Yext, Inc. — Q1 FY2022 Form 10-Q
Reporting period: Three months ended April 30, 2021. Yext provides a subscription platform for businesses to manage online information and deliver search experiences through its Knowledge Graph and network of third-party services.
Financial results and liquidity
| Metric | Q1 FY2022 | Q1 FY2021 |
|---|---|---|
| Revenue | $92.0 million | $85.4 million |
| Gross profit / margin | $70.1 million / 76.2% | $64.2 million / 75.2% |
| Operating loss | $17.2 million | $29.2 million |
| Net loss | $17.6 million | $29.2 million |
| Net loss per share, basic and diluted | $0.14 | $0.25 |
| Operating cash flow | $35.1 million | $(0.7) million |
| Capital expenditures | $7.5 million | $21.3 million |
- Revenue increased 8% year over year, primarily due to new customer subscriptions. Subscription and related support made up 92% of revenue; professional services accounted for 8%.
- Operating expenses fell 6% to $87.4 million. The operating loss narrowed, and net loss improved by $11.6 million year over year. Gross margin rose 1.0 percentage point.
- Company-defined non-GAAP net loss, which excludes stock-based compensation, was $3.0 million, versus $11.9 million a year earlier. Stock-based compensation was $14.6 million.
- Operating cash flow improved to $35.1 million. Management attributed the result in part to a $41.9 million accounts-receivable cash-flow contribution, mainly reflecting billing and collection timing; unearned revenue decreased $5.2 million.
- Cash and cash equivalents were $272.1 million at April 30, 2021, versus $230.4 million at January 31, 2021. Total current assets were $376.2 million and current liabilities were $251.8 million.
- Unearned revenue was $186.6 million, compared with $191.8 million at January 31, 2021. Remaining performance obligations were $360.6 million, up from $351.8 million; $340.6 million was expected to be recognized over the next 24 months.
- No borrowings are listed on the balance sheet. The $50 million secured revolving facility had $35.7 million available and $14.3 million allocated to letters of credit. Yext reported compliance with its covenants. Operating lease liabilities totaled $134.9 million.
Material changes versus the prior comparable period
- North American revenue increased to $73.1 million from $69.2 million; international revenue increased to $18.9 million from $16.1 million.
- Sales and marketing expense declined 6%, general and administrative expense declined 10%, and research and development expense declined 4%. Lower stock-based compensation, travel and event costs, and bad-debt expense contributed to reductions; some costs were offset by higher advertising and depreciation.
- Operating cash flow shifted from a $0.7 million use to $35.1 million provided, while capital expenditures fell from $21.3 million to $7.5 million.
- Weighted-average shares used in loss-per-share calculations increased to 125.4 million from 116.6 million. The company issued shares through option exercises and its employee stock purchase plan.
Outlook, risks and other notable items
- Outlook: Management said existing cash and cash equivalents were expected to cover projected operating requirements for at least 12 months. The filing provides no specific revenue, earnings or cash-flow guidance.
- COVID-19: Most employees were still working remotely; travel remained restricted and in-person events had been replaced by virtual events. Management warned that affected customers could delay or reduce spending, seek contract concessions, shorten terms or not renew. It also noted that trailing 12-month dollar-based net retention continued to decline, without giving a clear value in the provided filing text.
- Profitability and execution: Yext reported a history of losses and said it may continue to incur operating losses. Risks include customer renewals and retention, competition, sales execution, reseller dependence, and maintaining relationships with Knowledge Network providers.
- Controls: Disclosure controls and procedures were deemed ineffective as of April 30, 2021, due to an unremediated material weakness in processes for calculating, recording and accounting for sales commissions. Management said remediation efforts were continuing.
- Commitments and contingencies: Contractual obligations included $182.7 million of operating lease payments and $43.5 million of other commitments. Yext said no material legal proceedings were pending and the likelihood of material adverse impact from ordinary-course claims was considered remote. No payments were required under the headquarters construction-related bonds as of quarter-end.
- Other risks: The secured facility has financial and operating covenants; LIBOR transition could affect borrowing costs. The filing also discusses cybersecurity, privacy and data-protection, foreign-exchange, international operations and third-party service-provider risks.
Key facts for investors to verify
- Whether revenue growth, renewal trends and dollar-based net retention improved after the reported continued decline.
- How much of the operating cash-flow improvement was due to collection and billing timing, and whether cash generation is sustainable.
- Progress and evidence of remediation of the sales-commission control weakness.
- Actual facility borrowings, letters of credit, covenant headroom and any changes to the credit agreement or benchmark interest rate.
- Customer and reseller retention, international performance, and the effects of COVID-19 on demand and contract terms.
- The impact of stock-based compensation and share issuance on per-share results and dilution.