Yext, Inc. (YEXT) Q2 2021 Earnings Call Transcript

Yext, Inc. (YEXT -0.55%)
Q2 2021 Earnings Call
Sep 03, 2020, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, and welcome to the Yext second-quarter fiscal 2021 financial results 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.

Yuka Broderick -- Head of Investor Relations

Thank you, Andrea, and good afternoon, everyone. Welcome to Yext fiscal second-quarter 2021 conference call. With me today are CEO Howard Lerman; CFO Steve Cakebread; and Revenue team leaders, Jim Steele, David Rudnitsky and Patrick Blair. 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, sales momentum and efficiency, expenses, hiring, market opportunities, business performance, capital expenditures and other nonhistorical statements as further described in our press release.

These forward-looking statements are subject to certain risks, uncertainties and assumptions, including those related to Yext's growth, the evolution of our industry, our product development and success, including with Answers 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 obligation to revise any statements to reflect changes that occur after this call. Descriptions of these and other risks that could cause actual results to differ materially from these forward-looking statements are discussed in our reports filed with the SEC, including our most recent quarterly and annual reports and our press release that was issued this afternoon.

During the call, we 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.

Howard Lerman -- Chief Executive Officer

Thank you, Yuka. In 2016, we held our first user event, and we hosted Mark Kelly. And you may know that Mark is a current Arizona Senate candidate, and that's following a long and distinguished career as a Navy Aviator and Astronaut. At Location World in 2016, he shared a story about flying a two-person attack plane, where his focus was flying the plane and dodging missiles.

It was his partner's job to successfully hit a target with a bomb. Each person had a job to do and focus solely on that job. And as he told us, we call that compartmentalization, focusing on the stuff you can control and not worrying about the stuff outside of your control. Who knew that advice would be so relevant four years later, stuck in my head.

We are living in a highly chaotic and unpredictable time. But in Q2, we learned that as a company, we can accomplish great things when we focus on what we can control. First, we're focused on top-line growth. We reported $88.1 million in revenue, $2 million above the high end of our guidance range.

And next, we are focused on efficiency and especially sales efficiency. And so we reported a $0.07 non-GAAP loss per share in the quarter, which is a $0.04 beat to the high end of our guidance range. And finally, we're focused on our mission to help every business and organization around the world deliver official answers every time people search, and we saw 30% of our Enterprise North America new and upsell bookings as Answers led in the Q. We've now got over 150 Answers customers live.

And in fact, if you follow us on Twitter, you will see our daily showcase of brands, kind of like our daily doodle, like Verizon Business, Cox Communications, Krispy Kreme, AutoZone, they've all upgraded their site search with the Yext official Answers engine. Let me take a minute to explain what exactly I mean by the official Answers engine? We are witnessing a massive shift in search from keyword-based document search to an era in which computers understand what people are asking. And at the root of this is a brain like database called a Knowledge Graph. We've been building that for over 10 years.

In fact, the very sentence of our S-1 says Yext is a knowledge engine. And so a couple of years ago, we started to build our own search technology-based off natural language processing. And last fall at ONWARD, which by the way, feels like a decade ago, but was only three quarters ago, we launched Yext Answers. That is our -- it's a site search engine that sits on top of a company's Knowledge Graph.

And so when an end user wants official information about a business, they visit that business' website. But when the site search is so poor that a business can't deliver an official answer on even the most basic query, that user bounces back to Google to seek the answers they couldn't get directly from the business. And when this happens, the company loses control of the customer journey and has got to bid on ad works on their own branded keywords to win that customer back again. The same customer who is trying to find them organically.

We saw a better way. With the full power of over 385 million facts now contained in the Yext Knowledge Graph, which, by the way, is a 71% year-over-year increase. We launched our own site search engine with Answers or as we like to call it, the world's first official Answers engine. In the second quarter, we expanded Answers to be available in French, in Italian, in German and in Spanish.

So we're helping now more and more websites around the world to deliver official answers to every customer question, using NLP. It's our founding principle that the ultimate authority on official information about a business is the business itself. And with our official Answers engine powering the websites, our customers can drive higher conversion, lower customer support costs, and they can receive amazing customer intelligence about what people are asking. In fact, in the quarter, we answered over 11 million searches.

Remember, these are all commercial valuable questions, searches from customers on the company's live website looking to transact. And also, it turns out, when you give people a great customer experience, the first time, they remember it and they come back and it becomes a habit. You can train a user to come back time and again by simply delivering official answers to their questions. In fact, early adopters of Answers on average see a 60% increase in site search volume within just 60 days of putting the Yext official Answers engine on their site.

When you give someone a great experience, they come back and we can show that quantitatively. Every customer journey starts with a search. And it's our vision to make a business' website, be the first and the last place people look when they have a question about that business. And that's what the official Answers engine is designed to do to give every company in the world a Google-like experience on their own domain.

The most exciting part is we are only in the very top of the first half of the first inning in realizing this huge vision. That's the first area we are focused. Next, we are laser-focused on sales efficiency. The best SaaS companies today use freemium or free trial acquisition model.

And so that's what we rolled out in second quarter in the form of our Answers free trial. In the quarter, we received thousands of Answers free trial requests and accepted as many as we could support. And the next phase is to make Yext totally self-serve for Answers so that anyone can integrate our Answers engine into their own website and see the power and positive ROI opportunity for themselves. And we are already seeing the positive results from this new sales motion in terms of sales efficiency.

GAAP sales and marketing as a percentage of revenue went from 72% in the year-ago quarter to 64% in the second quarter of this year. We are duly focused on both sales efficiency and growth and are excited about the results that we are already seeing with this new model. Now none of this would have been possible without the incredible leadership of Jim Steele. And I want to thank him for his amazing contributions to Yext.

