chief Financial Officer

Yeah.

Howard Lerman -- Founder & Chief Executive Officer

Yeah.

Operator

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

Matthew Coss -- JP Morgan Chase & Co. -- Analyst

Hi. Good afternoon. This is Matt Coss. On behalf of Mark Murphy. Thanks for taking our questions. Any update you can provide on billing term distributions? Yearly, semi-annual or monthly? And if you can't get too specific, what does a percentage of business billed annually look like today, perhaps versus a year ago?

Steve Cakebread -- Chief Financial Officer

Yeah, you know, we don't really get into that because it does move around. I mean, we try and get everybody on the annual. But it's also true that some accounts will take quarterly for the first year move annual. So I'd rather not get into the details because it moves around a lot based on our deal flow. But I'll just say I appreciate the challenge you have that calculated billings is probably not a good indicator of what we're -- how our business is doing at the moment.

Matthew Coss -- JP Morgan Chase & Co. -- Analyst

Okay, that's fair, and I know you have a few insurance companies as customers. Since you've talked about in the past, you know, they tend to have thousands of seats. Can you update us on some of the things these customers are doing? Maybe ROI they're getting additional products they're adopting. You know what the expansion rate, you know, those multi thousand seat customers look like.

Jim Steele -- President & Chief Revenue Officer

Sure, this is Jim Steele. You know, we showed, I think during the S1, kind of a cohort of a typical actually was an insurance company and they find start this across the board where they might start with kind of a base package. And then as they look for additional regions, they expand both geographically as well as upgrade to ultimately our ultimate package, which includes reviews, you know, first it's kind of crawl, walk, run with a lot of these customers. They like to start to see what the value is. They can track the number of clicks, they can see the conversion rate. They know how many phone calls you're getting driving directions and it's a very clear set of KPI's that they can track to see what that value is.

So, yeah, that's a typical I mean, we -- we're very focused and not just insurance companies, but, you know, obviously financial services is one of our very biggest industries. Health care is very big as well and food, retail and many of these companies start with the base package and they grow from there. They up sell, we sell them to, you know, greater value package. And they also add the additional licenses as they expand and now with answers, that gives us a whole new opportunity to go back to these customers and say, hey, you know, you care about providing brand verified answers everywhere, not just in the third party ecosystem, but also on your own website. So let's leverage that knowledge graph that Howard was talking about. Every one of our customers has knowledge graph to power listings and also pages. So, now we can go back and say, hey, we can also help you get the same kind of experience for your customers in the same kind of conversion rates, if we provide -- this answers product.

Operator

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

Philip Rigby -- D.A. Davidson & Co. -- Analyst

Hi, this is actually Philip Rigby beyond for Tom. Thanks for taking my question. For Campbell's did answer to displace another vendor at Campbell's, or is this a whole new feature for them?

Howard Lerman -- Founder & Chief Executive Officer

I don't know the answer to that specific question, but one of the coolest things about site search is that the way we're going about this. Remember, Google blends the other document search and structured search. Sometimes structure search can answer the question directly or give you all the information right there. Other times, maybe it's better to link to a document that you might have to read for more context.

So when you search for many results in Google, give you back a blend of both structured search and index search together. We are completely and we've designed our product to be able to integrate with most other site search vendors, to place answers or structure search on top of index search so that we can co-exist with another index page search vendor, so that the end user can get a answer and get links to the documents back without necessarily displacing another vendor, but with significantly enhancing the customer journey where they start.

And by the way, when someone searching on your own brand's website, those are your best customers. Those are the people that are looking for the most specific questions that are hunting for the deepest details. That's when you've got to really give them the answer that they're seeking. Otherwise, if you don't answer their questions, somebody else will.

Philip Rigby -- D.A. Davidson & Co. -- Analyst

Great. Thank you. And appreciate all the color you gave on Europe and Japan. Any other international countries or regions you want to give us a little bit more color on?

