Yext, Inc. — Form 10-Q Summary
Reporting period: Three months ended April 30, 2018 (Yext fiscal 2019 first quarter). Yext provides a cloud-based platform for businesses to manage digital information across a network of approximately 150 services and applications.
Financial performance
| Metric | Three months ended Apr. 30, 2018 | Three months ended Apr. 30, 2017 |
|---|---|---|
| Revenue | $51.1 million | $37.1 million |
| Gross profit / margin | $38.3 million / 74.9% | $27.4 million / 73.9% |
| Operating expenses | $56.3 million | $42.8 million |
| Operating loss | $18.0 million | $15.4 million |
| Net loss | $18.1 million | $16.1 million |
| Net loss per share, diluted | $0.19 | $0.40 |
| Cash from (used in) operating activities | $1.4 million | $(8.3) million |
- Revenue increased 38%, primarily from new customer acquisitions and expanded subscriptions with existing customers. International revenue rose to $6.2 million from $2.2 million; North American revenue was $44.9 million.
- Gross margin improved by 1.0 percentage point as revenue growth outpaced cost-of-revenue growth. Sales and marketing rose 30% to $37.0 million, research and development rose 55% to $7.7 million, and general and administrative expenses rose 24% to $11.5 million.
- Operating loss widened by $2.6 million despite higher revenue and gross margin, as operating expenses increased. Net loss increased by $2.0 million; the lower loss per share reflects a larger weighted-average share count after the 2017 IPO.
- Operating cash flow turned positive, but was supported substantially by a $20.3 million decrease in accounts receivable and noncash expenses, including $8.0 million of stock-based compensation. Deferred revenue declined by $5.5 million; management cautions that quarterly cash flow can vary and may not remain positive.
Financial position and liquidity
- At April 30, 2018, cash and cash equivalents were $53.4 million and marketable securities were $70.7 million, totaling $124.1 million, versus $118.3 million at January 31, 2018.
- Current assets were $165.6 million and current liabilities were $104.7 million. Total assets were $188.4 million; total liabilities were $108.1 million; stockholders’ equity was $80.3 million.
- Deferred revenue, current, was $83.9 million, down from $89.5 million at January 31. The filing reports no debt outstanding on the $15.0 million revolving credit line; all $15.0 million was available. The facility maturity was extended to March 16, 2020, and the company reported covenant compliance.
- Management believes available cash, cash equivalents and marketable securities will cover projected operating requirements for at least 12 months. Capital expenditures were $1.6 million. Contractual obligations included $24.2 million of operating lease payments and $15.0 million for application providers and other commitments.
Outlook, risks and notable items
- No quantified revenue, earnings or margin guidance is provided. Management plans continued investment in international expansion, research and development, and sales and marketing; those investments and higher headcount are increasing costs.
- The company has a history of losses and an accumulated deficit of $251.6 million. It expects operating expenses to rise and says it may continue to incur operating losses.
- Yext continued remediation of two previously identified material weaknesses in internal controls: revenue-recognition controls and financial-close review and oversight. Management said disclosure controls were effective as of April 30, 2018, but remediation is ongoing and its timeline is uncertain.
- Other key risks include dependence on third-party network providers and resellers, customer renewals and sales-force execution, competition, international expansion and foreign-currency exposure, data security and privacy regulation (including GDPR), and the ability to achieve profitability. The company reported no material legal proceedings and considered the likelihood of a material adverse impact from ordinary-course claims remote.
- Yext adopted accounting guidance on employee share-based payments and restricted cash. It planned to adopt the revenue-recognition standard on February 1, 2019 using the modified retrospective approach and was still assessing its effects, including on deferred commissions.
Important facts for investors to verify
- Whether revenue growth and international expansion continue, and whether renewals and customer subscription expansions support that growth.
- Whether operating expenses and stock-based compensation grow faster or slower than revenue, and whether losses narrow toward profitability.
- Whether positive operating cash flow persists after considering billing, collections, deferred revenue and other working-capital movements.
- Progress in remediating the two material weaknesses and the company’s readiness for applicable public-company reporting requirements.
- The eventual effects of adopting the new revenue-recognition standard and the continuing assessment of Tax Reform Act impacts.
- Liquidity and contractual commitments, alongside the risks associated with network-provider relationships, privacy regulation and international operations.