Yext, Inc.

Financial Performance

Q1: Total revenue declined by 2% year over year again in Q2. Given your previously stated transition away from short-term quarterly narratives, how should investors interpret this continued top-line contraction alongside your expanding margins?

A1: The year-over-year revenue decline remains an intentional result of the shift away from smaller, less complex customers toward scaled partnerships with sophisticated enterprise organizations. The evidence for making this shift continued to build in the second quarter: ARR from customers with ARR of ≥$50K grew 2% year over year to $405.9 million, accelerating from approximately 1% growth in Q1, and now represents 92% of total ARR, while the decline in sub-$50K ARR was consistent with the plan we have previously laid out. As the enterprise cohort continues to become a larger percentage of total ARR, and with net retention in that cohort improving to 98%, we are reaching the point where the impact of compounding will start to become meaningful, and we expect it to naturally drive a positive inflection in top-line growth. On profitability, in June we said Adjusted EBITDA margin would build towards 30% through the balance of the year and that GAAP net income margins would run 10% to 15% in each remaining quarter. In the second quarter we delivered a 31% Adjusted EBITDA margin, ahead of schedule, and GAAP net income margin of 12%, within the expected range.

Q2: Gross margin improved year over year in Q2 despite the incremental infrastructure costs tied to AI innovation. Is that sustainable, and how should we think about gross margin over the balance of FY27?

A2: Yes, we believe our gross margin profile is sustainable. Q2 GAAP gross margin improved to 75.5% from 75.2% a year ago, and Q2 Non-GAAP gross margin of 78.0% was roughly flat with 78.1% in the prior-year quarter. We have continued to absorb incremental infrastructure costs tied directly to AI innovation with Non-GAAP cost of revenue remaining consistent on a dollar basis. We continue to believe that over the long-term, Non-GAAP gross margins will be within our historical 75-80% target range. Quarter-to-quarter movement will continue to reflect the number of days in the quarter because while costs remain relatively consistent each quarter, revenue is directly tied to the number of days.

Q3: GAAP operating expenses were 60% of revenue in Q2, up from 49% in the year-ago quarter. What drove the increase, and does it change your efficiency trajectory?

A3: No, the comparison is distorted by one-time items rather than by any change in our cost structure. The year-ago quarter included a significant one-time benefit within G&A from acquisition-related adjustments to contingent consideration, which made the prior-year GAAP expense base unusually low. On a Non-GAAP basis, which excludes these items, operating expenses declined to $54.8 million, or 49% of revenue, from $64.7 million, or 57% of revenue, with sales and marketing falling to 20% of revenue from 26%. The underlying efficiency trajectory remains intact: we delivered a 31% Adjusted EBITDA margin in the quarter, ahead of the schedule we laid out in June, as we continue to find ways to be more efficient across sales and marketing, R&D, and overhead, without negatively impacting our product roadmap or our ability to grow revenues.

Q4: Free cash flow was $7.7 million in Q2, down from $37.0 million in Q1. What explains the sequential decline, and what is the outlook for cash generation?

A4: The sequential decline is seasonal, not structural. Cash generation in our business is seasonal because most of our contracts bill annually, with collections concentrated in the fourth and first fiscal quarters and the second and third quarters running at the low-water mark. Free cash flow of $7.7 million this quarter was consistent with typical seasonality. For the twelve months ended July 31, 2026, free cash flow was $53.0 million, and we expect a meaningful step-up in trailing twelve-month free cash flow beginning in the third quarter as we fully lap the approximate $20 million of Hearsay retention payments made in FY26. We ended July with $86.8 million in cash and cash equivalents, another $13.5 million of restricted cash, and $147.7 million of debt associated with our credit facility, for net debt of $60.9 million, or about 0.5 times trailing twelve-month Adjusted EBITDA. Our conservatively capitalized balance sheet leaves us with the financial flexibility to pursue accretive capital allocation opportunities moving forward.