Four years ago, I recruited Jim to the board. And shortly after that -- see that was my recruiting technique, and then shortly after that, I talked him into assuming an operating role as our President. Jim came in, he built a world-class sales team, and he laid the foundation for future success with incredible sales executives, including Dave Rudnitsky and Patrick Blair. Now for those of you who know Jim, he is not just a salesman, but he is a tremendous human being, and I have learned, we all have, so much from him.

I'll fortunately continue to learn from him as he will continue on at Yext as an advisor for the next year. And I'm also super excited to promote the next generation of sales leadership at Yext with Dave Rudnitsky and Patrick Blair serving as Co-Chief Revenue Officers. David, who joined us nearly four years ago will keep leading Enterprise North America; and Patrick, who joined us a year and a half ago, is going to lead our CBU and international businesses. Jim has trained them well, and I am confident in Dave and Patrick's ability to work with me and to continue building and leading our world-class sales machine.

Now it is my pleasure to turn it over to Jim for a final sign off. Take it away, Jim.

Jim Steele -- President and Chief Revenue Officer

Thanks, Howard. As Howard mentioned, it was almost four years ago when I joined the board of Yext, and then it was only a few months later that Howard and the board asked me to step in as President and Chief Revenue Officer. I remember -- I was excited to join my former colleagues from Salesforce with the opportunity to help the Yext go public and to build a world-class revenue organization. I recruited my go-to team.

Dave Rudnitsky, whom I've worked with for 20 years, four years ago; and also Patrick Blair, two years ago to help me on this endeavor. I have tremendous respect and confidence in this team, and I leave knowing the company is in great shape and has a bright future. And I'm honored to stay on this journey to help Yext as an advisor. This is the perfect time for me to turn it over to David and Patrick, whom I have so much respect for and who have been so critical in building the sales team to what it is today.

They'll walk you through our strong quarter. Dave?

Dave Rudnitsky -- Executive Vice President, North American Enterprise Sales

Jim, thank you very much for your mentorship, partnership and, most importantly, friendship over the last 20 years. Through your leadership, I'm certain you're leaving the sales organization in great shape. I wish you and your family the best of luck wherever the future takes you. Needless to say, I'm very excited to take over this role as Co-CRO, partner with Patrick and Howard and continue to move the business forward.

I certainly feel prepared for it. And now for a review of Q2. The sales organization had a solid Q2 given the unprecedented circumstances. Momentum in new and upsell ACV picked up throughout the quarter.

We're seeing more customers engaging in, either working on new projects or picking up on temporarily paused projects. In Q2, Yext overall closed 114 new and renewal deals with at least $100,000 of total contract value. This includes nine deals with more than $1 million of total contract value. The total number of Yext mid-market and enterprise customers increased 27% year over year to nearly 2,200.

This excludes our SMB and third-party reseller customers. Our quota-carrying sales rep count for the company was roughly similar to last quarter. We continue to target ending this fiscal year at 255 quota-carrying sales reps, consistent with our original plan. Specifically for the Enterprise, expansion deals this quarter included T-Mobile, MetroPCS, CNO Bankers Life, The UPS Store, the Medical University of South Carolina and Intoxalock.

Enterprise new logo signings included Guaranteed Rate and Cinemark. Land with Answers is driving significantly more opportunities for the Enterprise sales team. As Howard said, 30% of Q2 Enterprise new and upsell bookings ACVs were Answers led. And there are many Answers led deals we are working on now that weren't in the pipeline at the beginning of the year.

We believe there is a huge attach rate that comes with Answers. It's a product that inherently brings along with it a lot of other revenue opportunities for listings, pages and services. We're helping enterprise customers solve complex problems, and our solution-based offerings leverage all of Yext innovative products. I want to tell you about a big expansion deal we had in Q2 with a major U.S.

financial institution. This company has four subsidiaries, and we started working with one of them, an insurance company a couple of years ago. They were a customer for listings, pages and services for its branch locations and some of its agents. As their COO mentioned in a shareholder letter, they're going through a customer-centric transformation.

And customers today expect to be serviced in all channels and across all access points. We play right into the heart of this digital transformation, and we showed them how Yext can drive value and ROI. This culminated in an upsell deal in Q2 that expanded within the insurance subsidiary and into the company's other three subsidiaries, more than doubled ACV and included listings, reviews, pages, answers and services. We think this is a great example how Yext can provide a broad solution against an enterprise's need to accelerate digital transformation efforts to solve business problems.

And now I'll turn the call over to Patrick, who will share color on what he's seeing with his team.

Patrick Blair -- Executive Vice President, Global Commercial Business

Thanks, Dave. I'd also like to take a minute and thank Jim for his mentorship, support and friendship over the last 10 years. I know he'll stay close to Yext, and I wish him the best of luck in his next endeavor. I'm also thrilled to continue building the sales team, Dave and Howard.

In terms of results, we had a strong quarter in both the CBU and international business in Q2 given the circumstances. Because of the fast sales cycle in CBU, those teams contributed most of the Answers free trial conversions. We signed new logos, including CubeSmart and PetIQ and had great expansion deals like Fazoli's and ENT and Allergy Associates as they begin to embrace our full platform. Answers is a great solution for Yext CBU accounts.