Steve Cakebread -- Chief Financial Officer

Nope, I mean, it's been strong for us -- their are Northern or UK business has been outrageous. A lot of the logos that Jim talked about or names were from Northern Europe.

Jim Steele -- President & Chief Revenue Officer

So, Southern Europe, Italy and France have been very strong. Versace obviously, great Italian brand. Calzedonia, we really been strong in Europe and Japan. It's really been terrific as well.

Howard Lerman -- Founder & Chief Executive Officer

So we keep trying to get all the men's fashion line because we're hiring so many sales reps. They've got to get new clothes.

Philip Rigby -- D.A. Davidson & Co. -- Analyst

Thanks, guys.

Operator

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

Hamza Fodderwala -- Morgan Stanley -- Analyst

Hey, guys, this is Hamza Fodderwala in for Stan. Thank you for taking my questions just one to follow up on the international question. So can you give any more color as to what percent of revenue is coming internationally today? How fast is that growing? And you mentioned Europe outside of UK, are there any other markets that you're particularly bullish on?

Jim Steele -- President & Chief Revenue Officer

We mentioned before this in the second quarter, 17% of our revenue is international. And yeah, definitely the UK is very strong. France and Italy and Germany as well. We have customers in Austria and Switzerland and other parts of Europe and Japan really, we opened in Japan just about a year, a little over a year ago, and we hired the CEO of sales force for our Japan business. And he just did an amazing job in the past year, plus just building that business up.

So that's the -- that's where we're looking. And we don't -- we haven't really focused on going to other countries at this point because we have so much opportunity and now with the answers, we've just opened up a whole lot more TAM in the existing countries that we do business in. And of course, Canada's very strong for us as well.

And of course, we have customers who have locations throughout the world. I think we talked about one hundred -- some odd countries. 150 or so countries that have Yext that is driving their local listings in those countries. But we don't have necessarily operations in all those countries.

Hamza Fodderwala -- Morgan Stanley -- Analyst

Got it. That's helpful. And obviously, macros, you know, very top of mind for a lot of companies and investors. Are you seeing any maybe signs of if not weakness, but like longer sales cycles or anything unusual either internationally or domestically at all?

Steve Cakebread -- Chief Financial Officer

Yeah, I'll take that. This is Steve. You know, our business has been so strong and I think we're doing very well. No macro influences at all other than some of us have to watch CNBC and watch the stock market go up and down. But that doesn't influence real business. So nothing on our horizon. We feel very comfortable about where we're going and the business that we're talking about. And sales cycles are not getting longer. Obviously, we bring in mid-market, we address a whole another market, sell cycles are actually shorter so, we feel really good about where we're going in these particular markets, regardless of other influences outside of that.

Hamza Fodderwala -- Morgan Stanley -- Analyst

Got it. And just one more question, Steve, on the RPO metric, you mentioned that it was in line with Q1.

Steve Cakebread -- Chief Financial Officer

Yeah.

Hamza Fodderwala -- Morgan Stanley -- Analyst

Do you have the year-on-year growth for that metric. I'm not sure if I got it.

Steve Cakebread -- Chief Financial Officer

Yeah. No. You know, we did adopted method that didn't provide year-on-year growth, which you'll start to see that, obviously next year. We needed to implement it fairly quickly because we became an accelerated filer. So all we could do is provide you that now.

Hamza Fodderwala -- Morgan Stanley -- Analyst

Got it. Okay. Thank you.

Operator

Our next question comes from Brett Knoblauch with Berenberg Capital. Please go ahead.

Brett Knoblauch -- Berenberg Capital Markets -- Analyst

Hi guys, thanks for taking my question. The first one is for Howard. I think in your prepared remarks, you talked about how you're seeing an inflection point in the business and in particular going from a product specific company to more of a platform solution. Please talk about the benefits that brings?

Howard Lerman -- Founder & Chief Executive Officer

Sure, with our new answers product, it fits on top of the knowledge graph. Every time a customer signs up or buys one of our three products missing pieces or answers, they have to buy the knowledge graph platform. They have to put the entities then the storage to be able to power those entities and then buy an additional license in listings or pages or soon to be answers.

