Yext, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended October 31, 2017; comparisons are to the periods ended October 31, 2016. Amounts are in U.S. dollars.
Business context
Yext provides a cloud-based platform for businesses to manage digital information and distribute it across more than 100 services. Revenue is primarily subscription-based. The company reported more than 1 million licenses on its platform as of October 31, 2017. It completed its IPO in April 2017, raising approximately $119.1 million net of underwriting discounts and offering costs; outstanding preferred shares converted to common stock.
Financial performance
| Metric | Three months ended Oct. 31, 2017 | Year-over-year change | Nine months ended Oct. 31, 2017 | Year-over-year change |
|---|---|---|---|---|
| Revenue | $44.3 million | Up 39% | $122.2 million | Up 38% |
| Gross profit / margin | $32.7 million / 73.7% | Margin up from 70.8% | $90.3 million / 73.9% | Margin up from 69.3% |
| Operating expenses | $49.9 million | Up 53% | $139.4 million | Up 55% |
| Operating loss | $17.2 million | Widened from $10.1 million | $49.1 million | Widened from $28.4 million |
| Net loss | $17.1 million | Widened from $10.2 million | $49.6 million | Widened from $28.6 million |
| Net loss per share, diluted | $0.19 | Loss per share narrowed from $0.33 | $0.67 | Loss per share narrowed from $0.92 |
| Operating cash flow | Not separately presented | $(29.8) million | Compared with $(6.8) million |
Sales and marketing was the largest operating expense: $32.8 million in the quarter, up 61%, and $91.9 million year to date, up 66%. Management attributed expense growth mainly to higher headcount, commissions, and stock-based compensation. Stock-based compensation totaled $5.9 million in the quarter and $15.0 million year to date.
At October 31, cash and cash equivalents were $21.1 million and marketable securities were $92.4 million, totaling $113.5 million. Current assets were $149.5 million and current liabilities were $83.6 million. The company had no debt outstanding, with $15.0 million available under its revolving credit line. It repaid $5.0 million of borrowings in April 2017. The credit facility matures March 16, 2018.
Material changes and management commentary
- Quarterly and year-to-date revenue growth was attributed to customer-base expansion and larger subscriptions from existing customers.
- Gross margin improved as revenue grew faster than cost of revenue; cost of revenue as a share of revenue fell year over year.
- Operating losses and operating cash outflows increased as the company invested in growth. Operating cash use was $29.8 million for the first nine months, versus $6.8 million a year earlier.
- Investing cash outflow was $95.4 million, primarily reflecting purchases of marketable securities. Financing cash inflow was $121.7 million, mainly from the IPO and employee stock transactions, partly offset by offering costs and debt repayment.
- Revenue from Europe was $4.0 million for the quarter and $9.2 million year to date, compared with $1.7 million and $3.8 million in the prior-year periods. North America remained the larger region.
Outlook, risks, and unusual items
- Management stated existing cash, cash equivalents, and marketable securities should fund projected operating requirements for at least the next 12 months. No specific revenue or earnings guidance is provided in the filing.
- Management intends to continue investing in international expansion, research and development, and sales and marketing. It cautioned that future capital needs depend on business factors and that additional financing may not be available on acceptable terms.
- The company reported a history of losses and an accumulated deficit of $216.5 million. It expects operating expenses to rise and may continue to incur losses; profitability is not assured.
- Two previously identified material weaknesses in internal controls—revenue recognition controls and financial-close review and oversight—were still being remediated. Management concluded disclosure controls were effective as of October 31, 2017.
- Key disclosed risks include retaining PowerListings Network relationships, customer renewals and reseller dependence, competition, execution of rapid growth and international expansion, cybersecurity and service availability, and privacy and regulatory compliance.
- The Tropical Sails litigation was settled in April 2017 and dismissed with prejudice. The filing says other ordinary-course litigation was not expected to have a material adverse impact.
- Marketable securities had $148,000 of unrealized losses, recorded in other comprehensive loss; management did not consider these losses other-than-temporary. Contractual commitments totaled $26.7 million for operating leases and $18.8 million for application providers and other obligations.
Important facts for investors to verify
- Whether customer and license growth, subscription renewals, and revenue expansion can continue at the reported pace.
- Whether expense growth—particularly sales and marketing—and stock-based compensation translate into improved operating leverage and eventual profitability.
- Cash burn, investment-portfolio liquidity, and the company’s funding needs beyond management’s stated 12-month horizon.
- Progress remediating both material weaknesses, and any effects on the reliability of revenue recognition and financial reporting.
- The status and terms of the revolving credit facility as it approaches its March 2018 maturity, and the impact of reseller consolidation and application-provider relationships.