While enterprise accounts have multiple teams in their organization focused on their website, commercial accounts generally have a more nimble decision tree and a shorter sales cycle. We have hundreds of companies participating in our Answers free trial program, and every day, we're implementing and turning on more of those trials. One example of the fast sales cycle is Tower Loan, a loan company headquartered in Mississippi. As coronavirus hit the U.S.

this spring, Tower saw a spike in website visits and customer service calls, creating both an opportunity and a pain point. We quickly worked with them to launch an Answers free trial. Just six weeks after we launched Answers on their website, Tower could see the value of deeper customer insights, higher lead conversion and lower support cost, and they became a paying Answers customer. In EMEA, we saw business activity begin to pick up from the COVID-19 shutdown and furloughs.

We had an expansion deal with Philip Morris International, and we signed a Master Service Agreement with Louis Vuitton. We also signed new deals with Pratt and Superdry. In Japan, we signed new deals with GEO Holdings and ARRK Corporation, had an expansion deal with Yamato Transport and had a renewal with SMBC. At a time when so many companies are searching for solutions to provide their customers with accurate, reliable answers, it's motivating for our sales team to be able to provide a solution that can show a measurable return on investment.

I'm more excited than ever about our ability to capture this expanding market opportunity. And with that, I'll turn the call over to Steve.

Steve Cakebread -- Chief Financial Officer

OK. Thanks, Patrick. Our second quarter revenue grew 22% year over year to $88.1 million. Unearned revenue increased 20% year over year to $147 million.

Annual recurring revenue, or ARR, at the end of the quarter was $338 million, growing at 22% year over year from the $277 million in the year-ago quarter. Trailing 12-month net dollar-based retention, which excludes our SMB customers, was 105%, and our trailing 12-month net dollar-based retention for direct enterprise, which excludes our SMB and third-party reseller customers, was 106%. This is slightly lower than last quarter because of the impact we saw from muted upsells. But we saw our retention rates and upsells start to improve during Q2.

Before turning to margins and expenses, I'd like to point out that I'll be discussing both GAAP and non-GAAP results. And we've provided a reconciliation of GAAP to non-GAAP financials in our earnings release. Q2 GAAP gross margins were 75% this quarter. That's compared to 73.4% in the year-ago quarter.

Q2 non-GAAP gross margin was 76.5% and compares to 74.7% in the year-ago quarter. The change in gross margins primarily driven by leverage on higher revenue with some higher data center costs, publisher costs remained stable. Year-to-date non-GAAP gross margin was 76.6% and that compares to 75.9% a year ago. Q2 GAAP operating expenses were $90.3 million, and that's up 8% from the $83.4 million in the year-ago quarter.

Q2 non-GAAP operating expenses were $74.4 million or 84% of revenue, compared to the $67.8 million or 94% of revenue in the year-ago quarter. Compared to the year-ago quarter, the primary drivers of this were the increase in overall headcount, and it was offset by reduced spend on travel and other events. Year-to-date, non-GAAP operating expenses were $151.6 million or 87% of revenue. That compares to $126.9 million or 90% of revenue a year ago.

So given uncertain business conditions, we're continuing to be thoughtful with respect to our operating expenses while making investments to deliver TAM expanding products, generate revenue growth and drive sales efficiency. We'll continue to be conservative with our hiring while keeping our goal of 255 quota-carrying sales reps by the end of the fiscal year. Q2 GAAP net loss was $25.1 million that compared to $29.3 million a year-ago quarter. On the basis of 118.4 million weighted average basic shares outstanding, net loss per share of $0.21 this quarter compares to $0.26 loss a year ago on that on a basis of 111.8 million weighted average basic shares outstanding.

Q2 non-GAAP net loss excludes stock-based compensation was $7.9 million. This compares to $12.7 million loss in the year-ago quarter. And our Q2 non-GAAP net loss per share of $0.07 compares to an $0.11 loss in the year-ago quarter. Cash and cash equivalents were $223 million at the end of the quarter.

And we continue to believe our balance sheet is strong and positions us well to weather the current economic environment. Net cash flow from operations for Q2 was a negative $15.6 million, and that's compared to a negative $11.4 million in the year-ago quarter. Capex was $18.8 million, compared to $3.6 million in the year-ago quarter, but we continue to make progress with our building projects in New York, Washington D.C., Tokyo and Paris. We expect remaining capex related to these projects to be about $32 million.

And based on updated schedules, we expect nearly all of this amount to occur within fiscal-year '21. We've successfully completed the exit of our One Madison Avenue headquarters location saving four months of lease expense relative to our original lease, and our operating expenses going forward will no longer have the impact of lease expenses of One Madison Avenue. Turning to our outlook. We expect Q3 revenue to be between $86 million and $88 million.

We anticipate non-GAAP net loss per share between $0.07 and $0.09. We expect a weighted average basic share count of approximately 120.4 million shares in Q3. We're excited about our progress in Q2. However, the business environment remains uncertain.

And as such, we'll continue to provide only quarterly guidance, not full-year guidance. We're still in early days with Answer free trials. We have a growing group of customers moving through their 90-day trials. We expect these trials to begin to convert toward the end of the year.

However, we're going to be appropriately conservative in reviewing these opportunities. To wrap things up, I'm pleased with our performance for the quarter. There are early signs that Answers is driving additional opportunities, faster sales cycles and greater sales efficiencies. We're also pleased to have executed on our plan to manage costs effectively.

Now one more thing. Jim, all the best. It's been great working with you yet again. And I agree with Howard, the team we have in place has the knowledge and experience to take us to the next level.

With that, I'll turn the call back to Howard.

Howard Lerman -- Chief Executive Officer

Thank you, Steve. We had a strong second quarter, and our Land with Answers sales promotion and our focus on sales efficiency are already showing promising results. We've got new logos using Yext to power their site search with our official Answers engine every day. And that means we are getting closer to realizing our vision to make every business in the world the official source of information about themselves.