The more knowledge your customers have in the platform, the more valuable each of those products are number one. And then also it's easier for us to come up with new products like we just did with answers. And with answers, we have a huge head start and be able to sell that to all of our existing customers that are already on our platform.

Brett Knoblauch -- Berenberg Capital Markets -- Analyst

Okay. Thank you. And then just -- I guess a clarification question. Is answers the same thing as Yext think when you first announced that?

Howard Lerman -- Founder & Chief Executive Officer

Correct. That's the official brand. Think was our beta name, and after we figured out into the market, we have pointed Yext to answer..

Brett Knoblauch -- Berenberg Capital Markets -- Analyst

Okay. Thank you. And then maybe just some commentary on ONWARD. Could you compare maybe the pipeline you have coming to onward versus the pipeline you had coming last year? I mean, if you can give specifics or not?

Howard Lerman -- Founder & Chief Executive Officer

I don't know there's a lot more people.

Jim Steele -- President & Chief Revenue Officer

It's bigger. Brett, were you there last year?

Brett Knoblauch -- Berenberg Capital Markets -- Analyst

I was.

Howard Lerman -- Founder & Chief Executive Officer

Yeah. When we killed off Jim, it was so popular. Number one, I'm going to be the biggest companies in Germany, the Mexico is ask to repeat that exact keynote in a week in Cologne in front of 10000 German marketers. So if anybody is in Cologne next week, we'll see you there. But about onwards, Couldn't do it at the same facility.

We actually were asked not to come back. So we'll be doing it at the marquee, which I love them because Marriott is a customer of Yext, but I really just don't like the carpet there. Despite the carpet, which looks a little bit like in sport coat right now. We're gonna be -- I think having a bunch more people relative to last year. It is capacity is a lot bigger.

Brett Knoblauch -- Berenberg Capital Markets -- Analyst

Okay. Thank you. That's very helpful. And then maybe one for Steve. Could you just talk about your view on where you're seeing that retention going toward the back half of the year?

Steve Cakebread -- Chief Financial Officer

Yeah -- we had no problems in our enterprise and mid-market, obviously just getting going, since it's hard to comment on that. But I think, we'll build that backup. Like I said, we had one of our partners just go out of business. That's you know, that's gonna take some logs. And we've continued to have some mergers and acquisitions go on that took some locations down. Keep in mind, we have a trailing 12 month calc, so it'll take a little bit of time to move that back. But I feel real comfortable. There's no systemic issues here. It's just kind of the normal course of business when you're dealing with large companies. See you on ONWARD?

Brett Knoblauch -- Berenberg Capital Markets -- Analyst

All right. Thank you, guys. Appreciate it. Look forward to ONWARD.

Howard Lerman -- Founder & Chief Executive Officer

Yeah. See you on at ONWARD. Thank you, guys. That concludes our call for today. We'll continue our conversations throughout the quarter. Operator.

Operator

At this time, we will now take you back to the ONWARD '19 teaser. [Operator Closing Remarks]

Duration: 46 minutes

Call participants:

Conrad Grodd -- Vice President of Investor Relations

Howard Lerman -- Founder & Chief Executive Officer

Jim Steele -- President & Chief Revenue Officer

Steve Cakebread -- Chief Financial Officer

Koji Ikeda -- Oppenheimer & Co. -- Analyst

Naved Khan -- SunTrust Robinson Humphrey -- Analyst

Brent Bracelin -- KeyBanc Capital Markets -- Analyst

Mark Mahaney -- RBC -- Analyst

Matthew Coss -- JP Morgan Chase & Co. -- Analyst

Philip Rigby -- D.A. Davidson & Co. -- Analyst

Hamza Fodderwala -- Morgan Stanley -- Analyst

Brett Knoblauch -- Berenberg Capital Markets -- Analyst

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