Yext, Inc. — FY2018 Form 10-K
Reporting period: Fiscal year ended January 31, 2018. Yext sells subscription software that helps businesses manage digital information and distribute it across its PowerListings Network. The filing reports annual results, not a separate fiscal fourth-quarter summary.
Financial performance and liquidity
| Metric | FY2018 | FY2017 |
|---|---|---|
| Revenue | $170.2 million | $124.3 million |
| Gross profit / gross margin | $126.1 million / 74.1% | $87.3 million / 70.3% |
| Operating loss | $66.6 million | $42.7 million |
| Net loss | $66.6 million | $43.2 million |
| Non-GAAP net loss | $44.2 million | $33.3 million |
| Cash used in operating activities | $31.9 million | $7.7 million |
| Cash, cash equivalents and marketable securities | $118.3 million | $24.4 million in cash and equivalents; no marketable securities reported |
Revenue grew 37%, driven by customer acquisitions and subscription expansions; revenue from enterprise and mid-size customers, including resellers, increased 43% to $152.7 million. Gross margin improved as revenue outpaced cost of revenue. Operating expenses rose 48% to $192.7 million, led by sales and marketing, which increased 56% to $127.0 million. Stock-based compensation increased to $22.4 million from $9.9 million.
Operating cash use increased substantially, with management citing the net loss and working-capital movements, including higher accounts receivable, partly offset by increased deferred revenue and non-cash stock compensation. Investing cash use was $88.1 million, primarily reflecting purchases of marketable securities; financing cash inflow was $129.6 million, principally IPO proceeds. At year-end Yext had no debt outstanding and $15.0 million available under its revolving line. Management said existing cash and investments should cover projected operating needs for at least 12 months.
Changes, outlook and material matters
- Revenue growth moderated slightly from 38% in FY2017 to 37% in FY2018; net losses widened. Dollar-based net retention declined to 109% from 119%, which management attributed mainly to customer mergers, acquisitions and bankruptcies; enterprise retention was generally consistent with the prior year.
- International revenue increased to $14.2 million from $5.5 million and exceeded 10% of total revenue. The company expanded its network to approximately 150 providers and launched Knowledge Assistant and Yext for Events.
- The April 2017 IPO raised $123.5 million net of underwriting discounts and commissions, before $4.4 million of offering costs. Preferred shares converted into common shares at the IPO.
- The December 2017 U.S. tax law change resulted in a $21.6 million tax benefit from remeasuring deferred taxes, while the company reported an overall income-tax provision of $0.2 million. Certain tax-law estimates remained provisional.
- No numerical revenue or earnings guidance is provided in the filing. Management describes plans to invest in sales, research and development, international expansion, new products and network growth, while warning that expenses are expected to increase and profitability is uncertain.
- Key risks include continuing losses, execution and sales-force scaling, customer retention and concentration, dependence on third-party network integrations and resellers, competition, security and service outages, international expansion, privacy regulation and currency exposure. The company also disclosed two material weaknesses in financial reporting controls—revenue-process controls and financial-close oversight—and said remediation was in progress; it could not estimate the time required.
- The filing reports no material pending legal proceeding. A prior sales-practices class action was settled and dismissed with prejudice in April 2017. The revolving credit facility was amended in March 2018, after year-end, to extend maturity to March 2020.
Most important facts for investors to verify
- Whether revenue growth and dollar-based net retention stabilize, and whether customer losses or consolidation affect renewals.
- Whether expense growth—particularly sales and marketing—and operating cash use can be moderated while sustaining growth.
- Whether cash, investments and available credit remain sufficient given losses, contractual commitments and future investment plans.
- Progress in remediating both material weaknesses, especially revenue recognition and financial-close controls.
- The final effects of the Tax Cuts and Jobs Act and adoption of the new revenue-recognition standard, planned for February 1, 2019.
- Whether the company can maintain key PowerListings Network integrations and manage the disclosed reseller and customer concentration risks.