Thank you all for your continued support, and we are looking forward to updating you on our progress next quarter and make sure to follow us on Twitter so that you can see it live and in real time.

Yuka Broderick -- Head of Investor Relations

Thank you, Howard. Andrea, can we please open to questions.

Questions & Answers:

Operator

[Operator instructions] And our first question will come from Ryan MacDonald of Needham. Please go ahead.

Ryan MacDonald -- Needham and Company -- Analyst

Yes. Thanks for taking my questions, and good afteroon, Howard, Steve and team. Congrats on a great quarter. We've definitely been following along with the Twitter feed and definitely some interesting logos that are popping up on there for Answers.

It's great to see. Howard, can you sort of frame for us sort of the success that you're seeing with Answers versus in other areas of your business? And maybe help provide a little bit more context on the top-line guide for third quarter represents a bit of a deceleration in the growth rate there despite some really positive commentary that you're seeing in various parts of the business? Thanks.

Howard Lerman -- Chief Executive Officer

Thanks, Ryan. Answers is really an amazing new product for us because it opens up our TAM significantly. The number of verticals that we can go after, as it relates to Answers, every business can -- needs to answer questions. And that's not necessarily the case for the previous product, which we led with, which is Listings.

It's all still built on the Knowledge Graph. And I think quantitatively, the most encouraging thing was that we saw 30% of in North America Enterprise, new deals of our ACV was led by Answers. So this is already beginning to have an impact. As we also said, thousands of free trial requests we saw in the quarter, of which we took those that we could put up, and we got them up, and we are working toward making this totally self-serve.

That's the next-generation here. The first stage was making this free trial. But today, we still have to set them up with our hitchhikers with our Yext admins. Going forward, we want to move toward a free trial model -- I'm sorry, a complete freemium model where customers able to set them up themselves self-serve, and then we'll go from there.

So we're feeling really good about the inbound demand for this. And we saw quantitatively some results. We have 150 customers live. The brands that you see go to answers.verizon.com.

That's a pretty amazing set of sort of first initial customers. And the results are from a user perspective, amazing too, in that you put up an Answers box and all of a sudden, your site search, volume on your own site goes up 60%. The intelligence that the customers can see from what people are asking is nothing short of extraordinary. As it relates to the guide, we're cautiously optimistic about Answers, about our business and the opportunity to put official Answers everywhere.

At the same time, we continue to take a conservative approach given the uncertainty we see in the world as it relates to the pandemic and the economy.

Ryan MacDonald -- Needham and Company -- Analyst

Excellent. And then as a follow-up, when you talk about the funnel of interest in free trials, as you're seeing that come through. Can you talk about the role that the Adobe partnership is playing in that? How is that progressing? And I know you're sort of trained the Adobe sales force sort of during the quarter. Just give us a sense of what the progress is there and if that's starting to contribute at all? Thank you.

Howard Lerman -- Chief Executive Officer

We have an active pipeline with Adobe just this context. We have a great partnership with Adobe. They Sunset their Search & Promote product last year. That's their site search product.

There's a lot of excitement in that. They're the best company in digital experience with their customer experience and their experience cloud. I think they're more than $3 billion of ARR is a huge percentage of their revenue. And they -- in their product offering, don't offer a site search right now.

That's our opportunity to partner with Adobe to provide a totally different way. And as context, their Search & Promote product was Sunset, it was a document based -- keyword-based document service. That's the search of the old way when you want to think about what that looks like, that's think Lycos, think AltaVista, think Yahoo! in 1999. That's what keyword-based searches.

Our site search, the Yext official Answers engine is a knowledge-based search using NLP that gives answers. And so the ability to combine that with the Adobe experience offering is very powerful. Because every customer journey starts with a question, every customer journey starts with a search. We're able to complete that.

We have an active pipeline with Adobe. We have great connection points with them all over the globe. And we have closed deals already some significant ones that we've been working with them on.

Operator

Our next question will come from Spencer Tan of RBC Capital Markets. Please go ahead.

Spencer Tan -- RBC Capital Markets -- Analyst

Hey, everyone. Thanks for having me on, and congrats on this quarter. Just wanted to see kind of your thoughts on what needs to be done to get to your sales quota-carrying reps of 255 by the end of the fiscal year. And then also, last quarter, you hinted on kind of having exposure to 25% to 30% of kind of heavily impacted industries.

Just wondering if this allocation has changed this quarter and how you're thinking about adding new accounts under this environment through the rest of the second half? Thank you.

Howard Lerman -- Chief Executive Officer

Thanks for that, Spencer. First off, we're constantly recruiting to build our quota-carrying headcount up. I still believe we can get to our target of 255 by the end of the year. I would also like to remind you that those reps that we have right now is the most tenured set of reps we've ever had.

Tenured really does matter when it comes to productivity and efficiency. And I'd also like to point out we did see an incredible improvement in efficiency year over year, 72% to 64% of revenue went to sales and marketing, which we feel really great about, in large part due to this new motion, due to the tenure of the reps and due to our improvements in our new product. A big part of Answers is going after new industries and new verticals. The tale of two cities that we talked about last quarter as it relates to the ARR from different industries, it's about the same this quarter.

And so we had that base. It's still there. That said, with Answers, we can really go after new kinds of customers. And I do expect that mix to continue to evolve over time as we target new verticals and get out there to be able to bring Answers to industries like education, right? We never could sell Listings to a university.

Yet if you follow us on Twitter, you'll see that there's education universities that have put Yext Answers up, and that's a big opportunity for us. There's all kinds of new industries that we've never been in before of CBG. We could never work with Campbell's Soup on Listings yet. Now they've -- if you look at their site, you can see like they're using Answers and we're answering questions about them.

So we've used our new product to help shift the industries and our proactive sales approach can help us do that as well.

Spencer Tan -- RBC Capital Markets -- Analyst

Got it. Thanks very much.

Operator

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

Hamza Fodderwala -- Morgan Stanley -- Analyst

Hey, guys. This is Hamza Fodderwala for Stan Zlotsky. First, congratulations, Jim, on your next chapter. I wanted to dig in a little bit more on the Co-CRO structure between Patrick and David.

How is that going to work? How is the role is going to be split up because obviously, Co-CRO structure, it is somewhat unique within software. So just curious how that structure is going to work going forward?

Howard Lerman -- Chief Executive Officer

Thanks for the question. I'm pretty confident that this is a structure that we've seen in other companies before. Patrick's got the international and the CBU, and Dave's got North America and the EBU. This is really a just continued to rent cycle and repeat.

You saw the improvement last quarter. And I believe that with the team that we have in place, we're going to continue to do that, continue to go forward. Also, Dave and Patrick, if you want to talk about your experience in working together and partnering.

Dave Rudnitsky -- Executive Vice President, North American Enterprise Sales

Stan -- Hamza, this is Dave Rudnitsky. We've done this at scale before. Both of us have spent quite a few years at Salesforce. I have responsibility for the good part of the enterprise; Patrick, for the CBU.

And I think as you look at how we segment our business, it's pretty clear as to what our responsibilities are and how we're going to go after each market segment.

Patrick Blair -- Executive Vice President, Global Commercial Business

Yes. The only thing I would add to that, as Dave said, we've worked together for a long time. We collaborate every day. I've been here for a year and a half, and Dave and I talk every single day.

So we're both very excited about this next chapter in our transformation and are really looking forward to it. And I think the way that we've divided things up, gives us both the ability to concentrate on the businesses we have, but also collaborate in a way that's just going to make this company even more powerful.

Hamza Fodderwala -- Morgan Stanley -- Analyst

Got it. That's helpful. Maybe just a quick follow-up. It seems like from the commentary that the demand trends really picked up throughout the quarter.

And I'm wondering if you could give any color on what you're seeing into the pipeline going into the back half of the year, especially as some of the restrictions around the pandemic start to get lifted, maybe those impacted verticals start to see some improvement in demand as well. So any color you could give there would be really helpful. And that will be it for me. Thank you.

Howard Lerman -- Chief Executive Officer

Yeah. I mean I think you heard us say that our business momentum ticked up throughout the quarter. We finished with a super strong July. No major changes in August, except typical seasonality.

So I think -- look, overall, we're seeing companies that are adjusting to changes from remote working business environment. They're having conversations. There is demand. And we look forward to seeing what we can do for the back half of this year.

Steve Cakebread -- Chief Financial Officer

Yeah. Howard, if I can jump in here, too, a little bit. Like Howard said, we've seen a lot of strong demand. And kind of back to Ryan's question at the start about kind of the growth rates look like they're slowing in Q3 and Q4.

Well, that may be mathematically true. I just want to remind everybody, our big business comes in Q3 and Q4. Last year was not impacted macro economically. So we had very strong quarters last year.

So I think you're naturally going to see some of the math in a macroeconomic challenged environment reflect more of that than the strength of our business. And I think all of us feel very good about where we're going here. But I'd just caution you to look at the growth rates in the second half. That's a challenged economy versus one that we've just boomed in Q3, Q4 last year.

Hamza Fodderwala -- Morgan Stanley -- Analyst

Thank you.

Operator

Our next question comes from Koji Ikeda of Oppenheimer. Please go ahead.

Chad Schoening -- Oppenheimer and Company Inc. -- Analyst

Hi, guys. This is Chad Schoening on for Koji. Thanks for taking our question. We've seen kind of the official branding of the Yext search bar online, something you guys talked about and really some free marketing, so to speak.

But if you could dig a bit deeper on that in terms of branding and kind of customer awareness. Wondering if you guys have shifted or reconfigured your marketing budget at all during the pandemic? And does that shift more toward getting the word out on kind of the Answers free trials? Or just thinking about where those dollars are being focused?

Howard Lerman -- Chief Executive Officer

Well, Jim, and Steve and Patrick are amazing salespeople, amazing. But there is no better salesperson than your own product. And that is why we proudly put our logo right in front and said, go to krispykreme.com. Just go right there, by the way, don't necessarily buy too many donuts.

I only had a dozen yesterday when they brought them into the office. My personal favorite is the strawberry iced donut. It was just off the hook. That is the best marketing we can have, and that's part of our product.

So when the user gets a great experience, there's really twofold there. There's training the consumer that when they see the Yext official Answers seal, they're going to get the official answer, not a link, they're not going to get a Lycos, like AltaVista 1998 experience off of a site. They're going to get a Google-like experience off of a site. I think a good way to think about this is just like Shopify has given every company their own Amazon, what we're trying to do at Yext is give every company their own Google.

It used to be, you go to a site and you see a Google search box on the site, but you don't see that anymore because they exited that site search business in that way. That's our opportunity to go in and put the Yext box up there to help the consumer get a great answer, a great experience, so they stay with that customer, and they don't bounce out so that that customer has to buy them back. And from a marketing perspective, putting that up there is a great way for us to generate free trials. It's a great way for us to generate awareness among consumers and our target audience who are really marketing and digital experience folks within a company.

Chad Schoening -- Oppenheimer and Company Inc. -- Analyst

Super helpful. Thank you.

Operator

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

Mark Murphy -- J.P. Morgan -- Analyst

Yes. Thank you, Jim. We will miss you, and I want to say best wishes for everything in the future. And it's also great to know that you have someone as talented as Dave stepping in and also Patrick.

So Howard, following up on them --

Jim Steele -- President and Chief Revenue Officer

I've trained them well.

Mark Murphy -- J.P. Morgan -- Analyst

Yes, you did train -- you've trained everyone well. Howard, just following up on what you were just talking about. The question that's crossing my mind is when a customer deploys Yext Answers, what is the search technology that they are replacing? What is the incumbent technology that they're pulling out?

Howard Lerman -- Chief Executive Officer

Well, there's a lot, but you've got Endeca, which is an Oracle technology; you have often a custom in-house solution, which has been built. This is sort of -- site search is an existing market that has a bunch of legacy players, and we've just taken a totally different approach in showing up with an answers-based technology that starts with having a structured knowledge graph where the customer puts in their knowledge in a structured way as opposed to a technology focused on crawling and ingesting and then generating document links that match a keyword. So it's a fundamentally different approach. Often, you're replacing something that the IT team built.

But we've got such a different unique way that starts with the Knowledge Graph. And in many cases, for our customers, as an upsell, we already have a ton of their information in the Knowledge Graph, right? So we might have a bank's locations or their ATMs or their advisors. That's all sitting in there. I think we said we had -- was it 385 million stacks in the Knowledge Graph, which is a 71% year-over-year increase.

That is the structured knowledge that makes this search possible that makes it easy to kind of get going. And we are just taking a new and unique approach, leveraging that huge differentiator.

Mark Murphy -- J.P. Morgan -- Analyst

OK. And so I guess, Howard, as they're doing that, I think the reason historically, they've had the crawling and ingesting and matching document link. Because it leaves it pretty open-ended, right? They don't have to define what can be asked. They can sort of handle a huge array of questions on the website.

So I guess I'm just wondering what happens to that element of it when they put in Yext Answers?

Howard Lerman -- Chief Executive Officer

Well, if you run a search on a site that uses the Yext Answers engine, what you'll see are the results that we'll have on the top, there'll be tabs kind of like Google's got their main results, and then maybe they have tabs by entity, like a map for, let's say, doctors or let's say, it's a different type of tab or a different type of entity [Technical difficulty] links. That is the old search. It's -- so when you use the Yext Answers, just like when you search on Google, Google is a blend of knowledge-based answers and keyword-based document search. The keyword-based document search are the third-party sites that they send you to.

But the knowledge-based answers are the answers that appear directly in the Google search from their own knowledge graph. We're that first part for every company. And then we'll either blend whatever they're using today with the links part of our experience on the back end, so that it's always able to catch that sort of, as you pointed out, long tail question, if it's there. But remember, Mark, what we mainly see are, for most of these companies, there's -- the intelligence that they get from putting up Yext Answers, they're able to, for the first time, really get and be able to see what are people asking right now.

And the volumes are huge. The search volumes are huge. People ask a ton of questions when they can get an answer. And as we see questions pop up, the admins of that company, if they're unanswered, will simply add the answer to the Knowledge Graph.

So that the next time someone asks that question, there's a beautiful feedback cycle, and they will get that answer. So the most commonly asked questions quickly get populated, quickly end up in the Knowledge Graph. And if something pops up out of nowhere, they'll see that pretty fast and make sure that that question is met that that answer is there.

Mark Murphy -- J.P. Morgan -- Analyst

OK. And then one final one. Thank you. That's a great explanation, Howard.

The -- I guess I wanted to ask either for Jim or Dave and Patrick. The thinking through what Steve was just describing, just kind of a little dose of just the economic reality and then having the tough comps in Q3 and Q4. When is the next opportunity to grow your net new ARR year over year? In other words, to grow the bookings year over year, is there -- do you see that opportunity around the corner maybe by the April quarter or sometime around next summer?

Howard Lerman -- Chief Executive Officer

Steve, we'll let you take that question.

Steve Cakebread -- Chief Financial Officer

Yeah. Mark, that's a good question. It's really a function of macroeconomics right now. I mean, every country, every city is some different stage of opening, big businesses are more advanced than some smaller businesses.

So we can't really answer that. I will say that when you look at our pipelines and inbound free trials and what's going on, it feels very good. And if we were in normal circumstances, we would have, I think, much better opportunities here. But you're asking us to look out into next year.

We've got elections coming up. Clearly, this is going to be more challenged. So we're definitely going to take a look at things at the end of our Q4 because we'll be into next year, but it's going to take a little bit of time to see that comment. It's hard to say.

Mark Murphy -- J.P. Morgan -- Analyst

Understood. Thank you.

Operator

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

Naved Khan -- Truist Securities -- Analyst

Yeah. Thanks, guys. On the self-serve launch timing, maybe can you give us some sense of when that might become available or if it already has?

Howard Lerman -- Chief Executive Officer

Well, since you can go ahead and sign up for it now, and it launched late last night.

Naved Khan -- Truist Securities -- Analyst

Understood.

Howard Lerman -- Chief Executive Officer

No, it's not perfect yet. It's not perfect yet, but if you go and do it, it is self-serve as of late last night.

Naved Khan -- Truist Securities -- Analyst

And maybe just a follow-up on the Answers. So is it fair to assume that a majority of the customers have tried it are opting to become paying customers? And of those who may not be, what is the typical reason, is it budget? Or is it something else?

Howard Lerman -- Chief Executive Officer

We are definitely seeing very strong for those that try it, a very strong inclination to convert to paying customers, as you might expect, because the value prop of lower support costs, increased revenue and customer intelligence is super strong and immediately quantifiable within -- first off, there's a screen in the account you can log into and it shows we use our classifier to classify keywords is revenue generator and cost savings. And they can see the number of searches and clicks and conversions as customers hook up to conversion tracking to Yext, and they can see exactly how much money they're making from their transactions. And so they're either saving money or making money. And invariably, usually, it looks -- the ROI is extremely compelling.

So we see a continuation. I don't know if, Patrick, you had something to add there.

Patrick Blair -- Executive Vice President, Global Commercial Business

No, I think, I would agree with everything that Howard said. And I think for the customers that are turning away, we're not seeing much of that yet. We started in Q2 [Technical difficulty] incredibly positive. We've actually even seen people moving to paying customers even prior to the end of the 90 days.

So far, so good, and we're very, very excited about how it's been going.

Howard Lerman -- Chief Executive Officer

Naved, I'm going to watch for your sign up through the self-serve.

Naved Khan -- Truist Securities -- Analyst

Yeah, I'll change my name. So you would have to guess. A follow-up for Steve, just on the guide, Steve. So if I look at where Q2 guide was versus what it came out, should I think about Q3 the same way conservatism and the fact that your renewal activity is obviously skewed toward the back half, and that's reflected in the guide.

Howard Lerman -- Chief Executive Officer

Naved, do you mind repeating the question? We didn't hear you for a second there. Must have been a Zoom blip.

Naved Khan -- Truist Securities -- Analyst

Yes. So just on the outlook for third quarter, should we look at it the same way as your second quarter guide, meaning there's obviously macro uncertainty and the fact that a bunch of your -- actually, majority of your renewals are in the back half of the year. So that's also reflected in the guide. Is that fair?

Steve Cakebread -- Chief Financial Officer

This is Steve. Sorry, my line got dropped there. Can you just give me a quick review on your question? You're looking at Q2 guide versus where we came out, yes, we did good. Q3, I think it's -- this is where we have a large quarter, like I said, in Q4.

So we're just going to be conservative in how we think about the quarter. The macroeconomics have a bigger play in this than our pipeline or opportunities right now.

Naved Khan -- Truist Securities -- Analyst

Got it. But in terms of deal activity, the Q2 benefit from any deals sort of moving from Q3 into Q2, or anything like that?

Steve Cakebread -- Chief Financial Officer

No. No, not really. I mean, keep in mind, we kind of all forget this because we have such a strong Q2, but a majority of the trials simply got started in Q2. So the manifestation is probably in Q3 and Q4 of those conversions.

But macroeconomic headwinds haven't -- they haven't really cleared, and there's still a fog, and we've got a lot of things to get through. But to Patrick's point and David's point earlier, our customers are understanding the benefit, and I do think over time, we'll continue to see increased bookings. But right now, we're just going to be conservative and thoughtful about what we're trying to do here and make sure we can execute.

Naved Khan -- Truist Securities -- Analyst

Thank you.

Operator

Our next question comes from Arjun Bhatia of William Blair. Please go ahead.

Arjun Bhatia -- William Blair and Company -- Analyst

Hey, guys. Great job on the results. And Jim, best of luck to you in the future. Good working with you, although it was brief.

Jim Steele -- President and Chief Revenue Officer

Thanks, Arjun.

Arjun Bhatia -- William Blair and Company -- Analyst

Howard, maybe I -- yes, absolutely. Howard, maybe I just want to follow-up on Answers and some of the kind of narrative that that you've talked about already, but one of the biggest values of Answers is that it's going to extend you to new markets that you didn't have access to in the past. When you look at the customers that are trying Answers that are going through the free trial, that are in the pipeline or maybe those that have converted already, what can you tell us about how much of that is cross-sell into the existing base versus growing the pie with new accounts that you didn't have before?

Howard Lerman -- Chief Executive Officer

Well, our free trial offers mainly focused on new logo acquisition. The point of the free trial is to be able to get to new accounts. So by definition, we're going for those new accounts. We're going for new logos.

You don't necessarily approach an existing customer for a free trial. That free trial is trying to get folks to come in that you've never talked to you before. So that's the point of it. There's no question that when you look at the mix of free trials and Answers experience is going live, you can see it, there's just a different type of business that you see here.

And by the way, that includes even the World Health Organization in the first quarter. The State Department. You didn't approach them before and sell them your Listings product. You -- but we have this amazing official Answers engine and as people need to be able to travel around the world or they need to answer questions about where they are allowed to travel, they go to the official source itself, and that comes from the Yext official Answers engine.

So there is unquestionably a shift in the mix of [Technical difficulty] market, not just those that are focused on being able to leverage Listings.

Arjun Bhatia -- William Blair and Company -- Analyst

Got it. OK. And then maybe a question either for Jim or Pat or Dave whoever wants to take this up. It's great to see the sales efficiency pick up here in Q2.

Undoubtedly, some of that is due to lower travel and expenses. But when you think about kind of how your long-term go-to-market motion has been changed either as a result of the pandemic or just the introduction of Answers, how should we think about the sales efficiencies sticking around on the other side of the pandemic and into 2021. Is this a fundamental change? Or are there some temporary items in there that might come back once the pandemic has subsided?

Dave Rudnitsky -- Executive Vice President, North American Enterprise Sales

Arjun, it's Dave Rudnitsky. I think just a couple of answers there. One, it's become pretty apparent that we're comfortable with our sales motion in a work from home. I think it was more awkward for our clients in the beginning of this in early March, where they were more uncomfortable working for home.

Many of my folks, particularly in the enterprise, have done this a lot in their career. And so we quickly adapted to. But what I'm really happy about is the motion that we have, where we can be as productive. And I will tell you one thing, and I've talked to my leaders about this, once we get past all this craziness and it gets to some sort of sense of normalcy, we don't need to load the bus up anymore or the plane up anymore to do our jobs, we feel really comfortable with it.

And I think the other part of your question was in terms of how it's changed, particularly with Answers, we're just getting a hell of a lot more of that. I look at my pipeline for the AFTs and it goes across a bunch of industries that six, nine months ago, on this call, we wouldn't be talking about. There's a number of professional services companies. There's state and local government.

There's public sector, hardware companies, software companies, several professional sports franchises. These are targets that we didn't have available without Answers. So we get more of that. We have a reason to have conversations with industries we haven't done this with before.

And as Howard mentioned in the opening comments, it brings along a huge attach rate for our existing customers.

Jim Steele -- President and Chief Revenue Officer

The only thing I would add to that on the efficiency side, as Howard mentioned earlier, we have the highest tenure than we've ever had in the sales organization. So our team now is -- I've spent a lot of time since I've been here, bringing in team and growing the team. And now we have a tenured team. We've got an excellent enablement organization.

And so I think the efficiencies are definitely going to continue.

Arjun Bhatia -- William Blair and Company -- Analyst

That's very helpful. Thank you, guys.

Operator

Our next question will come from Rohit Kulkarni of MKM Partners. Please go ahead.

Rohit Kulkarni -- MKM Partners -- Analyst

Hey. Thanks, and nice quarter guys. Couple of questions on Answers, ROI and pricing. Can you just talk about what's the feedback that you're getting from them? How is the ROI? And how you feel about pricing Answers as a stand-alone or like an add-on product to new customers or existing ones? I know you have mentioned in the past, like capacity-based or click-based or usage-based pricing.

Can you just walk us through how you're thinking about pricing right now?

Howard Lerman -- Chief Executive Officer

Sure. Let's start with ROI because I think that's the most important. The ROI, like I mentioned before, what we do is we classify every question that a company gets as either revenue-generating or cost savings. So one of the ways that companies make a ton of money from Answers is by saving money from support questions.

Every time someone calls up customer support, it can [Technical difficulty] user by answering their question online, without a chatbot, by the way, without a live person to answer on live chat, by the way, which also has a cost. We're just talking about catching as many as possible with Answers. We can classify a question as doing so and then estimate how much they save whenever the user engages in clicks, and show a cost savings. And then in addition to that, we also can classify queries based on the industry that a company is in as revenue generating.

It's a little bit like AdWords, where you can see how many queries you got and you know what you're paying for those, but obviously, you don't pay for specific keywords here, but we show you those questions, and then -- we show you exactly how many clicks you got on those questions, and then the user can either hook up conversion tracking where they can ascribe direct revenue to a specific query that they see through their e-commerce engine or alternately, they're able to look in to assign what a click is worse, and then they can see the total amount of revenue that they believe generated. And the addition of those two numbers, the cost savings plus the revenue generated is the economic impact. And the economic impact is typically very, very, very high relative to the pricing of what we charge for Answers, which is the model is capacity based. So it's based on -- you get a bucket based off a number of queries that that you want to use.

And for the customer, since they get the free trial, we're able to see how many queries that the user -- how many queries that the -- search is flat, meaning that when people start using Answers, there's a bump, it goes up, but then they know how many questions that they're going to need to -- how many sources they're going to need to buy. So it's obvious which bucket they should pick based on the trial sample. What we see usually is between -- somewhere between three and like 100x economic impact versus the cost of keeping Answers. It's a very clear-cut compelling case, and that's just on a quantitative basis.

It doesn't even contemplate the extraordinary customer intelligence and insights that the customer gets by knowing what people are asking them for.

Rohit Kulkarni -- MKM Partners -- Analyst

OK. Awesome. And do you feel that the conversations you're having is the budget for Answers coming from the CIO's office or the CMO's office? Are you transcending kind of the budgets that otherwise would have been smaller now you're getting into the more of a CMO's office budget that clearly has potential for upsell as such?

Dave Rudnitsky -- Executive Vice President, North American Enterprise Sales

Rohit, it's Dave Rudnitsky. We're seeing the budget come from a lot from the CMO, a lot from the CDO, the Chief Digital Officer. Answers brings us right into the heart of the conversation about a digital transformation, which is on the top of mind for all of those executives right now.

Rohit Kulkarni -- MKM Partners -- Analyst

OK. Awesome.

Operator

This concludes our question-and-answer session. I'd like to turn the conference back over to Yuka Broderick for any closing remarks.

Yuka Broderick -- Head of Investor Relations

Thank you for your time, everybody. We're looking forward to updating you next quarter. Have a good day.

Operator

[Operator signoff]

Duration: 59 minutes

Call participants:

Yuka Broderick -- Head of Investor Relations

Howard Lerman -- Chief Executive Officer

Jim Steele -- President and Chief Revenue Officer

Dave Rudnitsky -- Executive Vice President, North American Enterprise Sales

Patrick Blair -- Executive Vice President, Global Commercial Business

Steve Cakebread -- Chief Financial Officer

Ryan MacDonald -- Needham and Company -- Analyst

Spencer Tan -- RBC Capital Markets -- Analyst

Hamza Fodderwala -- Morgan Stanley -- Analyst

Chad Schoening -- Oppenheimer and Company Inc. -- Analyst

Mark Murphy -- J.P. Morgan -- Analyst

Naved Khan -- Truist Securities -- Analyst

Arjun Bhatia -- William Blair and Company -- Analyst

Rohit Kulkarni -- MKM Partners -- Analyst

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